Showing posts with label Greece. Show all posts
Showing posts with label Greece. Show all posts

13 July 2015

Syriza's being exposed for its emptiness

Even some of those Greeks who voted for Syriza last year must have started to get a sense of reality emerging that for all of the bluster and bragging of Alexis Tsipras, he himself has capitulated to what he once thought of as "neo-liberal hegemony".  

Tsipras, and Varoufakis (the not so lamented "rockstar" Finance Minister, embraced by the airhead media) said they opposed "austerity" (a leftwing pejorative for balancing the budget), and were elected on the platform.  

However, now Tsipras (having removed Varoufakis) has gained parliamentary support for raising a lot of taxes, increasing the pension age, some modest spending cuts and privatisation of ports and airports to seek a third, yes third, bailout with Greece's Eurozone partners.  The problem for Tsipras is that other Eurozone countries are losing patience, and it is more the Finns, Slovaks and Baltic States that are fed up with Greece, than the Germans.  

Why?

Because many Eurozone countries don't trust the Greek Government.

The first bailout saw Greece granted loans between 2010 and 2012 of 107 billion yes billion, Euro on condition that Greece would get its budget deficit down to 3% of GDP by 2014.  Part of this deal was to end the practice of paying public servants two more months of pay a year every year.  Yes, public servants would get a bonus of an extra two months' salary every year.

The second bailout saw 50% of Greece's debts with private bondholders written off and the remaining debt on an interest rate of 3.5% (so much for the rhetoric about the evil foreign bankers profiteering), knocking 100 billion Euro off of Greece's debt.  Again, the Greek government was expected to cut its budget deficit, which it did, somewhat.

However, the extent of reforms of the Greek economy that were expected simply didn't happen. State pensions for "dangerous professions" such as hairdressing (yes really) were still paid out at age 50. Defence spending exceeded the 2% of GDP expected for being a member of NATO (and there was little scrutiny of where that money went).  In short, Greece maintained big government, corporatist for the centre-right, large public sector for the centre-left, but little welfare state besides pensions.   

Syriza got elected promising an end to "austerity" that was part of the deal for the two previous restructurings of public debt, but found no appetite at all to do this.  After all, why would other governments expect their taxpayers to pay for Greece to continue its corrupt, unreformed bloated inefficient state?

So Syriza embarked on two rather vile strategies to frighten the Eurozone.  One was to start talking about the war - World War Two that is - saying Germany hadn't compensated Greece "enough" for the war, and besides Greece wrote off some debt owed to it by Germany in the 1950s (as did most Western European states).   As a strategy to get the Germans on side, it was beyond parody and as a strategy to get European sympathy it was childish.  After all, was Greece truly saying that it, especially, should get some of that money back from Germans who were mostly not born at the time? Quite rightly, Eurozone member states that ended up on the wrong side of the Iron Curtain sniffed at this anti-German nonsense.  After all, they all spent 40 years under the yoke of the USSR and its local tyrants, and couldn't even consider demanding Moscow compensate them.

After German bashing backfired, Alexis Tsipras went to visit Vladimir Putin.  The implication was simple -  If the West doesn't support our unreformed bloated socialist/corporatist state, we'll turn to Russia.  The implication did cause a few ructions in Washington, as it could have meant Greece abandoning NATO, but even Putin didn't want Greece.  With global oil prices and EU sanctions hurting Russia, Putin smiled and knew not only that he couldn't afford Greece, but that such a move would be unnecessarily antagonistic.  So Tsipras ran back with his tail between his legs.

Now he has tried his latest trick.  He opposed a proposed bailout.  He held a referendum and convinced Greeks to oppose the bailout, then found out that the banks were running out of liquidity.

So the Greek government did the usual desperate move of any authoritarians.  It restricted the amount individuals could withdraw from their own bank accounts.  It effectively banned imports (within a customs' union and currency union!) by imposing exchange controls, and closed the banks for a week.  

Now he wants a new bailout, he is proposing tax increases to more than correspond with the deal he rejected, and other Eurozone countries (except the socialist sympathising French and Italians) are uninterested.  Countries with lower per capita GDP than Greece, with lower debt, and smaller states, that faced bigger economic challenges (with the collapse of their communist bloc economies) are uninterested in a government that lies, that blackmails and has no contrition that the main problem is past Greek governments overspending.

Having dug up the past, having flirted with Putin, having opposed budgetary responsibility and now apparently supporting higher taxes (which will hurt the economy much more comprehensively than cutting back the massively bloated public sector), and privatisation, but few are interested.

The right response of the Eurozone is to say no.  To tell Greece that if it wants to save its banks, it needs to live within its means, default on privately held bonds if it wishes and expect not to borrow any more.  The xenophobic socialists that are governing Greece are the philosophical descendants of those who fought on the Soviet side in the Greek civil war.  Had they won then, Greece's fate would have looked a lot like Bulgaria and Albania to its north.  It would be nice if some in Greece realised how much they are to be grateful for and face down the rent seekers of the state that are holding their country back.  

26 January 2015

Greece votes for a dream, and it is only that

The news that Greece looks like getting a far-left government let by the soft communist Syriza Party has excited some commentators, but what is perhaps most deceptive is the claim that it is a "rejection of austerity", as if the choices to Greek people were like a menu.

In fact, the choices are far more stark, because what Greek politics is and has been ever since it joined the Euro (indeed one could say ever since it joined the European Economic Community), is an exercise is mass deception and reality evasion.

The troubles of the Greek economy are not due to "the Germans", nor are they due to "the bankers", they are due to the peculiar, though not unique, mismatch between the part of Greek society that wants money from the state (and protection for their businesses or jobs), and the part that doesn't trust the state at all, to the point that it egregiously evades taxation on a grand scale.

This mismatch used to be managed by stealthily stealing from most ordinary Greek people through continual devaluation of the drachma. 

Then it was covered by structural adjustment transfers from the EEC/EU, as Greece gained money to build transport, energy and civic infrastructure, and of course the ongoing subsidies for its agricultural sector.   When it joined the Euro, the Greek government gained access to easy borrowing in a hard currency at low interest rates, so it ran further deficits.  The OECD describes Greece's economy as thus:

In Greece, economic difficulties go deeper than the direct effects of the recent crisis and fiscal consolidation is urgent. Difficulties have been brewing for years, so when the crisis came, Greece was significantly more exposed than others. Besides the severity of its fiscal problems, Greece has, over the past several years, gradually but persistently lost international cost competitiveness, resulting in widening current account deficits, a deteriorating international investment position, and a poor record of inward foreign direct investment. 

Greece has a highly regulated protected economy, with a bloated state sector. 

Syriza wants to protect the economy even further, increase the state sector even further, cut taxes and thinks that banks in other countries, supported by taxpayers in northern European Eurozone states, will help Greece out.

There are, in effect, two paths.

Either a renegotiation of existing loans to be written off or extended is achieved, and Syriza quietly folds its promises on state sector pay, free electricity (indeed any further giveaways), and Greece remains in stasis.  or

Greece defaults on debts and leaves the Euro.

In the former scenario, it looks like at best Greece might get some easing of terms of debt repayment, but the idea that it will get half of its debt written off again, is unlikely, given the previous deal saw private Greek government bondholders accept a 50% write down of debt.  There is little real chance the Greek government could get anything from the private sector, so any further loans will be government to government.  

If Greece gets the sort of deal Syriza hopes for, it will set a precedent that Spanish, Italian, Portuguese and even French and Belgian governments will want to replicate.  At that point, you would have to wonder how much tolerance voters in Germany, the Netherlands, Finland would have for propping up their profligate southern neighbours (let alone the former communist bloc countries that went through much more radical and painful structural reforms than Greece should be facing). 

The real risk is that voters in those countries eject governments that agree to bail out other governments with their money.  After all, who wants to be seen to be bailing out Italy?  German guilt over the war can't be stretched that far.   It threatens unravelling the Euro and even the entire EU project, as parties like Syriza effectively want a fortress Europe that looks closer to the former COMECON than a customs union.

The latter scenario has seemed less likely, but I'm not so sure.  A deal gets offered to Greece that extends the terms for existing loans, in the hope that Greece engages in reforms, but ultimately Greece will run out of money.  At that point, it faces either not paying its pensions or public sector workers, or issuing a new currency, and then the Greek economy finally collapses under the weight of its fundamental contradiction.  A western European standard of living cannot be sustained with an economy that is akin to a wealthy developing country, 

The only solution to this is to reduce the costs of doing business, address the corruption within the regulatory/subsidy/state contract/tax system, remove protection for existing businesses (and jobs) and to cut the role of the state, while enabling the state to be more effective in carrying out its core responsibilities.

However, the outgoing Greek government only made modest progress on this, and Syriza is philosophically opposed to making life easier for the private sector.  Syriza believes in the state owning larger businesses and licensing/protecting smaller businesses.  It believes in a generous welfare state and public sector, and wants lower taxes on everyone except the "rich", who of course have either already left or have at least set up their accounts in a way that they are away from the hands of the taxman.

Even if Syriza does get a deal that avoids a default, it will only delay the next crisis.  An anti-business, anti-free enterprise party will continue to strangle Greece just like similar policies have done for many years.  

What's bizarre is that Greece's northern neighbours have faced much more serious levels of reform and restructuring in the past twenty years than it needs to, but they did it.  Bulgaria and Albania are both much poorer than Greece on a per capita GDP basis, but have economies in much better shape. 

The tragedy is that too many Greeks have voted for a dream that they too can convince taxpayers in other countries to buy them a standard of living they don't earn themselves, and that they can convince banks and other private investors to risk their money with a government that is unwilling to pay them back.  It is a dream, and it is about to become a nightmare. 

What I wrote before about Greece, two years ago, remains true.  










16 October 2012

Lithuania isn't in a recession - No Right Turn is not right again

I do read the No Right Turn blog from time to time, and it demonstrate how willfully blind and deceptive some can be when the facts reported in the same story they quote from, don't fit their blinkered vision.



Lithuanians went to the polls today in the first round of parliamentary elections - and have voted resoundingly against their neoLiberal, pro-austerity government which had plunged them into a Greek-style austerity-induced recession.


He links to a BBC article about the election and says that the government "plunged them" into a recession.  The leftwing meme being simply that reforms that shrink the state sector create a recession and Greece's problems are that it is cutting spending, not that it can't borrow to sustain overspending anymore and is having to beg from other states to cover its overspending until it can balance its books.

Yet that very same article from the BBC says this about the Lithuanian economy:


Mr Kubilius came to power in 2008, just as the global financial crisis was bringing a dramatic end to an extended Lithuanian boom fuelled by cheap Scandinavian credit.


So Lithuania's recession started the same way as most of the others, cheap credit from banks with state issued fiat currencies, overborrowing and an adjustment when reality set in.


Mr Kubilius enforced a drastic austerity programme, to stave off national bankruptcy.


Presumably the leftwing view of this is that the government should simply print more money.  After all if the state can't borrow anymore, it either has to cut spending, raise taxes or print.


Meanwhile, economic output dropped by 15%, unemployment climbed and thousands of young people emigrated from the Baltic nation of 3.3 million in search of work.


Yes, a fiat currency credit fueled boom adjusting itself, and the government balancing its books.


The budget deficit has since been tamed and GDP reached growth of 5.8%.


Hold on.  Growth of 5.8%? What is this austerity induced recession?  Indeed according to Eurostat, Lithuania's unemployment rate has been dropping from a peak of 18.3% in June 2010 to 12.9% in August 2012.  

Idiot Savant need only have read the rest of the article for it to be obvious the recession in Lithuania is well and truly over, and a 5 minute search to find the Lithuanian unemployment rate.

However, that wouldn't suit the "evil neo-liberals want to destroy the state and ruin the economy and want mass unemployment, but socialists love people, want prosperity and know how to do it, if only they were allowed to spend money that doesn't exist, and could get their hands on all the money of the evil capitalists" monologue that he, and the left (becoming more and more out of touch with economic) have been preaching.

Greece is a totemic example of the failure of socialism to deliver sustainable prosperity, followed by Portugal and Italy.  Spain and Ireland are totemic examples of the failure of cheap credit created from nothing through fiat currencies and fractional reserve banking.

Maybe Idiot Savant might want to revise his tired empty thesis that the only people to blame when governments overspend, are those who loaned money to them in the first place,  because when they stop, what does he really expect should happen?

12 October 2012

What went wrong with Greece

Aristides Hatzis is Associate Professor of Philosophy of Law & Theory of Institutions at the University of Athens, Department of Philosophy & History of Science.

He has some firm views of what went wrong in Greece, and it is not a view that fits the conspiracy theories of the Syriza party or the empty claims that Greece is a victim of financiers.

Hatzis says Greece joined the then EC (now EU) in relatively good economic health:

Seven years after embracing constitutional democracy the nine (then) members of the European Community (EC) accepted Greece as its tenth member (even before Spain and Portugal). Why? It was mostly a political decision but it was also based on decades of economic growth, despite all the setbacks and obstacles. When Greece entered the EC, the country’s public debt stood at 28 percent of GDP; the budget deficit was less than 3 percent of GDP; and the unemployment rate was 2–3 percent. But that was not the end of the story.

Greek voters voted to the left, and that changed everything:

Greece became a member of the European Community on January 1, 1981. Ten months later (October 18, 1981) the socialist party of Andreas Papandreou (PASOK) came to power with a radical statist and populist agenda, which included exiting the European Community. Of course nobody was so stupid as to fulfill such a promise. Greece, with PASOK in power, stayed in the EC but managed to change Greece’s political and economic climate in only a few years.

He continues to explain that PASOK changed the relationship between the state and the people, but even the so-called "rightwing" opposition did nothing to change that.  Recognise that pattern in other countries?

Today’s crisis in Greece is mainly the result of PASOK’s short- sighted policies, in two important respects:

(a) PASOK’s economic policies were catastrophic; they created a deadly mix of a bloated and inefficient welfare state with stifling intervention and overregulation of the private sector. (b) The political legacy of PASOK was even more devastating in the long-term, since its political success transformed Greece’s conservative party (“New Democracy”) into a poor photocopy of PASOK. From 1981 to 2009 both parties mainly offered welfare populism, cronyism, statism, nepotism, protectionism, and paternalism. And so they remain. Today’s result is the outcome of a disastrous competition between the parties to offer patronage, welfare populism, and predatory statism to their constituencies.

It wasn't as if the political classes didn't know there needed to be reforms either, but the bare minimum was done to reach a magic goal - joining the EURO.  So how did Greece expand spending on such a grand scale?  It wasn't from taxation, because tax evasion was rampant and tax collection very inefficient, but borrowing.  

He calls it  "party time":

The borrowing became much easier and cheaper after Greece 2adopted the Euro in 2002. After 2002, Greece enjoyed a long boom based on cheap and plentiful credit, because the bond markets no longer worried about high inflation or a devalued currency, which allowed it to finance large current-account deficits. That led to a crippling €350 billion public debt (half of it to foreign banks) but, more importantly, also to a negative effect that is rarely discussed:The transfers from the EU and the borrowed money went directly to finance consumption, not to saving, investment, infrastructure, modernization, or institutional development. The Greek “party time” with the money of others lasted 30 years and—I must admit it—we really enjoyed it! Average per capita income reached $31,700 in 2008, the twenty-fifth high- est in the world, higher than Italy and Spain, and 95 percent of the EU average. Private spending was 12 percent more than the European average, giving Greece the twenty-second highest hu- man development and quality of life indices in the world. 

Yes, most of the borrowing the Greek government undertook was not to build infrastructure (except for some very high profile totemic projects like the Olympics, a metro, tram lines and a new airport), nor to finance productivity improvements, but to consume.

People lied and evaded tax, but this culture was endemic.  Remember this isn't an outsider, but a Greek academic noting this:


Lying became a way of life in Greece. Still, one might argue that lying to protect what one has created is justified. But in Greece that wealth was not created, but simply borrowed. In 1980 public debt was 28 percent of GDP, but by 1990 it had reached 89 percent and in early 2010 it was more than 140 percent. The budget deficit went from less than 3 percent in 1980 to 15 percent in 2010. Government spending in 1980 was only 29 percent of GDP; thirty years later (2009) it had reached 53.1 percent. Those figures were hidden by the Greek government as late as 2010 when it admitted that it had not actually met the qualifying standard to join the Eurozone at all. The Greek government had even hired Wall Street firms, most notably Goldman Sachs, to help them fudge the numbers and deceive lenders.

Yet for entrepreneurial activity, Greece became a disaster. In 2012 it was ranked 100th out of 183 countries for ease of doing business, being the worst in the EU and the OECD and below Columbia, Rwanda, Vietnam, Zambia and Kazakhstan.  It ranked 154th for laws protecting investors and 147th for ease of employment.  The best ranking was 43rd, for closing a business.  One study indicated that 25% of Greece's GDP was "informal" or outside the law, and petty corruption cost €800 million in 2009.  42% of the state budget is on welfare benefits of some kind.  Pensions were ridiculously generous.  35 years working in the state sector allowed a man to retire at 58 on a pension.  

The "free" public health system actually saw 45% of total health spending coming informally directly from users bribing staff to do their jobs.

Greece is now facing some reality.  It is still borrowing, but this time from taxpayers in Germany in effect.  It is still overspending, but is set to break even in three years.

However, the Greek disease has been socialism, with parties outdoing each other to spend borrowed money to buy votes and evade economic reality.  Greece's economy has had to shrink, because it has been built on credit - not production.  The hard awful reality is that those who benefited from it, never have to pay it back, whereas the up and coming generation face paying for it.

Greece has had its economy destroyed not because of bankers, but because it was rotten at the core, sustained by socialist politicians and those whose support they gleaned by their bribery using borrowed money.   Since the early 1980s, more and more of the economy was built on nothing at all - sadly today, it isn't the public sector facing retrenchment and pain, but the private sector.   Increasing taxes and increasing tax collection is gutting the part of Greece's economy that is productive, and precious little is being done to gut the part that isn't/

20 July 2012

What struck me this week....

Obama - slicing tall poppies down, you're not so smart... it's not your business, you didn't build that

This is likely to be as controversial as Hilary Clinton's famous "it takes a village to raise a child" statement, which many conservatives took as denying the primary role of families.  

Obama said thislook, if you’ve been successful, you didn’t get there on your own.  You didn’t get there on your own.  I’m always struck by people who think, well, it must be because I was just so smart.  There are a lot of smart people out there. It must be because I worked harder than everybody else. Let me tell you something—there are a whole bunch of hardworking people out there.
If you were successful, somebody along the line gave you some help. There was a great teacher somewhere in your life. Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you’ve got a business—you didn’t build that. Somebody else made that happen. The Internet didn’t get invented on its own. Government research created the Internet so that all the companies could make money off the Internet.

So DON'T be proud, you're not an individual, success is always a collective effort.  Don't think you're clever, lots of people are.   You're success is because someone gave you help, you CAN'T be successful through your own hard work and intelligence.  Be grateful for the roads, because you wouldn't succeed without them (the fact others didn't do what you did is blanked out).

Presumably he thinks Olympic Gold Medals belong to lots of people, not the people winning the races.

Not PC wrote about it, and I concur.  I also like his post that includes satire about it.

Pure unadulterated anti-individualist, pro-collectivist drivel.  If Mitt Romney can't capitalise on this to grab the votes of most small business people, of indeed most Americans who strive and believe in recognising individual success when it happens, he doesn't deserve to be President.

Helen Clark gives an award to a tobacco entrepreneur

The warrior against smoking is hoisted by the petard of the profligate mega-bureaucracy she leads, not that she isn't a stranger to hypocrisy.  After all, few things are more hypocritical than a woman who has never created a business in her life getting US$500,000 a year, from global taxpayers, tax free, flying around the world flying first class (not just business class), staying in 5 star hotels, being chauffeured around telling the world that it should do more to address poverty.   Well done Helen, you cold, hypocritical, control freak.

Auckland's Mayor wants more taxes

Len Brown thinks that there is a "funding gap" of NZ$15 billion for Auckland transport.  Truth is that he can't convince users of government provided transport infrastructure or services to pay more to pay for his wishlist of totemic projects, especially the nearly NZ$3 billion Auckland CBD underground railway (given railway users already only pay a third of the cost of operating the existing trains, and not one cent towards the pending electrification and new trains).

He's arguing for a regional fuel tax (ignoring that it's unfair to those who don't use fuel on the roads, and those who wont use his totemic projects), tolls for new roads (all well and good, but there are few of those) and congestion charging (which Labour says is unfair, preferring regional fuel tax, and National rejects).

The real answer is to cut his spending plans to what fits within budget.  State highways are not Auckland Council's responsibility.  Maintain the local road network, pay out the existing public transport subsidy contracts and after that, bid to NZTA for new capital projects.  Understand that when ratepayers will throw you out for raising rates to pay for a railway, that means they don't want to pay for it so you shouldn't do it. 

Portugal's drug decriminalisation has worked

The number of drug addicts has halved since Portugal decriminalised all drugs in 2001.   Gutlessness prevails in mainstream politics in the English speaking world.

New Zealand continues the war on drugs
  
A report that 2573 people have been arrested en masse by the NZ Police for the victimless crime of consuming, selling and producing cannabis should have anyone with a liberal bent outraged.  The sheer scale of this is horrifying.  Of course it wont be the sons and daughters of MPs, lawyers, doctors, journalists, company directors and the like who are targeted, it will be largely lower class, brown skinned people and other reprobates who “deserve it” in the war on drugs.  Because, of course, the war on drugs doesn’t actually mean treating everyone who has drugs the same way – it means letting middle class successful people off the hook for dabbling in them whilst they wag their finger at the people who they don’t think are capable of making the same decision for themselves.

As Lindsay Perigo says, will the Police not stop until all 450,000 people who smoke cannabis are in prison?  

How Greece's government destroyed US$140 million of national wealth with one policy

You ban the government from selling surplus assets at less than 75% of their book value.  Meaning you're ultimately forced to sell them for 22% as the market collapses in the three years of prevaricating over the sale.

Romania's government slides towards authoritarianism

What do you call the EU's reaction to one of its newest Member States governing under emergency powers, politicising the entire public sector including the judiciary, making the state media an arm of the ruling party, overruled the Constitutional Court (so changing the constitution)?  Pathetic.  Why?  Apparently because so many MEPs are aligned to the socialists (successors of Ceausescu's communist party) who are annexing Romania's entire political system to suit themselves, and because the EU can't admit that it made a mistake in admitting Romania when it was subject to serious issues of corruption.  The EU COULD cut funding across many areas, immediately, such as agriculture and regional funding for infrastructure, but it wont.  The Party of European Socialists, including the British Labour Party, are keeping quiet. 

18 June 2012

Three elections - freedom's not the winner

Greece

I've never seen so much televised election coverage for a Greek election, with BBC News, Sky News and CNN all providing dedicated coverage yesterday.  This was an election about remaining in the Euro - Greek voters, more often than not, wanted to play it safe.

The Greek election result is clear - a country divided amongst those who are scared of losing their savings in Euros to those who want to demand other country's taxpayers support a bloated socialist state, and then a who lot of others who variously want either the government to take over and steal from the rich, steal from the foreigners, or the 1.59% who actually want less government.

So for now, Greece will live off of the back of hundreds of billions of Euros of money from taxpayers in Germany, Austria, the Netherlands, Estonia, Slovakia and other solvent parts of the Eurozone, and will attempt to survive with some spending cuts and tax rises - although the former wont be enough, and the latter will choke off the economy even more.  The optimist in me hopes that Greece can actually cut its deficit, balance its budget, open its economy, cut costs and move forward.  However, I suspect Greece will be racked with strikes, mass protests and continued exodus of the best and brightest, whilst the coalition between the two parties that led Greece for 30 years into this mess in the first place fractures as the vested interests both have protected fight for their cut of the borrowed bankrupt pie.

I can only hope that since New Democracy now includes a few elements in favour of less government and not increasing taxes, that the concessions that this government can get from Germany are to not increase taxes more.  That at least will stop choking the private sector more (as cutting government spending is not the same as increasing taxes).   Meanwhile the far left reality evaders, whose xenophobia about foreign capital doesn't extend to foreign taxpayers propping up socialist states, will continue to portray all of this as some grand conspiracy to make foreign bankers rich.  Those "foreign bankers" (Golden Dawn would be proud of that rhetoric) took a 110 billion write off of Greek debt so far, meanwhile foreign taxpayers have effectively restructured most of Greece's private debt into new lower interest rate loans.   However, Syriza and the leftwing xenophobic haters of capitalism just blank this out - and none have any answer as to how to bridge the gap between the Greek government's spending and its tax receipts.   The newly elected Greek government must close that gap, or will face yet another judgment in a couple of years.   The only way it might even hope to do that, and rescue the economy, is to let the private sector flourish by getting out of the way (and doing its proper job when it is expected to do so).

France

French voters have snubbed Sarkozy's party and have voted for the fancy funny land of the Socialists. The party that helped decimate the French stockmarket and chase businesses away when it was last in power in the early 1980s (as Francois Mitterand - the man who instigated the Rainbow Warrior bombing - sought to nationalise major businesses).   France will now either follow the path of Greece, in strangling its already fairly stagnant economy some more, chasing its best and brightest to London, some more, or will actually face reality and introduce reforms that hitherto were too hard for the vain git Sarkozy to introduce.

France is full of myths, one is its great manufacturing sector - which as a proportion of GDP is no greater than the UK's - another it how its mixed economy staved off the worst of the financial crisis - when in fact France has parts of its economy (agriculture and the space sectors in particular) largely propped up by EU subsidies.  

Higher taxes, more regulation to protect those already in jobs at the expense of those without them, and a head in the sand attitude to fiscal balance, will help ensure France continues to lose competitiveness relative to Germany and the world.  It is probably a decade away from its final decisive crisis, as France's generous welfare state and corporatist monstrosity of an economic policy finally collapses in on its own contradictions.  Not much liberte, not so much fraternite, and perhaps egalite of poverty.

Egypt

How's this for a choice?  Want an Islamist President who has vowed to respect other religions, the rights of women and the new freedoms Egyptians went on the streets for?  Or do you want a President from the old guard, the old corrupt militarist regime that kept a lid on freedom of speech and ensured that its cronies were wealthy and comfortable?  Half of all Egyptians chose neither.  It appears that a narrow majority of the rest chose Islamism.
Some on the left in the West who rail in favour of womens' rights, secularism, tolerance, liberal values, peace for homosexuals and the like will celebrate this, to their shame.  Others will share the concern with those of us elsewhere on the political spectrum.

The overriding of the parliamentary election by the judiciary may be worrying, but if the Islamist has won the Presidential election, it may give some impetus for others to vote for a new Parliament that isn't so dominated.

However, I am not hopeful.  The simple reality is that democracy in Egypt is more likely than not to create a state run by those who think religion and state are the one and the same, who hold views of women (let alone gay people) as being subordinate and whose views on Jews, Christians and others who don't hold their religion are less than flattering.   

The result wont be clear until Thursday, but let's be clear - it wont mean more freedom for people in Egypt.

17 June 2012

Greek voters do have rational choices - but they reject them (UPDATED)

The two main incumbent parties in Greece, although both supporting the necessary bailout plan, are both institutions that have led the country down a path of corruption, fiscal incontinence and reality denial for too long.  Beyond them, the Greek Parliament is polluted by the likes of Marxists who believe business should all be owned by the state, and fascists who preach bigotry and racism with their faux pride and proto-violent approach to government.

However, there are parties that can make a difference:
- The Liberal Alliance advocates the state withdrawing from business, abolishing permanent employment in the state sector, privatisation and replacement of the state pension with a privatised pension system, along with tax cuts. 
-  The Drasi party supports cutting government spending and free market reforms.

Both parties ran on a single platform in the May 2012 election, but only gained 1.8% of the vote.  This time they are running with the "Recreate Greece" party which is said to share a similar approach to economic policy although being more centrist.  The hope is that the combined support of all three will cross the 3% threshold for Parliamentary representation.

Democratic Alliance would have been another option.  It supports cutting the civil service by a third, abolishing permanent tenure and introducing performance pay.  It also seeks major tax cuts with a flat tax of 20% and negative income tax to replace welfare.   However, it has aligned itself with the incumbent New Democracy Party (the non-socialist one).  Will it have enough influence to make a real difference?  I doubt it.

So the best option appears to be the "Recreate Greece - ActionLiberal Alliance". 

Together they would embrace real austerity that does not include raising taxes, but does include cutting the state down to a size that is affordable, it does mean not scrapping the Euro in favour of a junk currency and means opening up the Greek economy to be more competitive and dynamic.

The two major incumbents support more taxes, the Syriza party supports putting its head in the sand and hoping that Greece doesn't go bankrupt.

In the meantime, wise Greek citizens will be emptying their bank accounts in Greek banks.  Opening German, French and British ones, and depositing their Euros as fast as they can, and holding onto just enough cash necessary to function.   Good luck to them all.

UPDATE:  It looks like a binary choice between New Democracy (in favour of the bailout package including spending cuts, privatisation AND unfortunately tax rises) and the Green Party like Syriza Party which essentially expects to blackmail Germany into paying for its retention of socialist economics.   New Democracy retains a chance Greece remains in the Euro, Syriza is highly likely to see a complete default in late July if it can't convince the Germans to prop them up.

It is entirely plausible that neither could form a government.

That's why it remains the most principled choice to back the Liberal Alliance, for only it will support both less spending and lower taxes.  New Democracy may be less worse than Syriza, but if economic growth matters to anyone in Greece, they can't get it voting for for those who support higher taxes (let alone a bunch of reformed communists).

14 June 2012

Greeks withdrawing cash

If anything demonstrates how far we are all removed from free market capitalism and an economic system based entirely on private property rights, one need only look to see the power the state has on the resource most people have as a medium of exchange and storage of value - money.

With speculation rising about the next Greek government quite possibly being led by a quasi-communist who thinks he can call the bluff of Eurozone governments in demanding that they lend the Greek government more money it can't pay back (having already received bailouts worth nearly a quarter a trillion Euro), fear is that the bluff wont work and Greece will be cast adrift, with the Greek government unable to pay its bloated public sector, unable to pay interest on its debt and pushed out of the Eurozone.

With all of that goes any talk of European solidarity, as quite rightly, Germans, Austrians, Dutch, Slovaks, Estonians and the like say no to their government funding Greece's fiscal incontinence, so Greece finds a new way to pay its bills - by printing worthless banknotes likely to be called a New Drachma.

What does the average Greek citizen do then?  Well, Greek banks get all their assets and liabilities redenominated into this junk currency, so the savings of Greek people get utterly destroyed, because of the Greek government.  Greek companies with debts with foreign banks in Euros face bankruptcy as they will be unable to pay debts using the junk currency.  

Many Greeks will seek to flee to live and work in the rest of the EU.

Except the EU has other ideas.  Greeks will be cast asunder, not only having their savings plundered and destroyed by their government, but having their fellow EU partners treating them as foreigners, not worthy of being able to live and work in other Member States.   The grand political project would be over as far as Greece is concerned.  This shameful treatment of people unfortunately stuck in a country that the EU embraced, subsidised and treated fraternally for decades, shows the real limits of the openness of the EU - when the going gets tough, they turn their back on you.

So Greeks are preparing.  With 800 million Euro exiting Greek bank accounts today, this will only accelerate.  Once they have their cash, they will deposit in foreign banks, convert it to gold or silver, or simply stuff it under the mattress.

For you see when it comes down to it, a fiat currency isn't a store of any real value if those who issued it declare it to no longer be so - for it is as easy to destroy that which you printed out of thin air.

For all the SYRIZA party is offering Greece is the promise that all can be made better out of the thin air of socialist economics.

UPDATE:  A former Socialist Defence Minister of Greece is facing charges of money laundering and is facing ongoing investigation for tax dodging.   Is it any surprise that so many Greek citizens actively avoid tax when then is corruption at the highest levels by those who want to spend their money, but make sure they use the state to enrich themselves?  Shame the political choices of Greeks are largely more of the same.

08 June 2012

Austerity and the Euro need not hinder growth

So what if I said that there is an economy in the Eurozone that has embraced austerity and is experiencing economic growth.

You'd probably think I mean Germany, given it runs relatively low budget deficits and it is widely believed that the depressed value of the Euro is a boon to Germany's export driven industries.

However, I don't mean Germany.  This country grew by 7.6% in 2011, Germany grew by 3%.
Its public debt as a proportion of GDP is 6%, Germany's is 81%.

It has been a Eurozone member since 1 January 2011.

This is Estonia.

According to CNBC, its economy shrank in 2008-2009 by 18%, as the financial crisis hit hard.  Estonia having had its own credit bubble and property speculation bubble to go with it.  The crisis also made it difficult for Estonia to sustain ballooning budget deficits.  So the government there did what had to be done, it cut spending.

All public sector salaries were cut by an average of 10%, but cabinet Ministers had a 20% cut.  The age to receive the state pension was raised, and labour market reforms introduced.

Things are not all rosy, with unemployment at over 11%, growth is essential just to help pull Estonia up.   Estonia lowered and simplified taxation, with a flat income tax rate of 21% (down from 26% when first introduced in 1994).   Not for Estonia is the pseudo-austerity seen in France, the UK and Greece of raising taxes (taking money out of the hands of citizens and investors) to cut the deficit.  It was spending cuts, shadowed by tax cuts that shrank the state and boosted the economy.

The economy has picked up as technology firms have emerged, growing an IT sector that is thriving.  For an economy that was once based on being a colony of the USSR, Estonia now rates Finland and Sweden as its biggest export markets.

Estonia has thrived following real austerity, and it has thrived still even having moved from a minor fiat currency to a major one.  The Euro has not been a problem, as Estonia increased in competitiveness not by destroying the savings of its citizens by printing money, but by increasing productivity, reducing waste in the state sector and making it easier to do business.   

Let's remember that Estonia's economy has twice been decimated in the last 20 or so years.  First by independence from the USSR which saw most of its industry shut down for being inefficient and obsolete, and secondly by the bursting of its credit bubble in 2008.  In both cases the reduction in GDP was greater than that experienced by Greece today.  Greece, after all, put aside dictatorship in 1974, not 1991 (nor was Greece occupied for 50 years).  Estonia has had much less time to get its act together, and until 2004 it was not a member of the European Union either, so neither enjoyed the completely open market, nor the offer of subsidies for agriculture or infrastructure that Greece has supped from for many years.

Estonia has per capita GDP less than Greece, real wages lower than the Greek minimum wage and its farmers receive subsidies which are one-third of that, for the equivalent properties, of those in Greece (or indeed France or the rest of the EU-15 - those EU Member States that were never part of the Warsaw Pact or former Yugoslavia).  

So Greece ought to embrace real austerity.  Cut its state sector.  Don't hike up taxes, but rather reform them to simplify and lower them - minimise exemptions, but lower rates and fewer taxes.  

Secondly, talk of exiting the Euro would be unnecessary as an alternative.  For a bankrupt state that can't keep its spending aligned to its revenue can't manufacture a fiat currency that will be trusted by anyone.  It will be like remaking the Zimbabwean Dollar.  

Finally, the Cato Institute has rightfully fisked Paul Krugman's misuse of statistics to claim Estonia was hit by austerity, when the recession it faced was prior to any austerity.  The President of Estonia, Toomas Hendrik Ilves, has since called Krugman "smug, overbearing and patronising".

So isn't it about time that journalists took the over-quoted prick on some more?

Check out Mr Ilves's wonderful tweets damning Krugman in this Huffington Post article - bear in mind this is in English and not Mr Ilves's first language, but he runs rings around any current leaders of English speaking countries I know of.   Bear in mind also that he is a centrist in Estonian political circles.  He is no libertarian, he is no radical, but the mainstream of Estonian politics is fiscal austerity, low tax and low levels of regulation.

Finally, Mr Ilves wrote convincingly on the Hoover Institution (Stanford University) website about how his country got to where it is, with some damning of those on the left in the West who thought people in the USSR simply loved living under the authoritarian yoke of the CPSU (point fingers at Sue Bradford and friends).  He points out the issue that countries like his are being expected to contribute to bailouts for countries with higher per capita incomes than Estonia.   How long will taxpayers in those countries tolerate that?  The answer is that they shouldn't.

In short, the clear point is that there are European countries that had it far harder for far longer than Greece, have "followed the rules", and have been reaping the benefits of the hard work involved in rebuilding a productive economy with much less government.

If eastern Europe gets it (and not all of it does), does it mean that in future, the term "southern Europe" will be a synonym for stagnation, corruption and economic malaise, more than the east?

Furthermore, what does it mean when voters in Greece and France choose governments that essentially campaign on forcing voters in other EU countries to pay for their profligacy?

UPDATE: Anonymous below points out that income tax in Estonia is not all it seems as employer social security contributions are 33% on top of income tax, which is obviously a heavy burden.   See more on Estonian tax here.

16 May 2012

three elections - three stories - little reason

So in the past week or so there have been four elections which have had greater or lesser coverage in the international media.  What are the key lessons from them all?

1.  The all involve people choosing politicians, which is the worst form of government ever devised (except for the alternatives).  Nearly a million people think Ken Livingstone, a warm supporter of Fidel Castro, is a fit and proper person to spend billions of pounds on a city.  More than half of French voters think a man who has never created a job in his life, should run Europe's third largest economy.  A majority of Greek voters want to be told what to do by authoritarian Marxists and fascists.

2.  Boris Johnson is a funny engaging man who woos women and is intelligent and entertaining.  Moreso than Ken Livingstone.  He won because he captures people's imagination, and he didn't pretend to be offering that much.  He offered frugality, a 10% cut in the Council Tax levied by the Greater London Authority, but also didn't pretend to not be a private educated, Oxbridge, upper class chap.  In an age where being a celebrity and a character is more valued than most things, it worked.

3. Ken Livingstone is a bitter nasty old socialist who plays class warfare politics, who blamed the riots on austerity, who says one thing and does another, who plays fast and loose with comments about rich Jews and says one thing about gay rights whilst giving succour to Islamists.  He's a politician of the past, and cost Labour victory.

4. Beyond the London mayoral elections, Labour did well because over 60% of voters didn't bother at all.   The core opposition to the government was motivated, the core support was not.  The Liberal Democrats continue to erode into what looks like fourth party status.  The Greens, despite some efforts in doing well, have barely lifted their support as the environmental arguments don't wash well in a recession.  The socialist fascist BNP lost every council seat it defended, including losing what had been its single seat on the London Assembly.  UKIP gained some votes but not seats.   People are fed up with politicians, don't trust them and given the gaffes around the last UK budget, it's hardly surprising the UK coalition is uninspiring.

5. The French have always voted for socialism, it has long been a matter of degree.  Now they have voted for a hardened socialist rather than a softened champagne socialist who preaches austerity, but really lives it up large at the cost of future taxpayers and who preaches suspicion of foreigners when he himself is the son of a Hungarian migrant.  Now they can pretend that they can stop trying to live within their means, get taxed more and just borrow to prop up their socialist economy where, despite the mythology, manufacturing is no bigger a part of the economy than it is in Britain.  Bear in mind a fifth of the French are warm towards a fascist and another 15% are warm towards communists, then you see that liberte isn't as big as equalite in France.

6. The Greeks have voted in protest.  The two formely major parties responsible for decades of overspending, lying about debt, a culture of corruption and rent seeking, have been decimated.  The "centre-right" New Democracy party has the greatest number of seats, but 108 in a Parliament of 308 is far from enough to govern.  The "centre-left" PASOK party which led the last government is third with 41 seats.  Second is the Marxist "Coalition of the Radical Left" with 52 seats - a party of communists, Trotskyites, environmentalists and Maoists.  It promises to reject spending cuts, reject austerity and somehow magically produce a socialist motherland where money can pay for the big warm maternal state that makes everything happy again.   Fourth is the new Independent Greeks party, with 33 seats, which is an odd nationalist party wanting the Germans to pay war reparations, rejecting loan agreements with the EU and wanting politicians and officials responsible for the crisis to be prosecuted - well I can agree on the last one, but I think the Germans have done Greece enough good by lending to it when nobody else would!  Fifth is the Communist Party of Greece, which picked up to get 26 seats.  The party that is Marxist-Leninist and would have run Greece like a totalitarian twin of Bulgaria had the Greek Civil War gone differently, not that anyone noticed. However, everyone noticed that  Sixth is the fascist Golden Dawn Party with 21 seats.  It rejects the Enlightenment and the industrial revolution, is radical Greek Orthodox, and wants removal of foreigners.  Greeks almost certainly will face no stable government that will enable their bloated state to be funded - indeed, the future looks bleaker now than ever before.

So for London?  Business as usual - nothing to see here.

For France?  A little man (shorter than Sarkozy) is going to fight austerity - that hasn't even happened- but will inevitably bow to reality, because he is, at the heart of it all, a man who will listen to the grand French statist bureaucracy.   Expect little change, although there are reports that real estate agents in South Kensington in London are facing record queries from wealthy Parisians seeking to flee punitive taxes Hollande has promised.

For Greece?   Hardly anyone has been telling people in Greece the only solutions to their problems are:
-  Accept the government has failed them, make their own arrangements for retirement, healthcare and education.
-  Move all their money into foreign bank accounts, preferably not in Euros, or buy precious metals.
-  Hunker down and accept that the next 5-10 years will be very hard for those who can't or wont make provision for themselves.


Greece's tragedy should be lesson to all

Greece's radical leftwing party, Syriza, has one policy I agree with - the prosecution of the politicians and bureaucrats who are the architects of Greece's current tragedy.

That is all though - the policies to "reject austerity" are so demonstrably absurd, that they will demonstrate the simple failure to learn the lessons of the past couple of decades of Greek reality evasion.

As much as Syriza, the Communist Party (truly communist, in the Marxist-Leninist - Soviet model was the way to go sense) and the fascists want to paint it, Greece is not in an economic crisis because of foreign bankers or even the European Commission.

It is in a crisis because perpetual budget deficits are unsustainable.

This will continue, even if Greece exits a fiat currency supported by large economies for one supported by its own incompetent government.  For let's be clear, Greece is no more likely to be able to reject austerity with a currency that will be as trusted as the Zimbabwean dollar than one trusted like the Deutschmark.

There is literally no alternative to austerity in one form or another.

So what are the options?

1.  Greece follows the deal previously done with it.  That means reducing its budget deficit to ultimately balance spending with revenue within the next few years.  Bear in mind this deal already includes 80% of its debt being written off by the creditors.  Not exactly wealthy bankers demanding their pound of flesh when most of what they loaned Greek governments is being written off.   Of course what this means is shrinking the Greek state, less welfare, pensions at ages similar to other EU countries,  less subsidies, privatising trading enterprises (e.g. railways, broadcasting, postal services), cutting the public sector and streamlining the tax system so that it is at a level people may be prepared to pay.    If Greece accepts a public sector that it is willing to pay for, it can stay in the Euro and live within its means.

2.  Greece rejects the deal and defaults.  That means simply being unable to pay its way.  The state can't overspend because it can't borrow (who will lend to it outside some German led guarantee?), so it stops paying wages to public servants, stop paying other bills and essentially shuts down.  It becomes interesting if the military can't get paid. In effect it is instant austerity.  Instead of the Eurozone deal lending, lending ends, so the budget deficit is wiped out - instantly - because you can't spend beyond your income if you have no credit.   In this context, the Euro takes an enormous hit because of perceptions that Eurozone sovereign debt is no longer "safe", so it devalues somewhat.   The Syriza party effectively thinks that Germany will be forced to lend to Greece to cover it - in other words that the Eurozone becomes like the United States - with the richer parts transferring money to the poorer parts.   However, if Germany refuses (why should German taxpayers prop up an ungrateful, previously fraudulent Eurozone country that doesn't think the rules apply to it), then Greece truly faces a hard time, and will be tempted to take the next step...

3. Greece rejects the deal, defaults and announces a new sovereign currency.  As easy as some commentators think this is, it is almost inconceivable.  It is option 2, but with the printing presses coming out to issue a New Drachma which would be the new state currency to pay public servants and pay bills, and new debt is issued in the new currency.  The effect will be collapse of Greek banks as Euro deposits are withdrawn en masse, and millions of Greeks open up new Euro accounts in non-Greek banks.  All Greek businesses and citizens with debts in Euro face default, but suddenly Greek exports and tourism to Greece becomes remarkably cheap because of the new dud currency.   Yet without austerity, Greece will rapidly face hyper-inflation from the government printing money to cover its deficits, plus a massive increase in the prices of imports, such as oil.  In short, Greece turns into the stereotypical tinpot third world country, with a non-convertible currency that makes the Bulgarian Lev look like a safe bet.   

4. Greece rejects the deal and gets a German led bailout with surrender of sovereignty.  It isn't far removed from what was previously agreed, but this time it will be more thorough.  The deal to keep Greece in the Euro includes direct government to government lending, but with surrender of Greek sovereignty in the meantime.  You can just guess the attitude of the Marxists and fascists in Greece to the spectre of this.

Unless taxpayers of wealthier Eurozone countries let their government bail Greece out (which I doubt they will do), Greece faces living within its means.  It will have to do so within the Eurozone or without it.  At the very worst, Greece will put its head in the sand, default, be unable to pay for the army and it will stage a coup - seeing Greece kicked out of the EU and NATO and become the new laughing stock of Europe.  Then the people of the former Yugoslav Republic of Macedonia, the people of Cyprus (especially northern Cyprus) and other neighbours might fear what a new militarised Greece will be like.   

The lesson from all this is astonishingly simple.   

Government's cannot evade reality forever.  

They cannot borrow endlessly from creditors, especially ones that have already written off many of their past debts as bad debts.

They cannot borrow from other governments, accountable to taxpayers who want to know why their money is being loaned to a government that no one else will lend to, because its taxpayers refuse to pay for the state they demand.

They are not better off if they can just print money to cover spending - because people are not so stupid to believe there is real value in a currency manufactured by the government because nobody else will lend to it.

Austerity is not a policy choice on a whim, it is, as I have said before, just living within your means.

The tragedy in Greece is that the lives of millions are now being hit because past governments pretended this was not necessary, facilitated by public servants and facilitated by past creditors.  They have been hit by the fraud of the profligate deficit spending state.   They gained a welfare state more generous than most of western Europe, and state health and education systems they didn't have to pay for - and now face losing much of it all.

The real insanity is from the hard left, who believe that bankers should be forced to lend the Greek government other people's money, or the German government should force German taxpayers to do so.    They have bemoaned profligate lending by banks that needed bailing out, but now want the same banks to lend to a feckless government that can't control its spending.   They are deluded and use language that claim those demanding Greece face reality as "murderers", when it was their own welfare state philosophy that has brought Greece to its needs.

It is the peculiar brand of statist politics that has ruined Greece - the idea that government can offer more and more without producing more, without getting more money to pay for it.  The idea that better healthcare, education and more generous pensions can just be given, not saved for and earned.

The big question is not whether Greece has austerity or not - it will have it, whether it comes from choosing to cut spending, being forced to cut spending or cutting spending in real terms by shifting to a new nearly worthless fiat currency.

Hard working productive people in other countries are not going to pay for Greece's bloated state sector, and they wont do it whether it is as it is now, or some Marxist or fascist version of the same.   Greek citizens either have to hunker down and work within their incomes today, or leave.  If they choose the chimeras offered by the far left, whether they be Marxists or nationalists, then the austerity deals of today will look like paradise compared to the ostracism their country will face.

UPDATE (since I'm in NZ for now):  Idiot Savant still doesn't get it either.  How can it be a bailout for German banks when it is the Greek government that needs borrowed money to function?  This rhetoric is not dissimilar to the banker bashing that the Greek far-right/far-left is employing.  What do the reality evading statists think will pay for the massive gap between what Greek governments spend and what they collect in revenue? There is NO repayment of debt under the bailout, just a government guarantee for deficit financing.  The gap in understanding is palpable.  The willingness to excuse rampant deficit spending is surreal.   The belief in flat earth economics is expected though, because it's how Greece has been run for the last three decades.