Showing posts from July, 2015

In defence of the (conflicted) ECB

Everyone has been so transfixed by Yanis Varoufakis's "Plan B" revelations that his defence of the ECB's Mario Draghi passed unnoticed. Here it is, transcribed from the Lamont tape by Peter Spiegel at the FT:
Mario Draghi has handled himself as well as he could, and he tried to stay out of this mire, the political mire, impressively. I have always held him in high regard. I hold him in even higher regard now, having experienced him over the last six months. Having said that, the European Central Bank is set up in such a way that it is so highly political, it is impossible not to be political.

Don’t forget the ECB, the central bank of Greece – because that’s what the ECB is, it’s the central bank of all our member states – the central bank of Greece is a creditor of the Greek state, and therefore it is also [break in audio] once it is the lender of last resort, supposedly, and the enforcer of fiscal austerity. Now, that violates, immediately, the supposed distinction…

Lies, damned lies, and Greek statistics

Guest post by Sigrún Davídsdóttir

The word “trust” has been mentioned time and again in reports on the tortuous negotiations on Greece. One reason is the persistent deceit in reporting on debt and deficit statistics, including lying about an off market swap with Goldman Sachs: not a one-off deceit but a political interference through concerted action among several public institutions for more then ten years.

As late as in the July 12 Euro Summit statement "safeguarding of the full legal independence of ELSTAT” was stated as a required measure. Worryingly, Andreas Georgiou president of ELSTAT from 2010, the man who set the statistics straight, and some of his staff, have been hounded by political forces, including Syriza. Further, a Greek parliamentary investigation aims to show that foreigners are to blame for the "odious" debt. But there is no effort to clarify a decade of falsifying statistics. 

In Iceland there were also voices blaming its collapse on foreigners. But th…

When reason departs

In my last post, I pointed out that Greece's current depression is by no means the worst since World War II, as is often stated, and that the US's Great Depression was not the worst depression in history either. For reference, I'm putting up Tony Tassell's chart again.

I'm frankly appalled by the comments on that post. The arguments used to justify the prevailing views amount to the following.

1. The other countries in the list aren't rich Western countries, so they don't count.


2. Depression in a time of war isn't really depression.

I doubt if the people of Syria would agree with this.

However, in support of this point (and taking into account point 1), Christos Savva kindly provides this chart:

What this chart shows us is that the two World Wars were bad for the GDP of Western countries, and REALLY bad for the GDP of the countries on the losing side. So if you want to avoid a really bad depression, make sure you always win wars. Unless you are Am…

Not such a Great Depression

We're used to hearing that the current Greek depression is the longest and deepest since World War II, aren't we? And that the worst depression in history was the US's Great Depression?

Via the FT's Tony Tassell comes this chart:

Looks like the fall of the Iron Curtain, the collapse of the Soviet Union and the first Gulf War did far more damage. Not to mention the numerous wars and crises in Africa. The current Greek depression just about makes it on to the bottom of this chart, and the other recent EU disasters don't even figure. 

I can't imagine what it is like to live through a GDP collapse of nearly 80%. But there are people alive today in Georgia and Iraq who remember that dreadful time all too well. And the appalling collapse suffered by Latvia in 1990-3 made their 2009 recession seem mild by comparison, even though it was the deepest of any country in the EU at that time. 
Nor are these all depressions of the past. Halfway up this chart is Syria, which …

The Great Greek Bank Drama, Act II: The Heist

The banks are re-opening, though just for transactions, so people can pay their bills and their taxes, pay in cheques, that kind of thing. The cash withdrawal limit has been changed to a weekly limit of 420 EUR per card per person, enabling households to manage their cash flow better. But the capital controls remain: money cannot leave the country without the agreement of the Finance Ministry. And the banks remain short of cash: although the ECB has raised the funding limit by 900m EUR, that only amounts to about 80 EUR per Greek so won't go very far. But the tourist season is in full swing, and tourists have been advised to bring cash into the country rather than using ATMs in Greece. On balance, therefore, Greece's monetary conditions should be easing.

But there is another tranche of bailout conditions to be agreed by the Greek Parliament by Wednesday 22nd July:
the adoption of the Code of Civil Procedure, which is a major overhaul of procedures and arrangements for the civil…

The Great Greek Bank Drama, Act I: Schaeuble's Sin Bin

Greece's banks have been closed since 29th June. The closure followed the ECB's decision not to increase ELA funding after talks broke down between the Greek government and the Eurogroup.

The closure is doing immense economic damage. The cash withdrawal limit of 60 euros per bank card per day is restricting spending in the Greek economy to a trickle. Media generally focus more on the hardship that the cash limit causes for households: but far worse is the inability of businesses to access working capital and make essential payments. Businesses are failing at a rate of knots. People are losing their jobs. And bank loan defaults are rising rapidly.

The closure was, of course, the decision of the Greek government, as was the associated decision to impose partial capital controls. But it is hard to see that they had any choice. Deposits have been draining from Greek banks for months, but when talks broke down the outflows increased to a full-blown bank run. The  ECB's deci…

There are controls, and then there are controls....

Guest post by Sigrún Davídsdóttir

Now that Greece has controls on outtake from banks, capital controls, many commentators are comparing Greece to Iceland. There is little to compare regarding the nature of capital controls in these two countries. The controls are different in every respect except in the name. Iceland had, what I would call, real capital controls – Greece has control on outtake from banks. With the names changed, the difference is clear. Iceland – capital controls The controls in Iceland stem from the fact that with its own currency and a huge inflow of foreign funds seeking the high interest rates in Iceland in the years up to the collapse in October 2008, Iceland enjoyed – and then suffered – the consequences, as had emerging markets in Asia in the 1980s and 1990s. Enjoyed, because these inflows kept the value of the króna, ISK, very high and the whole of the 300.000 inhabitants lived for a few years with a very high-valued króna, creating the illusion that the country w…

Tsipras in the crucible

The atmosphere in the Greek standoff is turning ugly. On Tuesday, after new Greek finance minister Euclid Tsakalotos turned up to Eurogroup talks with nothing but hastily-drafted notes written on hotel paper, Eurozone leaders told the Greek government in no uncertain terms that if it did not produce credible proposals by Sunday 12th July Greece would be thrown out of the Eurozone. "We have a Grexit scenario prepared in detail", said European Commission president Jean-Claude Juncker.

The President of the European Council, Donald Tusk - one of the very few consistently sane and reasonable voices in this drama - said that inability to find agreement may lead to the bankruptcy of Greece and the insolvency of its banking system. And he warned that there would be serious - possibly irreparable - geopolitical repercussions for the European Union. "If someone has any illusion that it will not be so," he said, "they are naive".

Others have also warned about the g…