Greek Bailout Counterpunched
We now and then – time permitting – take a look at what we regard as the leading internet publication of America's Left (if such a labeling is actually appropriate in this case),. Why would we do that? Well, for one thing there is one area where we are usually in full agreement with its editorial line, namely the issues of imperialism, war and everything related to it. We actually came to know Counterpunch through links from the libertarian site ' '. Anyway, we haven't looked at it in quite a while, due to the qualifier mentioned above ('time permitting'), until a friend sent us a link to Mike Whitney's article ' '.
The final paragraph of the article largely meets with our approval; it reads:
„What Greece needs is a radical restructuring of its debt. It needs to wipe out bondholders, recapitalise its banks, and increase fiscal support until the economy gets back on its feet. Another loan package won’t help to achieve those goals. It will only delay the day of reckoning. It would be better for everyone, if the country defaulted quickly and began the process of digging out now rather than later.“
If there is anything to quibble with there, it is the innocuous sounding phrase 'increase fiscal support'. Greece is bankrupt. It can not 'increase fiscal support' and it would be a grave mistake to do so anyway, as even more scarce resources would end up wasted. However, we certainly agree with the main point, namely that a default would be the appropriate course. Such a default would hit the public sector lenders to Greece just as much as the 'non-default' has hit private sector lenders.
The public sector lenders have only themselves to blame: they should never have thrown money at the problem in the first place. Their intention was to prop up unsound credit because they don't want people to realize that the entire modern-day welfare/warfare state system of the industrialized West is de facto insolvent. Moreover, this insolvency includes the quasi-socialistic fractionally reserved banking system, which could under no circumstances actually pay its depositors if a system-wide run on the banks were to occur (as things stand, less than 5% of the deposit money in the euro area was actually covered by standard money even before the ECB recently halved reserve requirements to a laughable 1%).
Such an admission that the system is insolvent would hasten the process of bankruptcy, something no politician or bureaucrat wants to experience on his watch.
However, if you read through the Counterpunch article in its entirety, Whitney's main complaint seems to be that the 'troika' demands that Greece implement the type of reforms that might actually help it to return to economic growth. Admittedly it is humiliating for Greece's political leadership to be told what it has to do. Greece's sovereignty has basically been rescinded.
However, many of the demands Whitney criticizes are actually noteworthy for being quite reasonable. If we were a Greek citizen who is not an insider belonging to the government and union-led circle of graft and corruption, we would fervently pray for their implementation.
For instance Whitney lists the following points from the EU memorandum to Greece (and proceeds to criticize them as an attempt to open Greece up to robbery by greedy capitalists):
1. “lift(ing) constraints for retailers to sell restricted product categories such as baby food.”
2. “The Government stands ready to offer for sale its remaining stakes in state-owned enterprises, if necessary in order to reach the privatisation objectives. Public control will be limited to only cases of critical network infrastructure.”
3. “The Government will neither propose nor implement measures which may infringe the rules on the free movement of capital. Neither the State nor other public bodies will conclude shareholder agreements with the intention or effect of hindering the free movement of capital or influence the management or control of companies. The Government will neither initiate nor introduce any voting or acquisition caps, and it will not establish any disproportionate and non-justifiable veto rights or any other form of special rights in privatised companies.”
4. “Given that the outcome of the social dialogue to promote employment and competitiveness fell short of expectations, the Government will take measures to foster a rapid adjustment of labour costs to fight unemployment and restore cost-competitiveness, ensure the effectiveness of recent labour market reforms, align labour conditions in former state-owned enterprises to those in the rest of the private sector and make working hours arrangements more flexible. This strategy should aim at reducing nominal unit labour costs in the business economy by 15 percent in 2012-14. At the same time, the Government will promote smooth wage bargaining at the various levels and fight undeclared work.”
5. „Implementation of law 3982/2011 on the fast track licensing procedure for technical professions, manufacturing activities and business parks and other provisions”.
6. “In line with the policy objectives of Law 3919/2011 on regulated professions, the Government removes entry barriers to the taxis market… in line with international best practice.”
(we've numbered the list to make it easier to refer back to it below)
To the latter point (6), Whitney says, with great consternation:
„So even taxi drivers get a spot at the trough? Doesn’t that seem a bit irrelevant?
None of this has anything to do with helping Greece. It’s just corporate pillaging gone haywire. Greece is a big pinata that’s just been cracked open and everyone is pushing and shoving to grab their fistful of candy.“
He apparently doesn't realize that it is indeed relevant and that he has things completely the wrong way around. Contrary to what he says, it is the current practice in Greece that 'gives taxi drivers a spot at the trough', because the licensing regulations and costs are such that they make competition impossible. This may be great for incumbent taxi drivers, but it is bad for everybody else in society: the fact of the matter is that consumers suffer as long as taxi drivers are allowed to keep their spot at the trough.
It is the same with all his other complaints. Contrary to what he implies, these demands are the only sensible thing that has emerged from the whole bailout mess so far.
To point 1): again, the current constraints on retailers regarding the sale of baby food are designed to hinder competition. There is no other reason for their eistence. They create vast opportunities for graft, as do all the other things Whitney thinks the Greeks should leave as they are.
To point 2): Whitney as a good lefty thinks privatization is bad and amounts to an invitation for corporate highway robbery. Now, we would agree that the privatization process must be implemented with great care – as we know from Yeltsin's privatizations in Russia, as long as the government is still involved, the process can be abused to the point of constituting outright theft.
Other than that, we would note though that Greece's state-owned companies are wasting tax payer money on a truly staggering scale and exist mainly to give the political class the means to distribute favors among its supporters. All the militant unions that support (or used to support) PASOK are installed at these state-run companies and have been robbing tax payers blind for decades (and are now repeating the process with Greece's creditors, which the creditors understandably want to put a stop to). In return for being robbed by this repulsive clique, tax payers got sub-par services. Just as a reminder: There was a state-run hospital in Athens that employed 39 gardeners, but actually has no garden. If Whitney is really concerned about Greek citizens getting proper medical care as he avers, he should cheer the privatizations on.
To point 3): This is a sine qua non if one wants the privatization process to succeed. If government can subsequently influence the management of privatized entities, we'd be back at square one. Graft and corruption would continue unabated. Finally, investors must be reasonably assured that they can indeed move their capital freely. There is nothing untoward about that, it is after all their capital. Whitney's complaint about this point implicitly amounts to a demand that the Greek government should be free to steal whatever it wants after the privatizations.
To point 4): it should be clear that reforming the labor market to make it more competitive and more free market oriented is a key point that needs to be implemented if Greece wants to succeed economically. As everybody has by now realized, there is a good reason why Germany has one of the lowest unemployment rates in Europe today (recall that a decade ago, Germany was known as the 'sick man of Europe'). It reformed its labor market and made it more free market oriented. It should not even be necessary to debate such things. Much of the unemployment in the regulatory democracies is institutionalized unemployment: it is a result of hampering the market economy.
To point 5): this is intimately related to point 6). In Greece, various professions are shielded from competition by a veritable jungle of licensing regulations. This retards economic growth and is to the detriment of society at large, while creating countless opportunities for corruption. It is high time something was changed and the fact of the matter is that the Greek government has so far proved incapable of doing so.
We will illustrate further below how utterly sick the current system in Greece is. It is a wonder its economy hasn't collapsed much earlier already.
The Nightmare of Opening An Online Business in Greece
As is the case elsewhere in the world, online business is growing fast in Greece. It is one of the areas of the economy that has experienced brisk growth in spite of the economic downturn.about the difficulties involved in starting such a business in Greece. To just name one point: the approval for the application to the FDA in the US was received by this business within 24 hours. It took 10 months to get exactly the same approval in Greece.
The entire article is well worth reading. We excerpt a few snips below:
“It took 10 months, a fat bundle of paperwork, countless certificates, long hours of haggling with bureaucrats and overcoming myriad other inconceivable obstacles for one group of young entrepreneurs to open an online store.”
“An online store is more complicated than a regular store basically because of the way payments are carried out,” explained Fotis Antonopoulos, one of the co-founders of www.oliveshop.com, which sells olive oil-based products such as cosmetics, mostly to foreign markets.
“Most stores begin operating after receiving only the approval regarding their brand name, as the bureaucracy involved takes such a long time to complete that it is simply impossible to keep up with the operational costs, such as paying rent on obligatory headquarters, without making any sales,” said Antonopoulos.
Antonopoulos and his partners spent hours collecting papers from tax offices, the Athens Chamber of Commerce and Industry, the municipal service where the company is based, the health inspector’s office, the fire department and banks. At the health department, they were told that all the shareholders of the company would have to provide chest X-rays, and, in the most surreal demand of all, stool samples.
Once they climbed the crazy mountain of Greek bureaucracy and reached the summit, they faced the quagmire of the bank, where the issue of how to confirm the credit card details of customers ended in the bank demanding that the entire website be in Greek only, including the names of the products.
“They completely ignored us, however much we explained that our products are aimed at foreign markets and everything has to be written in English as well,” said Antonopoulos.
Eventually, Antonopoulos and his associates decided to use foreign banking systems like PayPal, and cut the Greek bank, with which they had been negotiating for three months, from the middle. “It’s their loss, not ours. We eventually solved the problem in just one day,” explained Antonopoulos.
Antonopoulos describes the massive difference between the treatment he and his partners received from the Greek authorities and the American Food and Drug Administration (FDA), whose approval Oliveshop.com needed in order to export its products to the USA.
“I contacted the FDA and they sent us an e-mail with directions immediately. I filled in an online form and was done in five minutes. We received the approval 24 hours after making our application.”
This bureaucratic nightmare is not only typical for Greece: it is encountered in many other European nations as well. Every year, hundreds of thousands of pages of new laws and regulations are created all over Europe, on the supra-national (EU), the national and provincial level, and in addition a monstrous amount of 'administrative law' is created by bureaucracies themselves (without any democratic oversight we should add).
As despicable as the 'troika' may be and as crazy as the whole bailout charade is, the demands regarding the reform of the Greek economy and the streamlining of this bureaucratic nightmare are something that Greece evidently urgently needs. This is entirely independent of the fact that a default is inevitable and that the subsidization of the current account deficits of the 'PIIGS' via the euro system's 'TARGET2' payments system is creating an ever bigger risk for savers in the surplus countries.
Whitney stresses in his article that his critique is first and foremost about what is good for Greece. As we have always pointed out, the most important thing from the point of view of Greece's citizens is that they need a light at the end of the tunnel: there has to be a prospect of economic recovery. Obviously a 'bailout' that merely serves to keep the claims of creditors current on paper and will – if everything goes according to plan – lower the public debt-to-GDP ratio to 120% in several years time is not offering such a prospect.
However, the list of reform demands is a different cup of tea. It is what Greece would have to do anyway if the country is to have a chance to recover. The widespread idea that all that will be required to set things right is the return to a rapidly devaluing new drachma is entirely misguided. It would expropriate Greek savers to the advantage of its debtors and any advantages it would create on the export front would soon disappear due to soaring import costs and prices.
The vagaries involved in opening an online shop in Greece are symptomatic for what ails the country. These are precisely the things economic reform must do away with. The power of the country's byzantine bureaucracies needs to be broken.
Or does anyone really think that there is nothing untoward about having to send 'chest x-rays and stool samples' to the bureaucrats before one can open an online shop?
It is that time of the year again – our semi-annual funding drive begins today. Give us a little hand in offsetting the costs of running this blog, as advertising revenue alone is insufficient. You can help us reach our modest funding goal by donating either via paypal or bitcoin. Those of you who have made a ton of money based on some of the things we have said in these pages (we actually made a few good calls lately!), please feel free to up your donations accordingly (we are sorry if you have followed one of our bad calls. This is of course your own fault). Other than that, we can only repeat that donations to this site are apt to secure many benefits. These range from sound sleep, to children including you in their songs, to the potential of obtaining privileges in the afterlife (the latter cannot be guaranteed, but it seems highly likely). As always, we are greatly honored by your readership and hope that our special mixture of entertainment and education is adding a little value to your life!
Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke
One Response to “Why Greece Needs A Nudge In the Right Direction”
Most read in the last 20 days:
- A Striking Chart
The Economy and the Stock Market As long time readers know, we are always paying close attention to the manufacturing sector, which is far more important to the US economy than is generally believed. In terms of gross output it is the largest sector of the economy, and it should of course be obvious that saving, investment and production are the only ways to create wealth. What's left of the Brooklyn Domino Sugar Refinery. Photo credit: Paul Raphaelson Contrary...
- Trump and Putin Narrowly Escape Assassination Attempt
The Gloves are Coming Off First a little bit of recent history. Readers are probably aware that some questions about the occasionally malfunctioning Deep State android... no, wait, we'll start again. Questions have recently been raised about the health of presidential candidate Hillary Clinton by various “alt-right” tinfoil hat-wearing conspiracy theorists, such as this one. The monsters are normally hiding under Hillary's bed, but lately they have come out into the open...
- US Economy - Curious Pattern in ISM Readings
Head Fake Theory Confirmed? This is a brief update on our last overview of economic data. Although we briefly discussed employment as well, the overview was as usual mainly focused on manufacturing, which is the largest sector of the economy by gross output. Pepsi factory in Baltimore, 1956 Photo via pinterest.com Readers may recall that we have pointed out for some time that there was quite a large gap between the data reported in regional Fed manufacturing...
- A Convocation of Interventionists, Part 2
Pleas for More Deficit Spending We continue with our Jackson Hole post mortem – including remarks that were made by economists and monetary bureaucrats shortly before and after the pow-wow and seem to be connected to the discussions there. Assembled central planners (we're not sure if this picture was taken at the conference, but most of the people in it were there). Photo credit: Getty Images We should preface the following with a Mises quote, as the...
- Why the Fed Destroyed the Market Economy
What Have You Done for Me Lately? Swing voters are a fickle bunch. One election they vote Democrat. The next they vote Republican. For they have no particular ideology or political philosophy to base their judgment upon. The primacy of the wallet. They don’t give a rip about questions of small government or big government. Nor do they have any druthers about the welfare or warfare state. In effect, they really don’t care. What’s important to the...
- How is Real Wealth Created?
An Abrupt Drop Let’s turn back to our regular beat: the U.S. economy and its capital markets. We’ve been warning that the Fed would never make any substantial increase to interest rates. Not willingly, at least. Groping in the dark, Yellen-style Each time Fed chief Janet Yellen opens her mouth, out comes a hint that more rate hikes might be coming. But each time, it turns out that the economy is not as robust as she had believed... and that a rate hike isn’t...
- Janet Yellen’s Shame
Playing Politics In honest capitalism, you do what you can to get other people to voluntarily give you money. This usually involves providing goods or services they think are worth the price. You may get a little wild and crazy from time to time, but you are always called to order by your customers. In the market economy, consumers reign supreme. There is no such thing as a “lost” vote in the marketplace; every penny spent affects production. Mises noted: “Consumers...
- Get Ready for a New Crisis – in Corporate Debt
Imposter Dollar OUZILLY, France – We’re going back to basics here at the Diary. We’re getting everyone on the same page... learning together... connecting the dots... trying to figure out what is going on. The new three dollar bill issued by the Apprehensive States of America. We made a breakthrough when we identified the source of so many of today’s bizarre and grotesque trends. It’s the money – the new post-1971 dollar. This new dollar is green. You...
- A Convocation of Interventionists – Part 1
Modern Economics - It's All About Central Planning We are hereby delivering a somewhat belated comment on the meeting of monetary central planners and their courtier economists at Jackson Hole. Luckily timing is not really an issue in this context. Central bank headquarters: the Fed's Eccles building, the ECB's hideously expensive new tower in Frankfurt, and the BOJ's Tokyo HQ (judging from the people in the foreground, it may be a source of noxious fumes). When...
- The Economy, the Stock Market and the Fed
John Hussman on Recent Developments We always look forward to John Hussman's weekly missive on the markets. Some people say that he is a “permabear”, but we don't think that is a fair characterization. He is rightly wary of the stock market's historically extremely high valuation and the loose monetary policy driving the surge in asset prices. The S&P 500 Index and the NYSE advance-decline line. Most market internals weakened steadily until early February 2016, but...
- Hanjin Marooning in San Pedro Bay
Global Trade Reversal Expansions and contractions in global trade have played out over long secular trends for thousands of years. The Silk Road, for example, was established by the Han Dynasty of China in 130 BC, and allowed for continuous trade between East and West for nearly 1,600 years. In addition to economic trade, the Silk Road was also a conduit for culture and knowledge among its network of civilizations. A map of the main ancient Silk Road - click to...
- John Maynard Keynes’ General Theory Eighty Years Later
The “Scientific” Fig Leaf for Statism and Interventionism To the economic and political detriment of the Western world and those economies beyond which have adopted its precepts, 2016 marks the eightieth anniversary of the publication of one of, if not, the most influential economics books ever penned, John Maynard Keynes’ The General Theory of Employment, Interest and Money. The mere fact that the book is lauded by TIME magazine on the cover should give everyone...