Greatly indebted
/ Greece / budget / imaginary /
Well, it's not as if this was unexpected... Kathimerini is right in claiming that "...ever since 1997" they have "...repeatedly drawn attention to the government’s falsification of budget data..." Even my humbleness would have been willing to bet good money that the miraculous numbers that the Greek economy was achieving were in large part fictitious. PASOK has chosen to attack rather than accept the blame:
“We were insistent from the start of the government’s tenure that a non-transparent audit would result in the defamation of our country,” said PASOK leader George Papandreou. Christodoulakis claimed the government was “rewriting history” in order to cover up its lack of policies, while Papantoniou said the audit had been conducted in secret, “in the corridors of government.” He also claimed that PASOK had an understanding with Eurostat as to how to incorporate military spending into the government accounts.
Yet the EU denies such an arrangement:
European Monetary Affairs Commissioner Joaquin Almunia denied Friday that Greece's previous socialist government had an arrangement with the EU's statistics arm Eurostat on how to calculate the country's public deficit.
Asked by private radio station Flash if such an accord existed, Almunia said: "No. Statistical information is not a question of negotiations but of substantiated data". The remarks were a translation into Greek.
...but this is certainly not the whole story... I find it hard to believe that the Commission was surprised by the discrepancies:
...Doubts over the reliability of Greek economic figures are not new and were not provoked by the government's audit, said Alogoskoufis, who claimed the IMF and Eurostat had expressed concern over Greece's official returns in the past. «There was a huge discrepancy, creating a lot of suspicion from everybody, which undermined the trustworthiness of the country,» said Alogoskoufis.
On Saturday, European Central Bank Vice President Lucas Papademos, former governor of the Bank of Greece, said the revisions should have come as no surprise as the figures were in Greek central bank reports and known to Eurostat...[emphasis mine]
Apart from PASOK's fraud and the blatant hypocrisy, there is a real issue here, concerning both the military and the Olympic expenditures (if I hear any more gloating about "our successful Olympics" I swear I'll kill a pundit or two!)
In terms of military expenditure Greece is up there above Lebanon, Pakistan and the DR of Congo! (and they're not counting various "black" budget expenses and allocations to other ministries for military-related expenses...) Frankly, whether the current détente with Turkey persists or not, the EU can't really hinder military expenditures. I am well aware that many in Europe consider that Greece is under no external threat whatsoever, I tend to agree, but I would advise all of them to spend a few months on the island of Lesvos and see the nice Turkish fighter planes roaring directly overhead. Given the fact that the military elite, which is still playing a major role in governing our heavily armed Eastern neighbour, harbours a rather expansionist mentality (something that might change with Erdogan - let's see), the only way that Greece can accept the indirect limitation of its right to self-defense is if the EU guarantees its current legal borders. In that case I would be willing to participate in all kinds of civil unrest in order to disband the Greek army and turn swords to ploughshares...
So, yes Papantoniou is probably talking nonsense, but this is a real and non-trivial issue for the time being.
...And don't even get me started on the discussion of what exactly the deficit and debt caps achieve... (quick and fast answer: among other things it's a tool for the dismantling of the European welfare state and the Americanization of European economies - and thus societies... Well, Northern European societies... over here we have a mixed economical model, part Russian oligarch-type capitalism with widespread corruption and part selectively unregulated market economy, with a heavy dose of the most inefficient public sector imaginable). And, as a thought-experiment, imagine the US economy burdened by anything as restrictive as our growth and stability pact: imagine its growth rate...
1 comment:
old comments
Doug Muir:
…And don't even get me started on the discussion of what exactly the deficit and debt caps achieve… (quick and fast answer: among other things it's a tool for the dismantling of the European welfare state and the Americanization of European economies -…
Um. No.
The caps were installed as part of the preparation for the Euro. Before that, there weren't any, and EU governments could run whatever debts they wanted to.
All the Euro members agreed to the caps because of the "free ride" danger. Viz., if one member were to run up a large debt, it would cause interest rates to rise across the whole Euro area.
This is, in fact, exactly what's happening. Germany and France have both run up large debts and deficits — far in excess of what the pact allows. Unsurprisingly, Euro-area interest rates are higher than they ought to be. (Non-Euro Sweden and Britain have lower rates. Hell, non-Euro Slovenia has lower rates.)
Every time someone in Spain or Ireland buys a washing machine or a car or a house on credit? They're paying more money than they would be if Spain or Ireland were outside the Euro area. Why? Because Spain and Ireland have (roughly) balanced budgets and low debt levels. That would put strong downward pressure on the interest rates on their national currencies… except it can't, because they no longer have a national currency. They're sharing a currency with the French and Greeks and Germans.
Still with me? Okay, so, right now the German and French and Greek state debts are being indirectly subsidized by Spanish and Irish consumers.
This can go on for a while, because (1) there are large benefits to being in the Eurozone, and (2) it's a bit abstract, so people will be slow to grasp what's happening.
But it can't go on forever. If the Greeks and Germans and French don't eventually clean up their act, then eventually the Spanish and Irish will quite reasonably say, "sod this for a game of soldiers" and pull out of the Euro.
Now, you can argue that the Euro was a questionable idea in the first place. (The correct answer to that is the British and Swedish response: don't join it.) Or you can argue that the 3% and 60% restrictions were too tight. (I'd agree.)
But the idea that the caps are "a tool for the dismantling of the European welfare state and the Americanization of European economies"… well, no. You can argue that they're having that effect (I would disagree, but you could argue it); but you can't claim that this was the original intention, because it's just not so.
Note that the strongest supporters of the caps were nations with large welfare states (France, Germany) while the skepticism and resistance came from places like Portugal, the Netherlands and Ireland. The split wasn't "free-market liberals for, welfare staters against". It was more like "big countries for, small countries against".
See, back in the '90s, the French and Germans were afraid that the small countries would try to get a free ride on them…
Doug M.
2004-09-28 08:40
Doug Muir:
the only way that Greece can accept the indirect limitation of its right to self-defense is if the EU guarantees its current legal borders
Er, doesn't NATO already guarantee your current legal borders? I'm fairly sure it does.
N.B., I have heard a Macedonian make the identical argument for a strong Macedonian military. "Our highly militarized southern neighbor, which does not even recognize our legitimacy as a state…"
Doug M.
2004-09-28 08:55
talos:
Doug, yes the caps were placed for reasons that had to do with the common currency - I said "achieve" not "achieved" and the drive towards wholesale privatzation and the destruction of the welfare state is far from the only reason these caps were implemented. Yet I am arguing that this is (one) of their current effects (or uses) and would be very interested to read why you don't think it is! No cutbacks were made in the name of the pact? No privatizations?
As far as the "car on credit" point is concerned, one could certainly reverse the argument by claiming that every euro this fictitious Spanish consumer gains, causes Germany and Greece one more unemployed. In Spain I could argue that, that same Euro causes more than a Euro's worth of decline in real wages for a large part of the population. In fact if you extend this logic to its natural conclusion, and insist that among all the relevant details of economic life, what's most important is the amount the Spanish citizen pays on credit (and not f.e. what they earn from interest on their savings, or what they receive as indirect income from welfare programs, or indeed in the case of Spanish farmers, what they receive directly from the EU…), then all countries should be obliged to obliterate spending alltogether, regardless of the consequences to their citizens.
The fact that nations with large welfare states were for the caps certainly has to do with fear of free-riding fron the smaller states. But one could also point out that large parts of the ruling elites were considering some sort of attack on the welfare systems of these countries. By the time the pact was decided on, there were very few in Europe willing to stop the program of upwards income redistribution and earnestly defend the welfare state. Much as an earlier generation was "all Keynsians" to some extent, now everybody was a "neoliberal", again to an extent.
The Euro was a boon to certain strata of Greek society, for the vast majority however it has signalled a real decline in buying power, it also has brought weakening of competitiveness of the Tourism sector and (with the Euro as high as it is now) a disaster for exports. All in all, I'd say the haste in joining the euro was ridiculous. Although it does protect the economy from an Argentina-style crash.
As for NATO guaranteeing Greek borders, it does - against an external (non-NATO) threat, which doesn't exist BTW. In a fictional scenario where Turkey attacked Greece and landed forces on major islands, NATO and the EU would advise both sides to remain calm and would publish a carefully worded statement so as not to seem partial to any side. Oh yes, and some mediator would arrive in Athens and Ankara for discussions.
————-
Your Macedonian is right. For all one knows (with the region being permanently destabilised by the Kosovo debacle - yes, yes, I know let's not get into that) no one can guarantee that in a few years' time Greece will not have a rabidly nationalist government willing to threaten military force if they don't change their name to "The Republic of The Guys Up North". They live in an unstable neighbourhood anyway and they have other neighbours with real border claims (not to mention the possibility of a civil seccessionist war), so they better build up a strong army…
That being said, Greek fighter planes do not fly over Bitola on a daily basis, nor Greek Marines take positions in "gray areas" across Greek Macedonia… So perhaps they have less to worry about as far as Greece is concerned.
2004-09-28 17:07
Doug Muir:
Well. Where to start.
_ the drive towards wholesale privatzation and the destruction of the welfare state is far from the only reason these caps were implemented. _
This is like saying that "running down pedestrians was far from my only reason for buying a car".
I didn't buy my car in order to run over people in the street; and the caps were not implemented in order to encourage privatization and/or destroy "the welfare state". It's just completely unconnected in intent.
At the time of the pact — 1997 — most of the large European economies were in compliance with it. France's deficit was down around 1%. Germany's had been high for several years, between 3% and 4%, but it was assumed that this was only because of the costs of reunification; in 1996 it was about 2.5%, and the Germans expected to be back in surplus by 2000. The Dutch actually were /in/ surplus.
So, the big economies really believed that continued compliance would not be difficult (at least for them).
That turned out to be a rather large mistake, sure. But it simply was not seen as a problem at the time.
_ No cutbacks were made in the name of the pact? No privatizations?_
On a European scale? Nope.
Privatization in the large economies peaked well before 1997. The largest privatization in European history — Deutsche Telekom — took place in 1996, before the Euro pact was even signed.
In the last few years, the pattern in the big continental economies has been one of resistance to further privatization. Look at… ohh… Electricite de France. The French government has been trying to unload it for ten years now, and is actually further away than when it started.
You disagree? Okay, well, Deutsche Telekom's IPO ran to about 12 billion Euros. As I said, that was the biggest ever. (But note that it still left the German government with a 43% minority share!) Still — try this: list three privatizations of a billion Euros or more in the Eurozone in the last… say… three years.
Can you do it?
As to cutbacks — again talking on a European scale here — it's very hard to see where any of the big economies have cut back on spending because of the pact. The French, Germans and Italians have continued to spend what they thought they had to spend; the French, in particular, have been in open and flagrant violation of the pact since 2001.
Ironically, the few places where maybe it has hurt have been in small countries. The Portuguese, for instance, have made real efforts to get back within the Pact boundaries. And this has led to some real pain.
But this is (1) the result of a political miscalculation on the Portuguese goverment's part — viz., they thought they had to actually take the Pact seriously; and (2) not meaningful on a European scale — Portugal has about 1.5% of the total GDP of the Eurozone.
The Italians are presently running a debt of just over 100% of GDP. That's up from about 75% in 1999. Not only is that in wild violation of the cap (60%), it's a pretty questionable economic policy under any circumstances.
You're going to have trouble convincing me that the Italian state has been on an austerity budget in the last five years.
As far as the "car on credit" point is concerned, one could certainly reverse the argument by claiming that every euro this fictitious Spanish consumer gains, causes Germany and Greece one more unemployed.
Well no, one couldn't. Unless you can employ Greeks for a single euro, which seems unlikely.
One could perhaps argue that every euro the (very real) Spanish consumer gains, costs Germany or Greece one more Euro. But that raises the question of why Spanish and Irish consumers should be subsidizing Greek and German government spending.
Be consistent. If you're going to go all Westphalian about, say, Kosovo, then you can't suddenly throw national sovereignty out the window when it comes to your beloved social programs. If Greeks and Germans want flatter income distribution, then they should either (1) pay for it themselves, or (2) use the mutually agreed upon mechanisms of the EU to set up a transfer.
As it is, you're just sticking your hands in Spanish and Irish and Finnish pockets.
In Spain I could argue that, that same Euro causes more than a Euro's worth of decline in real wages for a large part of the population. I
That… isn't even wrong. I truly can't understand how you're reaching this conclusion.
Say I have to pay 8% interest per year on my car, instead of 6%. If my car cost 10,000 Euros, the extra interest is costing me about 200 per year until the loan is paid off. (Simplification, but close enough.)On a five-year loan, that's about a thousand Euros sucked out of my pocket.
Now, how is this translating into a thousand Euros of "decline in real wages for a large part of the population"? Are we talking about the Spanish population here, or Europe generally, or what?
In fact if you extend this logic to its natural conclusion, and insist that among all the relevant details of economic life, what's most important is the amount the Spanish citizen pays on credit (and not f.e. what they earn from interest on their savings, or what they receive as indirect income from welfare programs, or indeed in the case of Spanish farmers, what they receive directly from the EU…)
I'm really not sure what you're on about here. I haven't mentioned any of those things, but then I haven't said they're irrelevant either. All I've said is that high levels of debt in /any/ part of the Eurozone eventually translates into higher interest rates in /all/ of the Eurozone. That's first year macro. It's not even controversial.
Note, BTW, that "debt" doesn't have to be government debt. Sufficiently high levels of corporate or consumer debt could have the same effect. However, since governments are by far the biggest economic actors — it's really not possible for corporate debt, even collectively, to reach 60% of GDP — they're the major source of potential problems.
all countries should be obliged to obliterate spending alltogether, regardless of the consequences to their citizens.
Straw man argument. Can you point to where I'm saying this, even implicitly?
The fact that nations with large welfare states were for the caps certainly has to do with fear of free-riding fron the smaller states. But one could also point out that large parts of the ruling elites were considering some sort of attack on the welfare systems of these countries.
One could point this out, but one would have trouble defending it. In the large states of Europe, the welfare state did just fine in the years immediately following 1997. Social spending as a proportion of GDP went up, not down, in both France and Germany. It had a modest decline in Italy, but that was more about the rise of Berlusconi than anything to do with the Euro pact.
I wonder if perhaps you're generalizing from Greek experience.
_ All in all, I'd say the haste in joining the euro was ridiculous. _
For Greece, quite possibly you're right. Although it has allowed you to run some rather large deficits without suffering the usual consequences (high interest rates and/or inflation).
_ As for NATO guaranteeing Greek borders, it does - against an external (non-NATO) threat, which doesn't exist BTW. In a fictional scenario where Turkey attacked Greece and landed forces on major islands, NATO and the EU would advise both sides to remain calm and would publish a carefully worded statement so as not to seem partial to any side. _
And how would this be different from a scenario in which the EU had also guaranteed Greece's borders? I'm confused.
Doug M.
2004-09-29 12:05
Doug Muir:
[Macedonia]
See, we can agree.
— Actually, if Greece has a neighbor who's entitled to be nervous, it's probably Albania more than Macedonia.
But that's probably for another thread some other time.
Doug M.
2004-09-29 12:07
talos:
Doug, the easy parts first:
- As far as Albania is concerned, indeed should any sort of border change (regarding Kosovo) occur in the region, you can bet that there will be a significant push in both major parties for a "re-discussion of the Northern Epirus question". The Mitsotakis government in the early 90s stated as much. That this is self-defeating and potentially dangerous (minorities don't exist in Albania alone), doesn't really bother the proponents of this sort of tactics, who suffer from severe selective blindness where national issues are concerned… However, as we speak these sort of voices are minimal and dismissable.
- NATO does not guarantee Greek borders against internal (NATO members) threats. Period. The EU currently, could only guarantee anyone's border by a policy of severe sanctions against any country that threatens the integrity of its member states, (and isn't willing to use the Hague to settle their issues)… Making explicit recognition of existing borders a prerequisite for any sort of assistance, deals, membership etc would also help… In the very long run a European Army would do the trick nicely…
For the rest patience… That's close to 1200 words up there, and I'll need twice as many for a response…
2004-09-29 15:50
Yiannis:
., I have heard a Macedonian make the identical argument for a strong Macedonian military. "Our highly militarized southern neighbor, which does not even recognize our legitimacy as a state…"
During the riots in FYROM Greece was the only nighbouring country that provided the Maki govt. with material assistance (vehicles, chopers, tactical intel) and diplo backing to quell the uck uprising and restore order. We don't like em, but the stance we got wrt them is a status quo. The same goes for Turkey and Bulgaria AND Albania.
OTOH Albo irredentism is very much alive, with discussions of Cameria (North Greece) and Albanian minorities (about 1 mil immigrants from Albania). As for Turkey, read what Talos mentions on overflights. Turkey is a military power, not economic, not diplomatic not intent on developing "soft power" like Greece, but military. And they intend to put that military top good use, earning them some cash. Definately not status quo stuff.
We are puting our Balkan past behind us, have been doing so for more than twenty years. Most Greeks agree with that and would be happy for this to continue.
2004-10-01 12:33
Doug Muir:
During the riots in FYROM Greece was the only nighbouring country that provided the Maki govt. with material assistance (vehicles, chopers, tactical intel) and diplo backing to quell the uck uprising and restore order.
I'd like to see a cite for this. No offense intended — it's just that several Greek acquaintances have mentioned this episode to me, but I haven't been able to find a cite for it online.
N.B., I read French and a little German, but not Greek or Macedonian. (I can hold a simple conversation with a Macedonian by speaking my bad Serbian, but that's different.) So it would have to be an English or French cite. Sorry if that makes it difficult.
OTOH Albo irredentism is very much alive, with discussions of Cameria (North Greece) and Albanian minorities (about 1 mil immigrants from Albania).
I'm skeptical. The government of Albania has formally accepted the existing boundary. And "Northern Epiros" seems to get a lot of Greeks excited, while I've yet to meet an Albanian who was interested in "Kameria".
Albanians /can/ get very excited over the Albanian minority in Greece, sure. The recent attacks on Albanians in Greece after Albania's football victory in the World Cup qualifiers? That was huge news in Albania. The guy who was killed by Greek fans became a national martyr, and the story ran for days.
But that's not about irredentism. Albanian-nationalist territorial ambitions — and they're real enough — are directed north and east, not south.
Turkey is a military power, not economic, not diplomatic not intent on developing "soft power" like Greece, but military. And they intend to put that military top good use, earning them some cash.
Oh, twaddle.
You can argue that Turkey isn't a proper democracy yet and I'll agree. You can argue that they're still a potential threat and I'll listen to you. But you're saying that they're WOO WOOOOO an inherently military imperialist expansionist aggressive power that is going to WOO WOOOO put that military to work, any day now! WOO WOOOO watch out for the Turk!
Sorry, but it's really that silly.
The Turkish military budget has been shrinking as a percentage of GDP in recent years. (I'll freely grant that this is because GDP is growing, but so what?) The generals are steadily losing influence, not gaining it. (I'll also grant that they still have too much. But so did the Greek military, not too long ago.) Despite high levels of internal pressure to intervene, the Turkish military has stayed out of all the conflicts raging around Turkey's border in the last decade — in Nagorno-Karabakh, in Georgia, and of course in Iraq. And they've settled — at least for the moment — their own internal conflict with their Kurds.
Perhaps most important of all, Turkey is building, not ignoring, its "soft power" capability. I have first-hand experience on this point. Turkish diplomatic and commercial penetration of the Balkans is proceeding very quietly, but it's been going on for some years now.
Some of it is in areas that would surprise you. Did you know that Turkey has been quietly developing very close ties with Serbia? That Turkish companies are major players in financial services in Romania and Bulgaria? That hundreds of Macedonian students are going to Istanbul on scholarships funded by Turkish foundations? There's all sorts of stuff like that going on.
And then of course there's the EU. The report comes out on October 8, but the key points have already been leaked. Barring something stupid happening, Turkey is about to take the first long step towards EU membership. Now, you can argue whether this is a good idea or a bad one, but the fact that it's even happening shows some very patient and clever diplomacy on Turkey's part, and some very adroit use of soft power.
So, sorry for mocking you, but you're wrong.
We are puting our Balkan past behind us, have been doing so for more than twenty years. Most Greeks agree with that and would be happy for this to continue.
Well, would "most Greeks" agree with — say — letting the Republic of Macedonia call itself the Republic of Macedonia?
Doug M.
2004-10-01 14:57
talos:
I have to start somewhere:
"Still — try this: list three privatizations of a billion Euros or more in the Eurozone in the last… say… three years.
Can you do it?"
6.6% of ENEL at 2.34 billion Euros 2003: http://www.cnn.co…
10.9% stake in Crédit Lyonnais at 2.2 billion Euros 2002: http://www.busine…
Ente Tabacchi Italiani, at 2.32 billion Euros 2003: http://www.upi.co…
Still, I have to admit that you have a point… Indeed most of the privatizations occured before 1997 and I am carried away by the use of the damocles' sword of the debt limits in selling privatisations in Greece.
Yet there's more to be said about your reply… I'm still working on it.
A lot of what you're saying about Turkey is echoed in the "Turkish Bell Jar" post… I would caution however on the difference between expecting democratic reform and the military's loss of power and taking it for granted…
And the Greek military has had for the last 30 years nowhere near the power the Turkish generals command.
2004-10-01 17:58
Doug Muir:
If I'd really wanted to be difficult, I would have asked for full privatizations, where the government was reduced to a minority share of ownership. Those have become very rare. ENEL and CL are both still government owned; they've just allowed private investors to buy some shares.
Turkey: as noted, I agree that Turkey isn't a full democracy and that the influence of the military remains a real concern. But mouth-breathing rants about how Turkey is an inherenly militaristic state are not a useful contribution to the discussion.
And the Greek military has had for the last 30 years nowhere near the power the Turkish generals command.
Sure. But my point is, the power of the Turkish military is not due to some inherent "militarism" in the Turkish character, any more than the Greek junta's rule was due to some weakness in the Greek national character.
Greece threw off overt military rule quickly; Turkey seems to be in the process of throwing off covert militarty rule slowly. Surely this should be applauded and encouraged?
Doug M.
2004-10-02 06:53
talos:
You're right about ENEL, not about CL though. That 10.9% was the French government's remaining stake.
the power of the Turkish military is not due to some inherent "militarism" in the Turkish character, any more than the Greek junta's rule was due to some weakness in the Greek national character.
…Turkey seems to be in the process of throwing off covert militarty rule slowly. Surely this should be applauded and encouraged?
Yes, we obviously agree… The most brilliant foreign policy move the Greek government made in the last few decades, was to remove its objections to Turkey's accession and thus stop being used as the exuse for not letting Turkey in…
Having said that, my problem with Turkey's (and also Latvia's, and Poland's etc.) accession is that they destroy the prospect of a confederate Europe, anytime within my lifetime… It's not a "cultural" but an organisational and developmental objection… These are countries at 30-40% of EU15 GDP/capita, when even the acession of Greece (at 60% of GDP/capita then) was problematic and there is certainly going to be much fewer cohesion funds going their way… A better idea, I feel, would be to establish a closer and better functioning union first, with working institutions and much less of a democratic deficit - and expand afterwards. Now the EU is becoming more and more just a tradezone….
2004-10-02 13:45
Doug Muir:
Hm, interesting. I didn't realize that was where you were coming from.
Well — maybe that deserves a thread of its own? Play it out a little.
FWIW, my position is that while the desire for a confederal, "ever-closer union" EU is honorable, intellectually consistent, well grounded in history, and possibly even wise… it's a battle that has already been lost. The addition of the 10 new members (with three more coming before the decade's end!) has made federal Europe impossible in the short or medium term, and possibly in the long term too. And almost certainly it is now impossible for federal Europe to arise out of the current EU.
I'd almost be happy to be wrong, because I also find FE a strangely seductive notion…
Anyhow, you're right about Credit Lyonnais. My bad, sorry.
Doug M.
Post a Comment