Friday, July 24, 2015

Soap opera

Tony attacks Jeremy, John goes for Tony, people tell Liz to drop out to prevent Jeremy winning (showing that they don't understand how preferential voting works), Liz says 'no way,' Andy dithers, Yvette stays quiet. People are called morons or heartless. Margaret even called herself a moron. The longest Labour leadership contest in history drags on and on. And all the while the media goes berserk. Everything in the press and online seems to be about Corbyn; not what he stands for of course, little of the debate has been about anything substantive, but what it means for the Labour Party if he would win it - vote winner or loser - the remaking of the Party or the final nail in its coffin. And what has sent everyone into this flat spin is a poll. One that has Jeremy Corbyn in a clear lead in the contest. Yep, just one opinion poll. Cast your mind back and think how unerringly accurate the polls were in predicting the election result. Wouldn't it be a good idea to pause and think?

 Atul Hatwal has. And his conclusion?
Sorry, that Labour leadership poll is nonsense. Jeremy Corbyn is going to finish fourth
 He continues:
The general election hopelessly wrong-footed most commentators for two reasons: dodgy polls and shouty lefty Twittervists.
The polls created an illusion that Ed Miliband and Labour were a nose in front. Labour’s voluble activist base on Twitter then leapt on every iffy poll and each tweet describing yet another great session on the #Labourdoorstep to amplify and broadcast the narrative that Ed Miliband was about to become prime minister.
Understandably, most journalists looked on and followed the crowd. The pollsters and the Twittervists seemed to be saying the same thing.
A self-reinforcing spiral of delusion took hold that was only broken when the public’s actual votes shattered the Westminster’s conventional wisdom on the evening of May 7th.
Now, it’s happening again in the Labour leadership race.
I think he's probably right.

Wednesday, July 15, 2015


Have you ever noticed that when someone is in the wrong they get angry with other people rather than question themselves? Like here?


C’est magnifique, mais ce n’est pas la guerre: c'est de la folie
(It is magnificent, but it is not war, it is madness.)
Pierre Bosquet on The Charge of the Light Brigade, 1854.
Syriza charged towards the EU's fortifications, only to be cut down mercilessly by the Troika's cannon. I have written in this way because I want to show Shuggy that I have a greater command of inappropriate historical analogies than the average journalist. Those analogies abound, Tsipras has been "waterboarded" and "crucified," whilst this has been typical of the genre:
This is war. This time the Trojan Horse is in Germany's arsenal. It is called Europe. The Germans have now parked it at the gates of Athens. But the siege and slaughter may erupt all over the continent.
This is not war. It is not torture. It is diplomacy and economics. Yes it was brutal. The concerted verbal battering Tsipras took from the political right in the European Parliament was unpleasant enough, but the reports from inside the Eurogroup point to it having been a nasty and vituperative meeting.

That doesn't make it a coup or an attack on democracy. For it to be the latter it would mean that a referendum result in Greece, by Greek people only, is binding on the other 18 states. The Greek government is in place, it hasn't been removed. Greece had a choice, not much of one, but a choice nonetheless. It could default and presumably leave the Euro, or it could seek financial support to stay in the Euro. It chose the latter. The terms by which a loan is offered is usually determined by the lender. They have the money, they have the power to lend or not. All the wittering about infringements of sovereignty are meaningless, because entry into EMU in the first place meant giving up sovereignty and seeking a bailout certainly does. So why the hostility?

The most important point is that we have a collective sense of equity and justice about the terms of any loans. Many villains in our literature are usurers. We are appalled by the rates of interest charged by payday loan companies and the way they exploit the vulnerabilities of the poor. We look at the suffering of ordinary people and our compassion turns to anger. We are aware that in bargaining all the power lies with the lender, the deal is not wholly voluntary. And this perception of right and wrong has been aroused. People look at the conditions and think; these are unjust, they are not creditors, they are extortionists.

And this is where the democracy angle does come in. Greek voters had elected an anti-austerity party and voted against austerity in a referendum, none of that could be binding on the other countries, but it should have been a consideration and allowed a pause for thought. Yet what we saw was that it was dismissed with irritation and seen as something to be deterred from happening elsewhere. There is a distinction to be made between power and influence. The Greek referendum had no power over any of the other states, but it should have influenced them. It was a clear sign of major discontent with the policies that have been imposed on them since 2010. If this is government by consent, it is of only the most grudging kind. What is more, it is absolutely clear that the terms of the bailout were not what were wanted by Greece.

The world looked on amazed as Tsipras went to the EU and surrendered completely only to be told to surrender some more. Even the most entrenched anti-Syriza elements swung round to support Tsipras. The final deal modified some of the maximalist demands (notably on the €50 billion monetization - not just selling - of assets fund; now to be based in Greece, 25% of proceeds for new investment in Greece, 50% to buy back Greek banks after the recapitalization, and 25% to pay debt instead of 100% as first reported). But the overall effect will be deflationary and cut living standards further. You have to wonder when the great Greek slump will finally end.

Take all this together, throw in incipient anti-German sentiment (whilst forgetting the Finns) and you have the perfect recipe for resurrecting World War II stereotypes. But what really happened? The best journalism I have read has come from Marcus Walker of the Wall Street Journal (great articles, but in the name of sanity don't read the comments). He knows both Germany and Greece well and called it right from the moment Syriza was elected. This piece, published just before agreement was reached, is pretty convincing:
Behind Europe’s show of force lie three main factors: Fury at Mr. Tsipras’s delay tactics, shock at the rising cost of any and all Greek scenarios, and a worsening clash between German-led Europe and the IMF.
Since his election in January, Mr. Tsipras has oscillated between his hard-line and pragmatic advisers, Greek officials say. The pragmatists urged him to sign a bailout deal early, even if it meant accepting politically hard-to-sell austerity measures, because the terms of any deal would get tougher as the months passed and Greece’s economy deteriorated.
Nonsense, argued others such as now-ousted finance minister Yanis Varoufakis: Greece would get the best bailout terms, including less austerity and more debt relief, if it waited until the last moment before debt default. Europe would get scared of the destabilizing fallout from a Greek euro exit, this camp argued.
Mr. Tsipras went with the second school of thought, figuring also that his left-wing Syriza party would only swallow a bailout deal involving austerity if the alternative were imminent economic meltdown.
For months, Mr. Tsipras saw to it that Europe’s normal channels for negotiating bailout terms—the Eurogroup, and teams of EU-IMF inspectors—were paralyzed. He instead bet on face-to-face talks with German Chancellor Angela Merkel, believing that she would make a fundamentally political decision to keep Europe united, even at the expense of German economic orthodoxy.
It proved an epic miscalculation. Backed into a corner by Mr. Tsipras’s referendum, in which Greeks overwhelmingly rejected their creditors’ austerity demands, Ms. Merkel hardened her line. A deal with Athens that let Greece off tough economic reforms would be worse for Europe than splintering the eurozone, she argued. 
 Even if the hand had been played better, it was a weak one. Aces always beat twos.

What next? There are still obstacles to overcome before the deal is sealed, but if it is, for Greece, there will be more austerity. An economy suffering from lack of demand, will have even more sucked out of it. This will cost livelihoods, businesses and lives. But there is hope. The banks will reopen, the opportunity is there for Syriza to fulfil the second half of their mandate - reform of the state and the elimination of corruption - and investment could start a slow recovery. But the perception of victimhood and the bruised national pride will not go away easily.

Yet this is not the end. Germany's reputation has been battered. The damage to the EU's prestige is immense. This spells further trouble, and from more formidable opponents than Greece. The main contradictions of EMU have not been faced. Orthodox economics may have come out of this skirmish victorious, but has lost supporters. Until the flaws in the construction of the Euro are dealt with, crises will keep arising. And that major flaw, the inability to correct imbalances by redistributing surpluses from the wealthy members to the poorer, whether through fiscal union or through financial instruments like Eurobonds, is the main challenge.  Redistribution, a social democratic concept, sits uneasily with orthodoxy. We might, just might, be at the start of a sea change in elite economic thinking. It is long overdue.

The IMF weighs in. This isn't over yet.

Sunday, July 12, 2015


There's some nasty diseases about:
There's a big salmonella outbreak in the US because people keep kissing chickens 
Well what would you expect with puritans like these.

That should have got a bit more traffic to this neglected corner of the internet.

Tuesday, July 07, 2015

Mythical bollocks

This is the worst start to any article on the Greek referendum that I have had the misfortune to read. Nothing could be more cringe-making, surely.
 From the cradle of democracy, a lion has roared.
No, please no. Owen Jones, who else?

Such horrible hyperbole is typical of the sort of journalism we get from someone who knows little of modern Greece. Please, it's not the Greece of antiquity. It's a beautiful Balkan nation with a fascinating, but troubled, recent history; one that has democratised itself since emerging from a military dictatorship only forty years ago. (This is what Joseph Stiglitz called "its strong democratic tradition.") Yet the press regularly call on the classics to fill out their cliché quota, not always accurately.

So, it was good to see a classicist, Natalie Haynes, put them straight on a few things. My favourite line is this one.
As for the referendum result, I doubt the phrase “Greek Tragedy” has been used so much since Vicky Pryce was convicted of having once liked Chris Huhne more than any reasonable person could.
Cruel. But then so is much Greek mythology.

Monday, July 06, 2015


Referendums are usually about power, not democracy. They are a risky strategy, people do not always vote the way they are supposed to. Pinochet's downfall in Chile is a perfect example of a tactic that failed. But what has happened in Greece is, to my mind, not so much a demonstration of popular resistance to the economics of austerity, but a sign that Tsipras is a capable politician. The referendum has done what it was supposed to do. It consolidated his power.

First, troublesome individuals have been removed. Varoufakis resigned, as did Samaras, the leader of conservative ND.

Second, by convening a meeting of all party leaders, Tsipras has put together a national coalition behind a joint negotiating position and secured their backing. He has neutralised domestic opposition.

Third, he has opened up divisions between his opponents. There are signs that a Franco/German split is developing over Greece.

Now that Tsipras is secure, there are only two possible scenarios remaining. First, there is a deal. The joint statement is based on a vague list of aspirations.
The common goal is to seek a solution that will ensure:
  • The adequate coverage of the financing needs of the Country
  • Reliable reforms, based on the criterion of the just distribution of burdens and the promotion of development, with the least possible recessionary effects.
  • Powerful, front-loaded, growth program, first and foremost for combating unemployment and for the encouragement of entrepreneurship.
  • A commitment towards the beginning of substantive discussion on dealing with the problem of the sustainability of the Greek public debt.
If a deal is signed, it will include austerity measures. Tsipras has already shown that he has been willing to accept many of them in the previous round of discussions.

Though Tsipras has consolidated his power domestically, the Greek negotiating position is still weak. There may be a greater perceived risk of political rather than economic contagion, but will the creditors see appeasement or victory as the best way of discouraging it? And so, the second scenario is also possible, Greek exit from the Euro.

This time we should have a clearer idea much more quickly than before.


They didn't choose appeasement. I am not surprised. 
Euro-zone leaders demand Alexis Tsipras offer them a deal harsher than the one Greek voters just rejected.

What now?

The turkeys did not vote for Christmas, but Christmas has not been abolished.

This very good piece from Nick Malkoutzis summarises the incoherence and uncertainties of the Greek referendum.
The mere fact that tens of thousands of people joined demonstrations for the No camp — under the banner of a Syriza-led government that has displayed nothing but amateurism since it took office in January, in a week when pensioners jostled under the sun to collect 120 euros from their retirement pay — is proof that hope is in short supply. We should consider whether we have reached the point where what is being attempted in Greece is at the outer edges of political and social sustainability.

Sunday, July 05, 2015

A supplementary

I have just found another piece from last month, a profile of Mark Mazower. It is perceptive insight on the Greek crisis.

There are two telling quotes in there:
As a friend of Greece, does Mazower think that the country should return to the drachma if European policy does not change?
“I don’t know the answer to that. I think Greek public opinion is very sensible on this issue. It says that Greece must remain in the euro and that eurozone policy must change.”
"...we academics have a tendency to think that once we have shown what is right and what is wrong, then everything else will fall into place. That’s why we become academics and not politicians."
Too true. My cue to leave the stage.

Saturday, July 04, 2015

In Greece

I am back in Greece, but have been otherwise engaged. And now I seem to be in the epicentre of a major international crisis. You would hardly notice in this part of the country if it hadn't been for the queues at the ATMs as I drove back from Volos a week ago.

Even though I am here, I am an outsider to both the country and the language. As are most newspaper columnists - and many economists - and that hasn't stopped any of them from pontificating. I am swamped by commentary and by recommended articles. Many boil down to a morality play. Either the innocent Greeks are fighting back against their evil oppressors or the lazy, corrupt Greeks are robbing industrious Northern Europeans. Some columns have both happening at the same time. The majority are based on fleeting trips to Athens. Most cherry pick and by doing so miss out the details that make this crisis far from simple.

To repeat, I am an outsider. I am not even an economist. I am an historian though, and much of this has resonance with past crises. We have been here before and this colours my views. All I can really offer as a form of analysis are links and an overview of what I see are the main elements, all of which contribute to this particular crisis. Taking a deep breath, here we go.

1. Ideology.

Austerity/economic orthodoxy is the dominant ideology at the moment. It has a long pedigree, including amongst its antecedents; the gold standard, the economics of Hoover and Brüning, the May Report and the fall of the 1931 Labour Government. It isn't a happy history. It ended up with the Second World War. The Keynesian opposition to orthodoxy, piloted by Roosevelt through the New Deal, became dominant after the war. Keynes' approach to government budgets was that they should be balanced over a business cycle, rather than over a calendar year. Government should always act counter cyclically, investing during a downturn and retrenching in times of growth. In dealing with debt, Keynes prioritised increasing income (growth) over reducing spending. A Keynesian approach would see it as madness to cut spending and suck demand out of an economy at a time of recession. It would risk turning it into a slump, causing immense hardship and reducing government income, thereby cancelling out any gains made through savings. Orthodoxy always kept some adherents, most notably in the IMF, but regained its dominance through a renewed challenge to Keynes from a resurgent classic liberalism, adapted into a doctrine of neoliberalism (a specific term now used loosely by the left as a 'boo word') and entrenched by the Thatcher and Regan governments.

Amartya Sen published an excellent essay defending Keynes, explaining the neglect of his insights and placing his approach in a historical context here.

Syriza promised a Keynesian approach to the Greek debt crisis and an end to austerity. The problem was that it was impossible to deliver when the institutions were ideologically convinced of the correctness of the opposite. Syriza failed to change the world. It was if they had gone to the Vatican and came out surprised that the Pope was still a Catholic. Vacillating between accusation and compromise, they weren't good diplomats. They had three cards to play, but all were trumped - see Duncan Weldon here. They were right about the economics of austerity, but had no way of delivering an alternative. So what happens next?

2. Illusions.

There is a narrative doing the rounds that the emergence of other indebted countries like Spain, Ireland and Portugal from recession is a sign that austerity worked (conveniently forgetting the fiscal expansion of quantitative easing). I fail to see the return of growth two or three years after you would have normally expected it, in countries with degraded capacities, after the mass emigration of some of its most talented young people, and with increased inequality and poverty, as a conspicuous success. Rather, it is a tribute to the resilience of those societies. But even if austerity can work, was it worth the cost and the destruction of ordinary people's lives?

There is also the sense on the left that Syriza in Greece and Podemos in Spain are the vanguard of a new mass movement of radical social change, rather than an expression of populist and traditional resentment against the elites by people who have had enough and just want to return to normal. Historically, this has been a resentment that has been exploited in times of crisis as much by the right as by the left. And the Greek government is a coalition between Syriza and ANEL, a far right bunch of ultra nationalist conspiracy theorists (which is why the government's minister of defence believes in chemtrails!). There has always been a question mark about whether Syriza is a leftist or nationalist project and at the moment, rather like the referendum on Scottish independence, the rhetoric on the 'no' side is assuming an unpleasant nationalist tone. Is Tsipras really Greece's Alex Salmond?

The final illusion is that referendums are somehow a pure form of direct democracy, rather than an expedient political tool for a party facing difficulties. Syriza has admitted as much. So we have the curious spectacle of a referendum on whether or not to accept terms that are no longer on offer for a bailout that has expired. The choice thrown down is to accept austerity or to negotiate a bit less austerity. The EU is insisting it is about Euro membership, Syriza say it isn't, but then, if it was, Greeks would vote overwhelmingly to stay in the Euro. The left-wing historian, Mark Mazower, who, unlike many commenters, has written on modern Greek history, knows Greece well and speaks Greek, denounces Sunday's referendum here. Catherine Fieschi places it in the context of a populist challenge to representative democracy where "we seem to be leaving the agora and headed toward a new coliseum."

3. German strength.

This is part of the problem, paradoxically. The whole point of the EU was to cement Franco/German relations and constrain German power. This is a constraint that Germany wanted eagerly. It is haunted by its history. Germany does not want to dominate Europe. That is why it insists on rules, rather than the exercise of power. Ironically, German obduracy leads to accusations of the very thing it is trying to avoid.

German savings, wage restraint and surpluses, the product of its ordoliberalism, may be a virtue in a state with its own currency, but are a weakness in a currency union without corrective mechanisms. They produced the flood of credit that financed their exports to deficit nations at the periphery. Low interest rates, again a product of German economic strength, produced credit booms elsewhere. The crisis was made in Germany, even if it was implemented by the debtor nations, especially in the case of Greek sovereign debt.

4. Greek weakness

I have read many fantasies about how well the Greeks would do if they defaulted and left the Euro. And it may yet happen. But they all discount how badly Greece would be placed. It would be locked out of currency markets and would have a soft, depreciating currency from which they could not benefit. Exports may become cheaper, but they don't have many. Imports would become far more expensive and most energy is imported. The poor will suffer most. There would have to be a major restructure of the economy for Greece to benefit - and boy do they need one - but it will not be an easy answer. It may well have been better if they hadn't joined. They still would have had a crisis, though not this one. But they did and leaving is another matter altogether, although, as Frances Coppola writes, the process may have started already.

Anyone who has had any dealings with the Greek state knows that it is, well, different. Just how different is made clear here by one of the most trenchant opponents of austerity, David Blanchflower.
"The reality is that Greece has a highly uncompetitive economy and no credible tax collection system. The problems mostly are in the product, capital and housing markets that remain unaddressed. According to the World Bank’s Doing Business rankings, Greece ranks 61st, just behind Tunisia. Greece is 155th in the ability to enforce contracts, just ahead of Laos and Botswana. There has been no reform to speak of. Greece is characterised by endemic tax evasion, a poor tax collection infrastructure, parochial patronage policies, corruption and huge delays in the administrative courts dealing with tax disputes. Greece also has deep structural problems, mostly in product markets with oligopolies in almost every industry, closed professions, administrative and bureaucratic impediments to entrepreneurship alongside barriers to trade and exporting, none of which have been addressed. This baby certainly isn’t over. The worry is if the inevitable Greek default spreads."
The Greek state is slowly improving, especially now it is beginning to develop online access, but still needs major reforms. The bureaucracy is labyrinthine and obstructive. The Greek people would welcome change. But why haven't they had it? In the article I linked to earlier, Armartya Sen makes an important point.
But the real (and strong) case for institutional reform has to be distinguished from an imagined case for indiscriminate austerity, which does not do anything to change a ­system while hugely inflicting pain. Through the bundling of the two together as a kind of chemical compound, it became very difficult to advocate reform without simultaneously cutting public expenditure all around. And this did not serve the cause of reform at all...

The compounding of the two – not least in the demands made on Greece – has made it much harder to pursue institutional reforms. And the shrinking of the Greek economy under the influence mainly of austerity has created the most unfavourable circumstances possible for bold institutional reforms.
He is right, but the opposite is true too. Determined opponents of austerity also linked the two and opposed reform as well as the cuts.

The responsibility for the Greek sovereign debt lies with the Greek state. Arguably, the starting point for resolving it should have been reform linked to investment and debt relief. Instead, Greece got cuts - internal devaluation - with little change. Combine this with fear of the consequences of a banking failure post-Lehman and you have the recipe for socialising the losses of private investors' bad investments by compensating them with the wages, pensions and savings of ordinary people.

 5. The Euro.

Throughout the current phase of the crisis, there has been little talk about reforming the structural failings of the Euro. Monetary union without fiscal union has meant that there is no mechanism for transfers between surplus and deficit areas. Differences in competitiveness can no longer be managed through currency exchange rates or interest rates, so the only alternative is through internal devaluation, a competitive lowering of living standards - a race to the bottom as the cliché has it. The Euro was supposed to bring convergence, instead it resulted in polarisation. This report from Stephen Fiddler is an excellent summary.

This is not new either. It is a more comprehensive version of the 19th century experiment, the Latin Monetary Union. It was a failure that was finally killed off in 1927.

There is more, much more, but an explanation that omits any of these elements will be incomplete. Macro economic policy may be wrong, but a change of direction would do little without micro economic change. The flaws in monetary union need rectifying. Looked at today, the whole situation is a pretty potent cocktail and a complete mess. The problems are getting worse too. Under Syriza, the economy has tanked. It is also a story of incompetence, intransigence, and a narrowness of vision. There is much uncertainty. Martin Wolf explains the dilemmas well

Looking back at the links in this post, most are from trenchant opponents of austerity. Yet many also support a yes vote. It wasn't a deliberate choice on my part, but it does illustrate how this referendum has divided allies. They share a similar analysis, but differ on the consequences. I have Greek friends who will vote both yes and no, but there is no one I know who isn't voting on the basis of a choice between bad and worse. So I am going to finish with links to two posts. The first is from Yiannis Mouzakis, a very regretful yes voter. The second is from a very angry, Irate Greek (Theodora Oikonomides) who will vote no.

The crisis is rooted in a profound ideological clash between orthodoxy and a revived Keynesianism. It has been taking place in a setting of flawed and failing institutions. It has been handled ineptly and, at times, stupidly. When the history of the crisis comes to be written, not many will come out with any credit, but then we still don't know how that book will end.