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Thanks for the informative and thought-provoking diary.

Wanted to make sure I understood the following passage correctly:

As the citizens took on higher loans to maintain their standard of living, the rich made exponential profits. The problem Greeks face now is that the government is trying to deliver some hard news about the realities of the global markets. The Prime Minister complains that Greece has been attacked by speculators--and he's right. The problem is that, when banks and so-called investors are involved in the greater part of your economy, you cannot give them a reason to attack you and create the kind of psychological doubts (really, warfare) that will make you vulnerable. Greece has given the speculators ample ammunition, by fudging statistics and losing control of their social security system. When you enter this global market run by bankers, you must protect your flank. You must cut the social welfare system, because the race to the bottom is swift. So, austere measures will be taken, at the EU's behest. People will lose jobs, have their pensions cut, salaries cut (and these are the measures the people have already grudgingly agreed to, the EU has a lot more austerity in mind).

Did "maintain their standard of living" include not "cut their social security system"?  Would this dynamic apply a priori to other new EU member states (current and future) who adopt the euro and have a relatively generous social security system?  Could those other countries avoid this fate if they simply refrained from "fudging statistics" and minimized corruption)?  Could Greece itself have?

Your construal of the EU reminds me of leftwing construals of the IMF and the Washington Consensus.  And I'm left a bit confused about who is imposing these hardships on Greece, the bankers & pseudo-investors with their speculative attacks, or the EU with its dictates and demands for more "austerity".  And then your thesis sentence suggests a conflation if not identification of both bankers and the EU with "global markets", given the preceding excerpt:

Indeed, my thesis is that global markets practically dictate that our social system is dismantled, that a new division between working classes be created.

I am not querying out of skepticism, but merely confusion.

Here's to hoping that Greek stubbornness prevails in the end.

The march of civilizations is a series of defenses that man has put up against the dread of pure existence.

by marco on Fri Feb 12th, 2010 at 01:51:52 AM EST
Well, the Greek system is confusing if you're comparing it to other systems since the bureaucracy is so large. What is a pension? What is social security? I think social security in Greece is pretty meager, but the pensions aren't. I don't want to knock the bureaucracy too badly but if I had to make an analogy so that it could be better understood, consider the pensions to be social security, and consider some of the bureaucracy to be a form of workfare.

As for the rest, I think I made the case that there was no avoiding this fate even if Greece had not fudged statistics. For one, the Independent article argues that the new government deliberately overstated the deficit as a form of shock therapy for a recalcitrant public sector (if that's the case, then they should be as vilified as the previous government that fudged the statistics in the first place). Second, what is known as corruption in Greece is known as campaign finance in America. In Greece, bribes are illegal. In the USA, Mr. Corporation (he's an actual person you know, with human rights) can brazenly bribe an official in public. Regardless, there are a lot of problems. Part of the tax problem is that the rich in Greece move money overseas. Good luck solving that, Greece, and when you found the solution, please let the rest of us know. So, yes, Greece can cut the bureaucracy, and yes the tax system can be improved, and yes things could be done more transparently, BUT it's not going to help all that much. These problems are endemic to a country that is undiversified. The lack of diversity produces vertical economies that one negotiates with difficulty and trepidation. So, it would have happened anyway.

In one article, Mr. Almunia of Spain analyzes that Greece's situation is not all that atypical for some European nations that adopted the Euro. He says: "In these countries we have seen a constant loss of competitiveness ever since they joined the eurozone. The external financing needs are quite big."

You write:

Your construal of the EU reminds me of leftwing construals of the IMF and the Washington Consensus.  And I'm left a bit confused about who is imposing these hardships on Greece, the bankers & pseudo-investors with their speculative attacks, or the EU with its dictates and demands for more "austerity".  And then your thesis sentence suggests a conflation if not identification of both bankers and the EU with "global markets."

Yes.

I don't mean to be glib, but I can't not be. In the USA, Mr. Paulson was making policy less than a year ago. Today he's attacking Greece. When global markets are quite naturally dictating a convergence between third world labor and European labor, then what are the consequences? Is anyone recommending slowing the growth of free trade? When you have these convergences between let's say second world countries (Greece) and third world countries, how does a country like Greece maintain a safety net? I'll say this again: Mr. Paulson was making the key decisions about world finance less than a year ago. Today he is a raider.

by Upstate NY on Fri Feb 12th, 2010 at 09:49:58 AM EST
[ Parent ]
You seem to confuse Hank Paulson, former CEO of Goldman Sachs and Secretary of Treasury under Bush with John Paulson a hedge fund manager who made tons of money betting on the collapse of the real estate markets and the banks.

They are two different people.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Feb 12th, 2010 at 10:35:50 AM EST
[ Parent ]
I'm not confusing them.

It's Henry Paulson who was involved with Greece, and it's his pals at GS who have been involved with the current speculation.

by Upstate NY on Fri Feb 12th, 2010 at 10:42:32 AM EST
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Darn, just when I thought I was starting to understand things.

I gather then that Greece has found itself between the rock that is Henry Paulson and his GS and the hard place that is Brussels and its Washington Consensus-lite.  But you're not going so far as to say that Paulson/GS are trying to make Greek lemonade in coordination with the EU, are you?

The march of civilizations is a series of defenses that man has put up against the dread of pure existence.

by marco on Fri Feb 12th, 2010 at 11:09:52 AM EST
[ Parent ]
No, the two sides are opposed (EU and GS).
by Upstate NY on Fri Feb 12th, 2010 at 11:42:33 AM EST
[ Parent ]
well, one could say that a few years back, GS provided a valuable service to Greece in helping it massage its deficit figures and qualify for the euro. Today, their role seems more ambiguous, if not downright hostile, but it's hard to know exactly what they are doing.

That said, I don't think Hank Paulson has any involvement with Goldman Sachs today, so that's where you got me confused.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Feb 12th, 2010 at 12:26:13 PM EST
[ Parent ]
I admit that in much of my frothing I've been writing quickly without following a timeline.

The fact that he headed GS and then held considerable power during a financial meltdown, during which he supported his former company, and then after his former company continued on without contrition in their attitudes and maneuvers...well, sometimes this causes me to lose my mind.

by Upstate NY on Fri Feb 12th, 2010 at 12:29:39 PM EST
[ Parent ]

Your construal of the EU reminds me of leftwing construals of the IMF and the Washington Consensus.  And I'm left a bit confused about who is imposing these hardships on Greece, the bankers & pseudo-investors with their speculative attacks, or the EU with its dictates and demands for more "austerity".  And then your thesis sentence suggests a conflation if not identification of both bankers and the EU with "global markets."

Mig has been calling this lately the Brussels Consensus - it's a softer version of the Washington Consensus, in that it's not usually imposed under threat of blackmail at times of crises, but it can be seen as a close cousin. It's one of the version of the Anglo Disease, whereby all solutions come from "reform," labor market flexibility and lower social spending.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Fri Feb 12th, 2010 at 10:38:37 AM EST
[ Parent ]
One of the researchers at the Max Planck Institut wrote an article in 1995 describing EU social policy as neo-voluntarism.  Basically, because there was not equivalent of the national social policy regimes at the EU level, the end effect of the posted worker's directive and the like was to undermine any social protection.

Ironically, this is much more severe in places like Germany and Sweden where much of the wage regime was set through collective bargaining agreements at the sectoral level.  The only wage restrictions that firms posting workers have to respect are national minimum wages.  

So, no state based minimum wage = no minimum wage. And it's the same for all labor protections.  The only way to get past this is either to institute legislation at the national level and pull away from the project of integration, or to start a serious EU social program.  The business interests that have pushed for integration as a way to break the power of labor discount the possibility of the latter.

I tend to think that what will happen is that they are going to push to far, and there is going to be something like happened in France during the late 1990s(?) when there were attempted labor reforms.  The voice of the people will come from them yelling in the street.  And EU labor legislation will be the result.  It won't be nearly as strong as the old stuff at the national level, but it will be a major improvement over the present push to no labor protection.

And I'll give my consent to any government that does not deny a man a living wage-Billy Bragg

by ManfromMiddletown (manfrommiddletown at lycos dot com) on Fri Feb 12th, 2010 at 12:59:49 PM EST
[ Parent ]
Did "maintain their standard of living" include not "cut their social security system"?

From what I gather below and from linked sources, Greece has a very generous pension system for state employees and a very rudimentary one for everyone else. The differences with the USA are more of scale and degree than of kind. The primo package of retirement and medical benefits only comes from the federal, state and local governments and people can qualify at a relatively young age, leave government service, work ten years in the private sector, and qualify for both retirement systems. I know people who have done this.

I strongly suspect there will be pressure to revise downward many of these benefits. Probably the same in Greece. But it will be very difficult to do so in both countries. Does Greece allow pensioners to receive benefits while living abroad? If this proceeds along the path of squeezing everyone but the rich and the pensioners things could get ugly in Greece for those who have benefited most. We are more docile in the USA.

"It is not necessary to have hope in order to persevere."

by ARGeezer (ARGeezer a in a circle eurotrib daught com) on Fri Feb 12th, 2010 at 02:34:23 PM EST
[ Parent ]
I imagine that the vast majority of pensioners do not live abroad simply because--though their jobs are secured--the public sector doesn't really pay all that well.

But as for social security in Greece, yes you can live abroad. as long as you paid in (even if you paid in during the 1950s and 1960s and then left) you still get a base amount. It's so small though that my parents never bothered to apply.

by Upstate NY on Fri Feb 12th, 2010 at 05:07:05 PM EST
[ Parent ]

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