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You can solve this with a transfer union, by Germany import more to reduce the foreign primary deficit or by increasing Eurozone inflation to boost nominal growth, while retaining low Euro-denominated interest rates. But you need at least one of those.
- Jake Friends come and go. Enemies accumulate.
Or do you think the taxes would then become so high that they'd strangle growth?
In the long run it seems some kind of structural reform is needed for Greece, to deal with the fact that wages have risen so fast that the Peak oil is not an energy crisis. It is a liquid fuel crisis.
As it is, EU industrial policy forces inefficient countries to shut down their physical plant, making them even less productive. Economics is politics by other means
I know because I've been taken to task by Greeks for complaining about all-inclusive resorts encroaching on the beach, for 15 euro beach umbrella rental, etc.
It's at 25%.
Now, assume that if Greece were like every other European country, it only had 20% tax evasion.
Well, let's look at its tax collection. It's at 140 billion. 5% of that is 7 billion. That's not enough to cut into a 350 billion deficit. We've only accounted for 2% of a 11-15% yearly budget deficit.
Taxes should be reformed in Greece BECAUSE they are unfair to those who pay. But from a macro perspective outside Greece, here are the numbers reported by Eurostat for the last decade:
Greece collects between 40-43% of its GDP annually. The EU collects 44%.
In Greece, 8% of GDP is collected as income tax revenue. 12% social contributions. 5% corporate. 16% VAT and sales tax.
The actual rate of tax collection in Greece is on par with tax collection in Europe. In fact, I would argue that in Greece, tax collection actually exceeds that of most of Europe when you take into account two factors: Shipping and Tourism. Those two industries account for almost 40% of Greek GDP. Tourism is cash heavy, and outside of using credit cards, I'd imagine its an industry with high evasion. Shipping revenues and profits are untaxed precisely because the ships can register in any port, under any flag. The ship owners pay a tonnage tax for the weight of ships only. So here with shipping we account for 20% of the nation's GDP, but for hardly any of the country's taxes. This literally means that when you back out shipping, the GDP subject to tax is smaller, and thus the % of tax to GDP collected is much higher.
To roll back high tax evasion of high taxes would be a very good thing for Greece, but not a solution. After all, high tax evasion of high taxes already yields more revenue than the low tax evasion of low taxes. In the USA, we have hedge fund managers who pay 15% on earnings.
Here's an article about it.
The thing is, you have Junker as a titular head of the EU, an ex-head of Luxembourg which has long batted back EU attempts for some transparency into its "tax paradise" arrangements with some of the worst scofflaws in Europe.
Total revenues in Greece have been less than 40% GDP (but less than that as I mentioned here) an approximately 5% lower number than the Eurozone average that jibes with the 15 billion Euro evasion the Economist article mentions, and I suppose that Greece is on a par with other EU countries in (legal) tax avoidance?
Shipping offers around 7% GDP (here in Greek) and tourism another 15%... Tourism I wouldn't think has a much higher rate of tax avoidance than other industries. Shipping companies and tycoons are almost religiously tax-exempt, not even the income they make from shipping activities is taxed (this again is in Greek, and accurate AFAICT. It lists more than 55 special provisions in the tax code for shipping companies and their shareholders/owners. Quite shocking) The road of excess leads to the palace of wisdom - William Blake
This is where I was pulling the tax revenue numbers from, but it also breaks down tax collections by type (income, corporate, etc.)
Interesting about shipping, since I read a number of articles recently that put it at 18% of Greek GDP. I wonder, could this be related to the spectacular deviations in shipping costs? During much of the decade until 2008, Greek shippers were charging upwards of $110,000 a day per ship. By 2009, the rates for shipping dropped to $5,000, so low in fact that companies saved money by refusing contracts, drydocking ships, laying off workers, etc. Many of these companies showed income only from scrapping older ships for metal. I wonder where one might find a year-over-year comparison of the shipping industry.
Some numbers on tourism and shipping (2003-2008) here. In Greek. The road of excess leads to the palace of wisdom - William Blake
And people wonder why Greeks are happy-go-lucky.
With a quick look at the official site of Hellenic Statistics I couldn't find data on Greek GDP composition braking down to shipping or tourism. That's why figures quoted by various sources differ significantly. For example, a recent paper by National Bank of Greece quotes shipping as 6.9% of GDP. "Eurozone leaders have turned a €50bn Greek solvency problem into a €1,000bn existential crisis for the European Union." David Miliband
I am quite skeptical on the numbers circulating on shipping and tourism contribution to Greek GDP. These number are numbers by their respective lobbies so they tend to be inflated (for example, by including a broad area of services to "tourism").
"[W]hen you add up the growth prognosis of all companies of a sector strangely the market is often a lot bigger than it should be..."
- crankykarsten Friends come and go. Enemies accumulate.
I'd really like to know about the Greek banks and the fact they were started by shipping magnates. What's the relationship between these banks and the shippers who started them. What kind of impact does this have on Greece? It seems to me, should the world economy get going again, the shippers themselves can recapitalize banks in a similar fashion if the old ones collapse, as long as their wealth isn't too closely tied to the banks they created.
But see this (p.6) and you realize that as far as shipping is concerned Greece is an international tax haven... The road of excess leads to the palace of wisdom - William Blake
Wall Street loves stocks with big revenues and muddy stories. Pump and dump.
Well, that's only a problem if you rely on deficit spending to prop up the budget.
No, you can't solve a foreign balance problem by curtailing the sovereign budget. That just shifts the foreign debt to private hands (all too often temporarily, as we have seen recently). You have to make foreigners buy more of your stuff, or buy less foreign stuff.
That means industrial policy, which costs money. Money that the ECB should be printing on demand. But which it is not because it is run by deficit errorists.
In the long run it seems some kind of structural reform is needed for Greece, to deal with the fact that wages have risen so fast that the productivity improvements of the export industry (including tourism, I suppose) hasn't managed to keep up, lowering the relative strength of Greek companies.
Again, that's not primarily a Greek issue. It's a matter of inadequate German wages causing a demand shortfall in the Eurozone, and that demand shortfall hitting those countries which did not engage in irresponsible wage suppression policies.
Obviously. And this is quite clearly, up to Greek consumers and companies. Buy less foreign stuff, make better stuff at a lower cost.
It's a matter of inadequate German wages causing a demand shortfall in the Eurozone, and that demand shortfall hitting those countries which did not engage in irresponsible wage suppression policies.
You know I agree partly here, but nothing stops Greece from looking beyond the eurozone for markets for its exports. It wouldn't be alone in that. Peak oil is not an energy crisis. It is a liquid fuel crisis.
And this is quite clearly, up to Greek consumers and companies. Buy less foreign stuff, make better stuff at a lower cost.
Of course, Greek private debt is pretty low comparatively. It's the government that overspent. So it's not really a matter of buying too much foreign stuff as much as it is too much foreign fuel, or foreign military weaponry, etc. The BMWs flying around Athens are reserved for the privileged.
If Germany generates inadequate domestic demand with irresponsible wage suppression, someone, somewhere is going to have either unemployment or bubbles. Passing that problem around like a grenade with the pin pulled out does not strike me as the pinnacle of responsible behaviour.
The trick seems to be not recycling the surplus into dodgy bonds. Avoiding that can't be too hard. Peak oil is not an energy crisis. It is a liquid fuel crisis.
For that matter, given that German has demonstrated no inclination to permit a currency or industrial policy that would aid Greece, how precisely do you propose that they improve exports? None of the traditional neo-mercantilist policy options are available here.
When it comes to improving exports, I, or any political guy, is the wrong person to ask. Especially in the short-run, as government-led structural reforms like or industrial policy like improving infrastructure or having a non-insane energy policy takes years or decades to implement. No, you're better off asking those who actually run successful export companies what Greek companies are doing wrong when they fail to export outside the eurozone. Peak oil is not an energy crisis. It is a liquid fuel crisis.
According to a recent WEF survey, Greece has the lowest competitivness of all EU nations. Greece has slipped from place 50 to place 109 on the World Banks list of the best places to run a business, below countries like Bangladesh or Ethiopia. Big stumbling blocks are things like inefficient government bureaucracy and massive corruption. During 2004-2009, employment in the public sector increased by 100.000 people, largely as a reward for political loyalty. At the same time, public salaries rose by 60 %. How this could not result is a fiscal disaster, is hard to understand. It's just not possible to keep spending more than you tax, year after year, and especially not when you're in the good part of the business cycle! Peak oil is not an energy crisis. It is a liquid fuel crisis.
During 2004-2009, employment in the public sector increased by 100.000 people
So the public sector's extent was not the cause of the "fiscal disaster". Lagging revenue was. And the decile where the lagging was humongous was the top decile...
An aside:
I'm thinking of posting a diary with a title like "10 fairy tales about the Greek economy" debunking the poppycock that "serious" news sites (not to mention economists) are propagating regarding the data before the crisis... is that the sort of thing we all have in mind that ET reports are about? The road of excess leads to the palace of wisdom - William Blake
I'm thinking of posting a diary with a title like "10 fairy tales about the Greek economy" debunking the poppycock that "serious" news sites (not to mention economists) are propagating regarding the data before the crisis.
That would be very useful. I can only 'dip' into the discussion/analysis intermittently so anything helping to separate Reality from the Intellectual Sludge hiding Reality would be welcome.
...is that the sort of thing we all have in mind that ET reports are about?
From my perspective: Yes. She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
Greek unit labour costs have risen by 50 per cent since 2001. This compares with a eurozone average of about 25-30 per cent and a German cost increase of little more than 6 per cent. Even Portugal has a much lower increase than Greece of some 36 per cent.
I note, in passing, the inherent dishonesty of comparing to German unit labour costs, since German wages have failed just as much as Greek wages to track productivity.
Greek unit labour costs have risen by 50 per cent since 2001
If the surplus is handled by industrialists it will be invested, thus turning to wages, then imports.
If the surplus is going to remain as surplus it needs to be kept as foreign assets, thus handled by financial gamblers. And what assets are more profitable in the short run for the financial gambler then dodgy assets? Sweden's finest (and perhaps only) collaborative, leftist e-newspaper Synapze.se
The EU is currently unable to do this kind of thing, and the only surplus recycling allowed by market worship is the purchase of dodgy bonds. In fact, in investing in capital plant in chronically underinvested countries the EU would be introducing competition into the niche of historically well invested countries producing high-end goods.
Varoufakis' idea (part 3 of his modest proposal) is to have the European Investment Bank do it funded by contributions from the surplus countries to an EU-level budget. Economics is politics by other means
However, this does not mean that eurocrats or politicians would manage FIRE better, nor that non-FIRE enterprises which in general seem well managed, need any more political meddling what so ever. It means the FIRE sector requires better regulation.
The Greek government has failed utterly in reining in its deficit through tax raises and spending cuts: indeed, when the Karamanlins government took power in 2004 and saw that the country was at the edge of a cliff, it pushed as hard as it could on the accelerator, increasing spending massively, including a 60 % (!!!) salary raise for public servants. This utter failure of democratic government does not mean it should be abolished and replaced by rule of corporations. Politicians should be careful not to try running businesses, and businessmen should be very careful not to try running countries. If they do, you get the USSR and USA respectively.
Peak oil is not an energy crisis. It is a liquid fuel crisis.
The Greek government has failed utterly in reining in its deficit through tax raises and spending cuts
Unless you have a plausible story about how removing the Greek sovereign deficit would have repaired the foreign balance, it would have been pissing into the wind. The debt load would have increased just the same, and judging by Greece's Mediterranean neighbours it would have increased by means of a speculative real estate bubble.
That is, unless you can make the case that the Greek sovereign (a) had a larger import quota than the Greek private sector or (b) spent the money in ways that materially degraded Greece's ability to obtain hard currency, eliminating the sovereign deficit would not have prevented the crisis. It might have brought it forward, by inducing a business depression due to demand shortfall, or it might have made it bigger by inducing a private sector bubble. But wage suppression always eventually comes back around to bite someone in the ass with a demand-side depression, and the wage suppression was going on outside Greek jurisdiction, so it's a little hard to blame them for that.
Speculative real estate bubbles can be reined in with regulation, if you lack the ability to raise rates (not that I'm going to focus much on this, as it wouldn't surprise me if we'll find that Sweden has failed at this very thing).
And yes, I place a very large part of the blame on "responible" German labour unions for accepting the wage suppression. Peak oil is not an energy crisis. It is a liquid fuel crisis.
Imports would also had to be cut, and the competitivness of export companies increased, as we have discussed in other places.
Well, yes.
But it is not immediately obvious how this has any simple, mechanical relation to the sovereign balance.
A great idea is to avoid massive wage inflation that is completely disconnected to productivity increases...
Has this actually happened? Do we have time series for Greek wages and productivity around here somewhere, or are we talking out of our posteriors here?
Furthermore, nothing requires that foreign balance deficits must be balanced through the issuance of debt, private or public. It can just as well be financed by foreign entities aquiring equity in domestic companies.
Ah, the foreign direct investment pony. I was wondering when that one would show up.
Thing is, when all traditional avenues of (neo-)mercantilist policy have been choked off, Greece is left with precious few policy options to encourage FDI. And most of them are bad for both the Union and, in the medium term, for Greece.
Speculative real estate bubbles can be reined in with regulation,
Yes.
But, again, it is not immediately apparent how this will repair the foreign balance.
Certainly, you can repair the foreign balance by gutting demand so far that your economy stops importing food and fuel. Please refer to Suharto's Indonesia for the results of that and get back to me if you still think that's a good idea.
Has this actually happened?
Chance would be a fine thing.
This is the usual brain rot excuse - what if wages outstrip productivity?
Well - what if they do? Profits and dividends can always be cut to keep prices level. It's not as if leaving profits and dividends to accumulate is actually going to drive investment.
But apparently this realisation is unpossible. Spending on wages must always be cut first, and must be cut more and more severely, until - er - only millionaires have anything left to spend.
At this point austerity can be applied, the state can be bought, and the cycle can repeat elsewhere.
It's specious nonsense. We know that wages and productivity have been disconnected since the 70s - which is, incidentally, when this idea first became something that "everyone knows" i.e. that paying people too much was the primary cause of the inflationary shocks that were actually caused by energy price increases and by Nixon's default on US obligations.
And for the proponents - in what sense is what's happening to Greece now significantly better economically than what happened to Weimar Germany?
in what sense is what's happening to Greece now significantly better economically than what happened to Weimar Germany?
It's not, of course.
During the middle years of the Weimar Republic Germany experienced a burst of "prosperity" based on capital inflows (debt accumulation.) This inflow was used for current account purposes instead of being deployed as long term capital to increase productive capacity -- & is this beginning to sound familiar?
:-)
It's the same old story: the inability to cognize the fundamental difference between "wealth" and "accumulating stuff." She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
No, this has not actually happened... I've quoted Erik Jones many times, here's one more:
Let's start with some data - all of which is taken from the Annual Macroeconomic Database of the European Commission and is freely available on-line. The most damning data against Greece is the movement in real compensation per employee. If we set the year 2000 equal to 100, then by 2009 Greece was at 122 while Germany was at 102. This would suggest that Greek real wages have risen by 20 percent more than Germany - and they have - but that tells us very little about competitiveness. What matters in terms of a head-to-head competition is how Greece and Germany compare in the cost of labor per unit of output and not the real compensation of employees. Moreover, we should look at their performance across the European marketplace as a whole. By that measure, if we set the year 2000 equal to 100, then by 2009 Greece was at 98 while Germany was at 95. Germany is still doing better than Greece, but only by a little and both have improved against the rest of Europe.
What matters in terms of a head-to-head competition is how Greece and Germany compare in the cost of labor per unit of output and not the real compensation of employees. Moreover, we should look at their performance across the European marketplace as a whole. By that measure, if we set the year 2000 equal to 100, then by 2009 Greece was at 98 while Germany was at 95. Germany is still doing better than Greece, but only by a little and both have improved against the rest of Europe.
In fact Greek (inflation adjusted) wages lagged behind productivity increases all through this whole bubble period. And mind that the wages themselves were increasingly unequal... Inflation in Greece was profit driven.
As for productivity increases, check at this EUKLEMS report, p. 14 The road of excess leads to the palace of wisdom - William Blake
Seems to me Greek politicians should ask themselves what they should change in their country to attract and keep succesful companies in their nation.
Why should I choose Greece over say Bulgaria, Poland or India when I choose where to site a new factory manufacturing say, advanced cables, or machinery? Peak oil is not an energy crisis. It is a liquid fuel crisis.
But, yes: http://www.brodosplit.hr/eng/PRESSCENTER/Newsrelease/tabid/3061/articleType/ArticleView/articleId/96 7/Building-of-bulk-carriers-is-contracted.aspx Peak oil is not an energy crisis. It is a liquid fuel crisis.
We could still build excellent ships in Sweden. But no one would buy them for the prices we would require to cover our costs. That's just the way of the world. Peak oil is not an energy crisis. It is a liquid fuel crisis.
We could still build excellent ships in Sweden. But no one would buy them for the prices we would require to cover our costs.
And now...
... you can't.
But I'm sure the strong krona was worth it. For the lawyers.
But the government of an EU member state is not allowed to do anything in these areas. All it is allowed to do is deregulate. Economics is politics by other means
In my experience working for US, British, German, and Swiss companies there's as much Own Goal "political meddling" within and between companies as there is from the government. Brass tacks: whether the entity is Public or Private it is run by people and people "do" politics. An 'Empire Builder,' whether in government or IBM WILL attempt to build an Empire; a person motivated by the Common Good will work towards that. She believed in nothing; only her skepticism kept her from being an atheist. -- Jean-Paul Sartre
would you entrust them with a massive project to evaluate which companies would receive injections of huge amounts of taxpayer money?
It wasn't always thus. There was a time when there was a concept and an expectation of government working in the public interest. As De Gondi recently reminded us, Artistotle defines tyranny as a government run for private, not public, interests. Forty years of right wing propaganda from libertarian billionaires has sold the publics in the "developed" world on the virtues of tyranny! So now we need for the duped to wake up and to insist on a housecleaning. "It is not necessary to have hope in order to persevere."
Again, that's not primarily a Greek issue. It's a matter of inadequate German wages causing a demand shortfall in the Eurozone, and that demand shortfall hitting those countries which did not engage in irresponsible wage suppression policies. - Jake
- Jake
And yet, only yesterday, during his so-called news conference, french president Sarkozy was seen and heard making a complimentary object-lesson out of this very policy of the Germans' wage suppression(s).
And he gets away with this!
Look, I know our abilities to take some useful action to help are very limited here but couldn't EuroTrib at the very least do something in an organised way to vocifierously oppose the juggernaut of eco-nonsense that's still being piously peddled in the popular press, radio and television?
France Info, France-Inter, and others, for example, continue to report off-handedly that the austerity measures --called bail-outs, etc.--are aimed at "rescuing Greece" rather than what they obviously are: a rescue of the financial interests which made lousy and corrupted investment decisions.
Imagine the impact of hearing a news report describe Germany's wage suppression policies as being and having been "irresponsible"!
I was struck by that; others would be as well. The flim-flamming is still going on flagrantly and with little apparent "blow-back" or negative consequences for those who are brazenly peddling theoretic bull-shit. Why, now, is this still allowed to go on? "In such an environment it is not surprising that the ills of technology should seem curable only through the application of more technology..." John W Aldridge
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