Bitcoin fixes a Greek problem – but not the Greek debt problem

Hallelujah and may the Lord be praised! Someone has finally managed to find a decent economic use for Bitcoin. This isn't what those of us interested in the nitty-gritty of economics ever really expected, to be quite frank. We have looked on the alt-coin world as a rerun, a recapitulation, of every scam, fraud and mistake that …

[Yet Another Anonymous coward]

QE

Can anyone explain why printing truckloads of money was the correct thing to do for UK and USA while restricting the money supply and austerity was the necessary for every other advanced country in europe?

Was it simply that all Germans believe that inflation (even 2.1% inflation) causes Nazis?

Was it a deliberate screw your neighour policy (like Germany claiming that the only way out of recession is for France/Italy to close their car industry) ?

[Tim Worstal]

Re: QE

"Was it simply that all Germans believe that inflation (even 2.1% inflation) causes Nazis?"

I'm not sure I would try to explain it to Angela in exactly those words but pretty much, yes.

I would perhaps more gently point out that the Bundesbank hasn't quite caught up with Milton Friedman's pioneering research (this really was where he made his academic bones, along with Anna Schwartz) in A Monetary History of the United States. Umm, 1963 I think?

The Federal Reserve *caused* the Depression. Not just didn't alleviate it, but made it happen. And the German insistence that that's not what happened is why it's all been so much worse in the eurozone.

And that really is about it I'm afraid. The Bundesbank, and thus much of the ECB, is about 60 years behind the intellectual curve.

[Anonymous Coward]

Re: QE

"The Bundesbank, and thus much of the ECB, is about 60 years behind the intellectual curve."

Unfortunately, in its attitude to the Greek people, it seems to be about 74 years behind.

[Schnoerkelman]

Re: QE

"The Federal Reserve *caused* the Depression. Not just didn't alleviate it, but made it happen. And the German insistence that that's not what happened is why it's all been so much worse in the eurozone.

And that really is about it I'm afraid. The Bundesbank, and thus much of the ECB, is about 60 years behind the intellectual curve."

Thanks for that Tim. I've been waiting to hear someone spell it out so clearly for a long time as I rage privately here in Good Old Germany against the insane policies and seemingly incredible lack of understanding of macro economics among the entire political class here.

[Chairo]

Re: QE

I would perhaps more gently point out that the Bundesbank hasn't quite caught up with Milton Friedman's pioneering research (this really was where he made his academic bones, along with Anna Schwartz) in A Monetary History of the United States. Umm, 1963 I think?

OK, I take the bait and the downvotes and point out that pretty every finance minister of Greece in recent history has been an economist and most of them came right out of Oxford. You can assume that all of them knew Friedmanns theories very well and all of them failed miserably.

One real life example of what went wrong - my wife had some business with the Greece embassy here in Tokyo and told me several times that she was astonishedy th about the enormous budget they had for touristic advertisements and about the receptions they held there. Sounds like good spending, if you don't take into account that there was not even a direct flight from Japan to Greece and Greece as holiday destination was effectively non existent in Japanese travel agencies. Turkey had a far smaller budget, but they used their money wisely, organized direct flights and are now quite successful as holiday destination.

But it would have certainly been more fun to work for the Greece embassy, before the bubble burst.

A small example, but it is symptomatic for what went wrong in Greece. I have yet to find someone who went there for holiday and came back satified. I know several examples of people who came back and were quite pissed about the way they have been treated there. The keywords were "expensive", "arrogant" and "unfriendly".

As for German bashing - it is always fun and popular, but personally I can understand that they are fed up with feeding Greece.

[Tim Worstal]

Re: QE

That Greece was spendthrift is correct. That's how they got into the mess. But it's the euro that won't let them out of the mess.

Finland wasn't spendthrift at all. But Nokia fell over, forestry products business declined: and yet they've got the same problem, they've got to have that internal devaluation because of the euro.

What went wrong isn't really the point. It's that when something goes wrong the euro doesn't allow monetary responses to it (interest rates, QE, exchange rate changes etc).

[Anonymous Coward]

Re: QE

You definitely need to check your facts on this one.

Greece didn't meet the criteria to enter the EU.

The books were then fiddled to make it happen (like in some other countries too).

Then money was printed to lend to the Greeks at exorbitant interest rates.

That sucked out the wealth from the country and made the bankers rich.

The recipe is the same - it happened to other countries too.

[I ain't Spartacus]

Re: QE

You definitely need to check your facts on this one.

Greece didn't meet the criteria to enter the EU.

When telling someone else to check their facts, its first important to get yours correct. Greece indeed fiddled the figures to get into the Euro. And info and leaks from German government sources make clear that everyone was aware of this at the time. Italy didn't even come close to complying with the Maastricht convergence criteria, but was admitted as one of the original Euro members. The Euro was a political project, not an economic one. The idea was that ever closer union would fix all the known problems, it's just that no-one wants ever closer union anymore.

Anyway Germany and France also didn't meet the criteria, so the pension assets of France Telecom and Deutsche Telekom for example magically got included on the books as government assets, in order to make their government debt figures look better.

[Chairo]

Re: QE

it's the euro that won't let them out of the mess.

That, and exactly that is the problem. And you know what? Germany is trapped in this system just like all other countries as well. The effective income in Germany stagnated after the introduction of the euro while it went up nearly everywhere else. Italy, Spain, Greece, Portugal, Ireland, ... they all had their bubbles thanks cheap euro credits. Not only their governments but also the citizens of these countries took debts. Partly for consuming, but also for investments. This never happened in Germany, so while the average South European has his own home, the average German has the pleasure to pay rent from a ever shrinking effective income.

You think they would support QE?

There is a reason Schauble has a 75% approval rate at the moment. Has there ever been any finance minister in this world with such an approval rate? I doubt it.

Oh, one more thing - if you want to see what happens to a developed nation that overuses QE, look to Japan. Highest country debt in the world, and a stagnating economy. The government now runs another QE plan, called "Abenomics". There are some interesting points about it, like forcing the pension insurance to shift their stock portfolio from Japanese stocks to foreign (mainly US) stocks. Let's see what comes out of it...

[I ain't Spartacus]

Re: QE

That, and exactly that is the problem. And you know what? Germany is trapped in this system just like all other countries as well. The effective income in Germany stagnated after the introduction of the euro while it went up nearly everywhere else.

Chairo,

This is true. But this was a German political choice. Haartz IV. They held down wages to boost exports. In a fixed currency system there's a name for this. It's called Mercantilism. And it's against Eurozone rules. By suppressing wages, the Germans boosted the competitiveness of their exports, while also restricting domestic demand within Germany. The downside of this is that capital builds up in German banks, but there's nowhere to spend it, as demand is low.

The banks had to pay interest on those savings. So they had to lend it to someone. There was insufficient appetite for borrowing in Germany, so the German banks recycled this money across the Eurosystem as loans to Spain, Greece, Italy etc.

But now Germany would like its money back. Understandably. But those countries can't pay Germany back, because Germany won't buy their goods, because Germany likes to run huge trade surpluses. The Eurozone solution to this has been to cause deep recessions in Southern Europe, thus massively pushing up unemployment and forcing wages down. This has destroyed internal demand, so now the Eurozone has a large trade surplus with the rest of the world - and those trade surpluses can be used to pay back debts within the Eurosystem.

Of course this causes deflation all across the world, as the Eurozone and China both push policies to repress internal demand and boost exports. The better policy would be a bit of inflation to help reckless debtors a bit and punish reckless lenders (but only a bit) - and allow wages in Germany to rise faster than those in the Eurozone periphery. Also structural reforms to make their economies more competitive. Although breaking up the Euro in an orderly manner would be the best policy choice of all.

If the Germans had stuck to the Eurozone rules, they wouldn't have done this internal devaluation. They also wouldn't have broken the Growth and Stability Pact in 2003 (without penalties). And they'd have been taking action to reduce their trade surplus once it topped 6% of GDP 6 years ago (also in breach of Eurozone rules). Now who was it who called the Eurozone "a rules based organisation"? Ah yes, it was Merkel. Repeatedly. And Schaeuble too. Repeatedly. And rather smugly. And I suggest, incredibly hypocritically.

This is one reason why Italy entered the Euro with a trade surplus with Germany, and now has a deficit.

Also it's causing the increase of inequality in Germany. As workers aren't getting the benefits of the export boom, it all goes to profit.

Separate currencies are great for dealing with this problem. Making people take wage cuts is difficult and painful. Wages tend to be sticky. It takes unemployment to push them down. But a currency devaluation does this to everyone for imports, but doesn't effect internal trade so much. So can cushion the effect.

Oh, one more thing - if you want to see what happens to a developed nation that overuses QE, look to Japan.

It's too early to tell. Japan's problem was allowing deflation to take hold in the early 90s. Their economy has stagnated ever since. This is what the Eurozone and ECB were allowing, until they finally announced QE this year.

Although they have allowed deflation to take hold in Italy, Spain and (most disastrously) Greece. And QE was designed to exclude Greece, who need it most.

Whether Abenomics will work, who knows. But Japan now has both growth and inflation, for the first time in 20 years. If they can get the economy to keep growing, then their debt is sustainable. If not, it won't be. Rather like Italy's. If the Eurozone can't meet its own targets, and give Italy 2% inflation a year, along with some growth, then Italian government debt will have to be written-down. Given that all the major Italian opposition parties are now calling for a Euro referendum, they may solve their problem by leaving. Unless the Eurozone start pursuing policies that work for everyone, not just the core.

[I ain't Spartacus]

Re: QE

Well growth in the US and UK has been much higher than the Eurozone average. And we did QE, and they didn't until a couple of months ago.

On the other hand, Germany's growth has been pretty similar. So I'd say it's a combination of deeply held beliefs and German "folk memory", and "I'm alright Jack". The places that risked deflation were Italy, Spain and even France. But the Germans didn't care so much about them. Of course Greece has deflation, and Eurozone QE was specifically designed to exclude them! That deflation is a policy disaster of the highest order, because:

Let's say the Greeks grow their economy at 1% a year and paid all the interest on their debts, but deflation was 2%. Then Greek nominal GDP growth would be -1%. So their debt to GDP ratio would actually get worse even as their economy grew, and so their debt would become ever more unsustainable. Which is why the first bail-out failed, the second bail-out failed and this third bail-out willl fail. Seemingly, Germans can't fucking count...

Another policy reason in general is that Germany lowered a lot of their wages in the boom. Haartz IV is the name usually given to it. This means that Southern Europe's wages were going up, while the German's weren't. Hence they became less competitive and the Germans more so. Hence the German trade surplus kept on growing. So in order to get the competitiveness back to something more level, you need wage cuts in Spain, Italy, Greece and France. But wages are sticky. It takes high unemployment to force them down. That's deflationary. So Eurozone policy is to force deflation on countries, it's called internal devluation. It's another disastrous consequence of sharing a single currency and not having exchange rates to take the strain of adjustment. QE would make that less effective.

As you might understand, the Germans feel that they've taken the pain, why shouldn't others. And who can blame them for not wanting to pay for Greece's over-spending? However before complaining of the mote in your brother's eye, you may wish to remove the log in your own.

By the way, that German internal devaluation while they already had a trade surplus is against the Eurozone rules. As are bail-outs. And for the same reason, because it creates massive distortions, which cause financial crises. However, no action was taken against Germany and France when they broke the Financial Stability Pact in 2003, and no action has been taken against Germany for running intra-Eurozone trade surpluses of more than 6% of GDP for the last 6 years!

But according to ze German government, "the Eurozone is a rules based institution" and people must be punished for breaking the rules. So long as they're not German of course...

[Anonymous Coward]

@I Ain't Spartacus - why Germany's growth has been similar

Germany has the strongest economy in the EU. Just because the EU as a whole has been lagging doesn't mean some places won't be well above average, and others well below average. Just like in the US the recovery wasn't evenly distributed amongst all 50 states, but some states experienced a strong recovery relatively quickly (oil & farm related economies) and others are still lagging (rust belt states like Michigan still suffering the aftereffects of the downsizing of the US automotive industry)

[I ain't Spartacus]

Re: QE

Yet another anon coward,

As my last post was long, and to be frank becoming a bit of a rant (I'm rather angry about this whole Eurozone clusterfuck), I thought I'd post again on QE.

QE isn't quite money printing.

It's back to that difference between insolvent and illiquid. If a bank has loads of assets it can't sell (such as crappy old mortgage backed securities), but these are actually worth money if only people were willing to buy them, what does it do? Well it goes bust. No one will buy it's valuable stuff, so there's a run, it can't sell, it goes pop. But really it's not insolvent, it's not bankrupt. It's got the assets, it just can't turn them into cash. So it has a cashflow crisis, which needs solving. That's also true if you're holding loads of government debt, but everyone's scared the government are about to default, because they're running terrifyingly huge deficits.

But hooray! Central Banks to the rescue. They can print imaginary money, come along and buy loads of this stuff up, and hey presto! The banks have cash! They're now liquid, as well as solvent. Even better, why not buy some government debt as well, so that interest rates don't shoot upwards?

So you've increased the money supply. But you've taken assets out of the system in return. So it's not quite the same as money printing. You've swapped illiquid assets for liquidity. It seems not to be as inflationary as just printing cash. The other idea was "helicopter money". Give everyone in the country £1,000 and watch consumer spending rise. Although I believe when this was tried in Japan, most people paid down debt or saved it. So in recession even that may not generate sufficient demand or inflation.

Theoretically this can all be reversed. I'd say it might have been looked at as the stock market bubbles were bubbling away, as that's where a lot of this liquidity may have been going. But I'd assume the banks were felt to be too weak.

But reversing it is easy. The Central Banks just sell this stuff back to the market, and destroy the money they get for it. It's a tool for reducing excess liquidity other than raising interest rates. I imagine the Bank of England will find it useful.

I believe this will never fully happen. If it's not been too inflationary, and the Bank of England are holding say £150bn of UK government debt, why sell it back to the market and pay interest on it? I supsect that 5 years or so, a Chancellor will somewhat shamefedly mumble in his budget that he's writing it off - disappear that debt - and no-one will notice that our government debt has gone down by 20% (or whatever). You can do this once every 100 years and get away with it. Make a habit of it, and you risk Zimbabwe/Weimar inflation.

By the way, the Europeans also did this in 2011. The ECB gave the banks €2 trillion in loans. Of money they'd just printed from nowhere. Lending cash to solvent banks is what Central Banks are for of course. Except when they're deliberately fucking over Greece under German pressure (stopping ELA at the end of June to deliberately cause a bank run was a fundamental failure to do the one job that a Central Bank is there to do!). Anyway they just print that cash, then destroy it when they're paid back. And of course they take assets as collaterol. So it's QE by another name, but it was more temporary. However when you do it to the tune of €2 trillion, and encourage all banks to take it, it's still QE. If it quacks like a duck...

[Anonymous Coward]

Re: QE

I.A. Spartacus (and to a lesser extent Tim) -thank you! I may not approve of the economic system we have, for reasons of my own, but I'll freely admit that my understanding of the details is poor, and you have educated me greatly in your posts above.

[Colin 22]

Re: QE

I have wondered if PPI is the nearest the UK will get to implimenting "Helecopter Money"

[chris 48]

Re: QE

Could you explain what you mean by "worth" in the phrase "a bank has loads of assets it can't sell (such as crappy old mortgage backed securities), but these are actually worth money if only people were willing to buy them"?

My understanding of what "worth" means to economists is that people are willing to buy them for that amount of money.

It's not just splitting semantic hairs, the mortgage backed securities genuinely were worth a lot less than was being accounted for. By artificially raising their price back up to their book value and buying them the central banks transfered a huge amount of money to the banks while pretending that they were just solving a liquidity issue.

[I ain't Spartacus]

Re: QE

Chris 48,

A lot of those mortgage backed securities are in fact still operating at the less than 5% default rate specified. Most in the UK. The US may have had more of the crap ones.

There have been several funds making an absolute killing by buying them at hugely discounted rates, then paying a bonus to the mortgage holders to bugger off and remortgage with someone else, then using the money to buy more of the same - and go round again.

Northern Rock, who were doing a lot of the 125%, buy-to-let and self-cert mortgages, almost certainly shouldn't have been wound up. Not only is the bit sold to Virgin profitable, but so is the "bad bank" bit the government kept. When the final calculations are done in a few years time, they'll probably have been illiquid but solvent, and RBS insolvent - although you can't really blame the government for bailing out RBS anyway, given what happened with Lehman brothers.

One of the main problems was the banks dishonesty. Because they'd been packaging up some crap with some good stuff, and the instruments were so complicated, and trust in them had broken down - no-one had a clue what any of this stuff was worth. And no-one was willing to trust even those bankers who had good numbers to prove their packaged mortgages were still performing.

The problem with mark-to-market is that financial institutions get destroyed by temporary market panics. They're then forced to sell into a market crash in order to comply with regulations, that then makes the market crash worse and crystalises their losses.

The problem with mark-to-value is that the bankers are currently untrustworthy. And as an industry seem to have learnt very little from the recent crisis.

There's truth in the Central Banks pretending some bust institutions were only illiquid. Partly this is because the relationships between banks and regulators seem to have broken down. I suspect they just didn't have a "feel" for where all the banks were, and there was no time to find out. Just get them saved, and sort it out later. RBS was way too complicated, and even they don't seem to have understood just how fucked their investment banking arm was until last year. But on the other hand, panic is self-fulfilling. The stress-tests should give sensible Central Banks a much better idea of what their banks are up to. Except the ECB ones, which keep finding banks are OK - then watching them go pop a few months later. But I suspect they're scared of what they'll find, given the Eurozone still doesn't have a working banking resolution system.

[tony72]

Re: QE

Can anyone explain why printing truckloads of money was the correct thing to do for UK and USA while restricting the money supply and austerity was the necessary for every other advanced country in europe?

Quantitative Easing and austerity are not mutually exclusive; quite the opposite is true, in fact. The purpose of QE is to ensure that there is money available in the banking system to keep businesses functioning and growing. The purpose of austerity is to reduce the government's spending to the point where it can begin to reduce its deficit, and thus the percentage of GDP that is spent on servicing debt rather than providing services to the taxpayer. Both can be a good thing, separately or together, depending on what economic circumstances you're looking at. We're doing both in the UK for example.

But of course, engaging in QE is a bit of a different proposition for a central bank when you have one currency used in many different countries with economies in very different conditions, so it's not really surprising that it hasn't been a preferred tool of the ECB. Things are much simpler for the Bank of England or their American counterparts, with only one country to deal with.

[Yet Another Anonymous coward]

Re: QE

The purpose of QE is the hope that the banks will flood the high street with free money and people will shop the country out of a recession with cheap credit cards.

Austerity means stopping government infrastructure projects and cutting government jobs leading to higher unemployment, while at the same time scaring those who do have jobs into not spending anything because things must be bad, and going to get worse, if the government is closing schools and hospitals.

Of course - what did Keynes know ?

[Tim Worstal]

Re: QE

Not quite. The purpose of QE is to make people stop holding government debt and go and buy corporate debt. Thus lowering the yield/price companies have to pay for borrowings. This will/should increase their willingness to invest.

The aim is to get growth from the investment channel, not the consumption one.

[Tom 13]

Re: QE

When you start with a false premise, nothing deduced afterward is reliable.

Despite Tim's claims and derision for the gold bugs, I don't see that the US or the UK really are any better off for printing boatloads of money. The economy isn't improving. People aren't going to work. The number of people being helped by the inflation is vastly smaller than the number it is going to seriously hurt going forward. Despite government fiddling with the numbers the economy is still teetering on the edge of the Second Great Recession without an actual intervening recovery. I expect the sum of the downturns will be worse than the Great Depression.

[I ain't Spartacus]

Re: QE

Tom 13,

QE isn't printing money. There's an important technical difference.

The economy is improving. We're in our 3rd year of decent growth. The U.S. longer. And that's better than the non-QE Eurozone. People are going to work. Unemployment is falling. In the UK we have the highest number of people in work ever. I believe that's not true in the U.S. though, where labour participation rates are still down.

There is no inflation. It's at 0% here. And low in the States. It never went all that high, and much of that was oil and food prices, not QE. Anyway, savers may whine at low interest rates, but the alternative was losing their principal.

The government are not fiddling the figures. I've seen no credible suggestion of that. If you disagree, then back it up with figures. Put up, or shut up.

We might go back into recession. There are still lots of global economic risks. However, not doing QE would have made the recession worse, and made bailing out the banks riskier and more expensive. It was the best of a bad bunch of options. And although it does have its downsides, many of the objections to it I've seen, have been economically illiterate.

[S4qFBxkFFg]

The Greek government's problem is that it doesn't have enough euros. It also doesn't have the power to simply print more.

It doesn't?

I've seen several claims that Greece (the central bank, as opposed to the government) has a €uro printing press.

Indeed, wikipedia says there's a 'Y' prefix for the banknote serial numbers printed in Greece.

So, what's to stop them just running this press until it melts? Using the local plod/squaddies to commandeer it and whisk it off to a Natanz-style fortress if necessary.

Just for lulz, they could print them with 'X' prefixes instead of 'Y'.

[mike2R]

The money printed without ECB permission would legally be counterfeit. If Greece did that and got caught (and it would be immediately obvious if done in any quantity) the consequences would presumably be catastrophic.

Imagine if the rest of the eurozone declared all Y-serial euros to be invalid. Every Greek note would become worthless outside Greece - essentially a Grexit that redenominated the tens of billions of euros that Greeks have in their mattresses.

[Dan 55]

If the rest of the eurozone suddenly declared that Y serial euro notes to be invalid that will be a signal to the rest of the world that the euro is about as serious a currency as Monopoly money and everyone who could would move to USD, GBP, or CHF.

By the way, it's not all Greek notes, it's all €10 notes in circulation in the eurozone (and around the world).

So Greece should call their bluff if it wants to throw a spanner in the works.

[I ain't Spartacus]

Dan 55,

They ain't bluffing. I'd say it's pretty clear now that a majority of Eurozone governments would like to chuck Greece out, but haven't quite got the balls to do it. Also they have no legal mechanism. Though using the ECB to collapse the Greek banking system works perfectly well, as we've seen.

Hence they've offered Greece a deal that's so awful, they hope they'll leave of their own accord. And a deal that everyone knows won't work. In fact, can't work.

Sadly something like 80% of Greeks say to pollsters that they wish to remain in the Euro. So Syriza have rightly capitulated. Seeing as no policies are on offer that will work, the Greek depression will continue to grind on for another few months/years until common sense breaks out in the rest of the Eurozone and they offer reflation and debt relief. Or common sense breaks out in Greece and they realise that Euro membership under these terms means permanent 1930s style depression.

Sadly a third alternative is that Greek democracy breaks. There's an awful lot of extreme left and right parties in the Greek parliament. The Troika and electorate have been working their way through the centrist parties, chewing them up and spitting them out. New Democracy are in a mess, Pasok are virtually destroyed, Syriza might split in half over this - and who does that leave to govern the country? The Weimar system turned to Hitler because the Nazis and Communists between them could block all legislation, and they picked the wrong ones to try to co-opt into government, thinking Hitler was going to be controllable. Politics having broken down after a massive global downturn and unpayable foreign debt had led to deflation and mass unemployment. Sound familiar? The famous Weimar inflation was in the early 20s, but the German folk-memory seem to have forgotten the late 20s deflation crisis.

It is truly a horrible thing to watch for a student of politics and history. A policy car-crash of massive proportions.

[DavCrav]

"By the way, it's not all Greek notes, it's all €10 notes in circulation in the eurozone (and around the world).

So Greece should call their bluff if it wants to throw a spanner in the works."

Small problem there, of course. There are two ways to "print" money: the first is to physically counterfeit the money, and the second is to make it appear in bank accounts. The second is pretty much cut off from the Bank of Greece because any suggestion that they are doing that and the ECB pulls the plug, so they would have to secretly hoard printed Euros. OK, so their debt is around €300bn, so let's print 30 BILLION €10 notes and store them in a few aircraft hangars. Here's the problem: the total M0 (i.e., banknotes) in circulation across the whole Eurozone is around €500bn or so, and so you are roughly doubling the physical money supply. The other problem is time. Suppose you have a massive printing press that can print a sheet of €10 notes, say 100, a second. My back-of-the-envelope calculations is that it would take you ten years of 24-hours-a-day printing to get 30 billion notes. I think someone might notice long before then.

One more problem: how exactly do you pay the ECB back in freshly minted €10 notes? You have to get it back into the banking system, i.e., launder it. So we get ten thousand of the most trustworthy people imaginable, both to not steal any of it and not tell anyone, to deposit a rucksack of 1000 €10 notes a day. That might look a bit dodgy, but still, even doing that five days a week (banks are closed weekends) it will still take over 11 years to put it into bank accounts.

[I ain't Spartacus]

Greece has a printing press. Set up to do €10 notes. Each country prints some of the notes, but only one denomination. And the Y prefix is for those printed in Greece, not for Greek notes. The ECB then truck/fly them round so everyone has the right mix of notes for their country.

This was designed to be a common system, but watching out to stop naughiness. The German influence on the Eurozone rules might be guessed by the fact that all €500 and €200 notes are only ever printed in countries who speak German...

Anyway if Greece prints without permission, it's illegal. The money's counterfeit. And that really would be fighting talk. The rest of the Eurozone would cut off Target2 access to Greece and all its banks. So Greece would be out of the Euro - and I'd imagine would be chucked out of the EU. Remember there's no way to leave the Euro. It's not legal. When Greece is finally ejected or leaves (as I believe is inevitable) I'm sure they'll just change the law to let them stay in the EU. But there wouldn't be much goodwill for that, if Greece had been counterfeiting all of their currencies.

[Marvin O'Gravel Balloon Face]

"Anyway if Greece prints without permission, it's illegal."

The whole concept of EU "Law" is lawless in nature anyway. Their rules are set aside and rewritten whenever it suits them. Their so-called laws serve no higher purpose than to perpetuate a corrupt protection racket.

[phil dude]

printing money...

"This was designed to be a common system, but watching out to stop naughiness. The German influence on the Eurozone rules might be guessed by the fact that all €500 and €200 notes are only ever printed in countries who speak German..."

The Germans still have the well oiled wheelbarrows....

P.

[DaveDaveDave]

"So, what's to stop them just running this press until it melts?"

It's not often that I disagree with IAS on matters economic, but in this case I don't think it's really about the economics.

Clearly, it's possible for Greece to simply declare that it has 100 billion Euros in the bank (or print them, natch), and start handing them out in payment for debts - just as long as people are willing to accept them. (You or I can try the same thing; no-one's likely to accept our self-created money. When a government does it, it ought to work, albeit perhaps at a discount to regular Euros).

The question is what would happen next, and that seems to me to be a political matter: what could the other Eurozone countries do about it if Greece deliberately breaks the currency? One option is to invade Greece, but that's not going to be popular. Another option is to abandon the Euro. Other than that, I'm not sure what could be done to stop Greece other than asking nicely.

Money printing's not going to happen while Greece has better options - and it always will have better options - but it's really an interesting question you ask, and I don't think there's a clear answer. It comes down to the fundamentals of what a currency is, why people trust it, who controls it, and so-on. Arguably, this is a fundamental problem with a currency union in the absence of political union.

[I ain't Spartacus]

DaveDaveDave,

The answer is Target2. All inter-country transfers within the Eurosystem go via Target2 at the ECB. So any time any government steps out of line, the ECB can effectively turn off their access to the international payment network. Greece imports most of its food.

This is an even bigger step than cutting off Central Bank funding to the banks. It may even be illegal, as it amounts to kicking a country out of the Euro. But the European Court of Justice is notorious for backing the EU institutions, and the Treaties pretty much make the ECB accountable to no one.

On the other hand Greek ex Finance Minister Varoufakis wanted to fight. He said the Euro was unworkable. But for Greece to leave now was worse than staying in. He also, correctly, has said that this current bail-out will fail for the same reason the first two did.

His idea was to print Greek government IOUs, in the way California did temporarily a few years ago. This would keep the banks solvent, when the ECB tried to collapse them. They could also then default on their debts, but re-capitalise and nationalise the banks, while staying in the Euro. Then there would be time to negotiate, without artificial deadlines, and the groundwork would be progressively laid to re-create the Drachma, if they got no deal. Plus lots of court cases at the ECJ. Syriza rejected this as too confrontational.

I don't believe he planned to print Euros though. As that would be unarguably illegal. His plan was to let the ECB and Troika keep breaking the treaties, and hope the ECJ would finally stop them. Cutting off ELA to solvent Greek banks is a clear breach of the Treaties, by any sane reading if them. It's a Central Bank's primary job to maintain the financial system. Deliberately collapsing solvent banks definitely fails that test.

It would have been an unholy mess. There's no legal mechanism to leave the Euro. Let alone get chucked out. And default is not illegal. Bail-outs are, but they've had three of those already! Seems pointless to me. Those months of chaos would be better spent on introducing a new currency. To be fair to Syriza, they had no good choices. The Greek electorate won't leave the Euro, the Eurozone leadership won't offer a sane deal, that might actually work. So they'll have to implement policies that will make the 1930s depression look like a picnic, and hope the Troika wake up and realise what fucktards they're being.

[nk]

>So, what's to stop them just running this press until it melts? Using the local plod/squaddies to commandeer it and whisk it off to a Natanz-style fortress if necessary.

Seriously? Just because they have the equipment does not give them the right to print euros. each country has its quota of euros to print.

Not following those rules would essentially result in printing counterfeit money

Also, as a tax paying Greek, I resent that remark about not paying taxes. I know it was meant somewhat as a joke but still.

There is a huge problem with black economy. That is true. And its only gonna get worse when Europe stubbornly insists that we should increase our VAT instead of what we suggested, which is to lower it and improve collection mechanisms. What any sensible economists would suggest.

[uncle sjohie]

The Greek tax problem mainly resides with the baby-boom generation, who after the colonels regime developed such a deep mistrust of any form of government, that they avoided paying taxes any way they could. I remember our holidays there in the nineties, cash payment in dutch guldens or deutchmarks was the norm, no taxes were ever paid by the Greek apartment owners. And the same group has managed to thwart the establishing of a proper cadastre, which is instrumental in recording property value, and the subsequent taxing of that property.

And running a railway company at a 3 million euro/day loss, with drivers getting double the pay of their German and Dutch colleagues doesn't help either. http://www.nytimes.com/2010/07/21/business/global/21rail.html?_r=1

I also remember an article stating that the Greek government has about 70 billion euro's of uncollected taxes on the books. How about they collect that, the northern European countries write off 100 billion, and the Greek government does as it has promised the third time around? That way we can move past this horrid mess with only losers.

[auburnman]

As I understand it the billions of uncollected tax is a fiction at this point, as it is an accumulation of uncollected receipts going back decades that has just piled up. The idea that debt this old can be tracked down, proven and collected is pure fantasy. It's only still on the books because no-one wants to write it off (and presumably to the inattentive eye it makes Greece look slightly less bust than they really are.

[Anonymous Coward]

" also remember an article stating that the Greek government has about 70 billion euro's of uncollected taxes on the books. How about they collect that, the northern European countries write off 100 billion, and the Greek government does as it has promised the third time around?"

How about they collect that, then the Greek government does as it has promised - and then northern European countries ask their people whether to write off debts? When you look at the Baltic states, post-communist times were in many ways tougher and standards of living lower than Greece today, but they survived (albeit with larger "black economies" than anyone tends to admit); why should they write off Greek debt without seeing Greek cuts first, when Greek pensions are reportedly higher than some of their minimum wage rates for working? Or by "northern Europe countries" do you mean those Euro countries where the numbers look better than the Eurozone-wide averages?

(That raises question of why pick on "north", why not places like Portugal / Spain / Italy / Slovenia, with a higher GDP per capita (PPP or nominal, comparison still holds) than Latvia, for example? Or, for a minimum wage comparison, workers in Spain, Slovenia, Malta are all better off than Greece, whose workers are in turn due to be paid more than those in Slovakia, Lithuania, Estonia? If you look at net average monthly salaries, Greek numbers better than any of the Baltic states, but not as good as Spain? Pedantic, perhaps, but I object to the characterisation of "northern Europe" as one, rich, club. )

[I ain't Spartacus]

and then northern European countries ask their people whether to write off debts?

It doesn't bloody well matter what other Eurozone voters want. Or what they vote for. Greece can't pay its debts

The Greeks have just experienced what happens when you have a referedum on a matter your government has no power over. Although at least the Greek referendum (and government) was actually asking for something that was possible.

They couldn't pay in 2010 when the first bail-out was created. But rather than Germany and France re-capitalise their incompetent banks, who'd lent something like €160 billion to Greece between them - it was decided to "bail-out" Greece even though that was illegal under Eurozone rules. Using everyones tax payers. What this means is that Germany only had to lend something like €60bn to Greece, rather than €100bn to its banks (France's bail-out pretty much matched its bank exposure). The remaining €40bn was covered by the rest of Europe, although seemingly mostly by Italian taxpayers, as their banks hadn't lent much to Greece. The Italian banks incompetence was restricted to loaning money to Eastern European and Spanish banks that couldn't pay them back either...

This is the same model that was used in Ireland. Where Irish taxpayers were put on the hook for their banks, with the threat of Ireland being chucked out of the Euro if they didn't. Co-incidentally that was mostly German banks that got bailed out too. Obviously it's illegal to chuck a member out of the Euro, but the ECB told Ireland it would cut off funding to its banking sector, causing it to collapse, and forcing them to print their own currency to save them. The ECB used the same threat against Cyprus and Greece, except we can see they actually carried it out in Greece.

This bail-out failed in Greece. It broke the IMF lending rules, as it patently couldn't work. But the IMF made a new rule to allow it, to save the Euro. Probably a legitimate reason at the time, although I'm sure it didn't influence things that their managing director was French.

So in 2012 there was a second bail-out. This one was notinally sustainable. It was a fiction, as it required Greece to be paying back something like 4.5% of GDP per year for a decade. Also the last bail-out, having made the Greek government cut spending by 10% was only going to shrink the ecoomy by 5%. That caused a 10% drop instead. The 2012 bail-out did the same again, with the same result. The fictional forecast was wrong, and it resulted in a total loss of 25% of Greek GDP, 25% unemployment and 50% youth unemployment. Plus a massive spike in emigration. Oh and the debt to GDP ratio went from something around 130% of GDP to 175%.

Basically the Troika cooked the books in 2010 for sane reasons. Greece took one for the team, which given their cooking the books beforehand is fair enough. Then they came back to the deal in 2012, but still fiddled the figures. They had less excuse this time, and the IMF none. That bail-out was designed to fail, given the knowledge gained from the 2010 one. The IMF admitted so in 2013, when they admitted to miscalculating the Greek fiscal multiplier.

And here we are. Replaying the 1930s. It's the Fisher Paradox. The more the creditors demand that the debtor repay, the less they'll get back. As they destroy the debtor's economy, out of greed and stupidity.

And the Germans have the least excuse of any nation on earth for failing to learn the lessons of the Versailles war reparations and the deflation, depression and instability that this caused.

[Steeev]

"This is the same model that was used in Ireland. Where Irish taxpayers were put on the hook for their banks, with the threat of Ireland being chucked out of the Euro if they didn't."

Unfortunately that was only part of the story in Ireland. Ireland's banking problems were compounded by a structural government deficit of about 20%, which had been masked by stamp duty receipts. When these vanished with the banks going bust, so did its government's room for manoeuvre.

It was closing this deficit over 5 years of "austerity" which has resulted in Ireland's enormous national debt (110% of GDP or €200B) not bailing out the banks, which looks like it will "only" have cost €20B when all's said and done.

Had the government run its affairs properly and used taxation to halt the property boom, it would have been able to tell the ECB to piss off and let the banks go bust as they should have. However it was too busy buying the electorate's votes with their own money, as usual.

[Anonymous Coward]

Politics not economics

The issue has been that they are looking for a political solution to an economic problem and the politics of Germany trumps those of Greece when it comes to the eurozone. When even the vampires at the IMF criticises your austerity/control solution and threaten not to take part you know it's bad.

[Dan 55]

Re: Politics not economics

And the next time an EU spokesmouth talks about the EU keeping Europe free of wars, hopefully someone in the press will call them out and ask them about the economic war just waged on Greece. Not that they'd give a sensible answer.

[I ain't Spartacus]

Re: Politics not economics

Dan 55,

After saying the one word that ended war in Europe. NATO.

The EU was a manifestation of the desire of people not to have another war. I would say that the EU did do two amazing things though.

Compare Eastern Europe to Russia, and the non-EU ex Soviet states. Or what happened to the countries that tried to throw off tyrannies in the Arab Spring. Sure the Eastern Europeans were more advanced, better educated societies, but the help the EU gave them in building working democracy - with the carrot of EU entry was a wonderful foreign policy success.

I'd argue the other great success was letting Greece, Portugal and Spain in, so quickly after their dictatorships collapsed in the 70s. Acting again as an aide to building a democratic society.

Sadly the Eurozone leaders deliberately collapsed one Greek government and just tried to do the same to another. You could also argue that they hung on deliberately in negotiations with the last one, hoping to cause it to lose the election in January - so they could get what they wanted out of Syriza. Pasok are destroyed, Syriza and New Democracy could both be in quite serious trouble. If you break all the democratic parties in a country, who will you have left to negotiate with? And what the hell is the point of the EU then?

[Anonymous Coward]

Re: Politics not economics @!spartacus

Basically the US rules the waves (NATO), and the Germans waive the rules (EU). We were told that an independent Scotland - which had been part of the EU - would not be allowed to stay in, yet East Germany (which was not part of the EU) was absorbed into Greater Germany and the EU despite the severe negative effects on the EU economies. We are told, often, how clever and sophisticated are bankers and economists, but when Greece was allowed in, anybody with a functioning nervous system in Athens could have told them it was a complete fiddle. Of course it is impossible that banks, economists and accountants run at the same level of connection to reality as, say, Mormon theology, so one has to assume that fraud was involved.

As the EU has developed, the Germano-Franco-British taste for dicking with other countries' governments has been coming to the fore. Until the Greek crisis blew up I was pretty pro-EU and I would cheerfully have canvassed in a referendum. Now...though I'm extremely anti-UKIP for a variety of reasons, I am no longer sure how I will vote. Perhaps the time has come for new groupings in Europe, less willing to play at global politics.

[Arthur the cat]

Greeks pay all their taxes?

@nk: "Also, as a tax paying Greek, I resent that remark about not paying taxes. I know it was meant somewhat as a joke but still."

I'm not sure it was. Even the usually reliable up-market broadsheet papers in the UK have printed stories of Greek professionals like doctors filing tax returns stating their total annual income as only about 5,000 Euros. *If* that is true, you have a trichotomy - either Greek doctors are too stupid to realise they could make much better money elsewhere in the EU, or they're saints who charge their patients ridiculously small amounts of money and live lives of Franciscan poverty, or they're doing a lot on the black economy and thus not paying taxes. Given my experience of human nature, my money is on the third although I don't rule out individual cases in the other two categories.

[I ain't Spartacus]

Re: Greeks pay all their taxes?

I'd say one problem is that the IMF got into bed with the Eurozone, and they've all just screwed everything up. All the effort has been made to make Greece pay back its unpayable debt. And continue to insist that this debt is sustainable - even if that means sticking their fingers in their ears and shouting LA LA LA.

So instead of focusing on reforming the broken Greek political system, they focused on cutting government spending and raising taxes.

Whereas an IMF bail-out, unencumbered by the North European economic illiterates, would have had fewer cuts and more reforms. Or if the Troika had been a bit more politically savvy, it would have had debt relief in exchange for desireable reforms. That would win some political backing within Greece.

So close a tax loophole, get €100m of debt written off. De-politicise the civil service, get €1bn. That way even with the party in power (New Democracy) that actually screwed the economy up in the first place, and is full of the politicians who were paying their mates to do government non-jobs in exchange for their votes - there would be massive political pressure on them to do necessary reforom.

The real tragedy here is that Syriza are political outsiders. They're not involved in the patronage networks in the same way. Although, as I understand it, they do have quite a few refugees from Pasok - who probably are. So a deal could have been done with Syriza, had the Eurogroup been willing to do a sane and fair deal, rather than fuck around and indulge in childish and vicious political grandstanding.

To back my point up, I link to a European think tank, pro-EU but pro-reform, and an article from Ashoka Mody. He was the IMF European Department boss and designed the Irish Troika bail-out. So he's no natural Syriza ally, or fluffy lefty. And he gives the Troika both barrels and says: They negotiated in bad faith.

[Gordon 10]

Re: Greeks pay all their taxes?

Errr.. have you read the papers the last few days? The IMF are saying Greek debt is unsustainable without a haircut of some kind.

[I ain't Spartacus]

Re: Greeks pay all their taxes?

Gordon 10,

Yes I've read the papers. And the IMF reports. And the unhelpful public comments of Christine Lagarde.

The fucking IMF waited until AFTER negotiations had collapsed and the Greek referendum was already underway to finally publicly say that Greek debt was unsustainable. And even then, that was a leak to the German press, probably from the Americans or some disgruntled soul in the technical department. Bloody Christine Lagarde was still coming out with crap like how the negotiations needed to have "adults in the room".

And even then that IMF report was trying to claim that everything was hunky-dory until the nasty Syriza came in and buggered everything up. Despite the fact that the IMF's own analysis from 2013 claimed that they'd got the first two bail-outs wrong, and that the the Greek fiscal multiplier was more than 1. This means that for every 1% of GDP the Greek government cuts spending or raises taxes - Greek GDP will shrink by more than 1%.

So the IMF were saying everything was OK until January, even though their plan called for 2% cuts to Greek government spending this year alone. When Greek growth was only predicted to be 1%, thus guaranteeing another recession.

They did finally publish that Debt Sustainability Analysis after it was leaked. And then Lagarde was at last weekend's disastrous Eurzone summit - and was there when the agreement was made. Having publicly said little about the need for debt write-downs. And then the IMF published their updated DSA that says that Greece needs even more help. But the deal had already been agreed! What the fuck is the point of that?

The IMF should be publicly beating the Eurozone ministers over the head for their incompetence and financial illiteracy. Then their public might see that the choice is to get maybe half their money back, or to bankrupt Greece and get none of it. There are no other choices. There is no magic reality where Greece pays back all its debt. Not now the Troika's last 2 plans have reduced their GDP by 25%.

The IMF's job is to tell truth to power, and be the bad guy. But they've only done that in Greece. For the Eurogroup, they've rolled over to have their tummies tickled. I'm sure it's entirely a coincidence that they've had 2 French managing directors since the Eurocrisis and a French chief economist.

Blanchard claimed that George Osborne was "playing with fire" by making spending cuts of 1% of GDP per year. The Greek bail-out has cut Greek government spending by 26% of GDP - and is asking for 2% more in spending cuts this year as well.

[Phil O'Sophical]

Moving bitcoins out

One snag to this plan is what to do with the bitcoins when you do get them to some other country. The EU anti-money-laundering rules have made it damn near impossible to open a bank account in another EU country if you don't provably have an address there. There's no legal bar, but the banks just don't want the hassle so they won't do it. Maybe you could move them to the US, if US banks still allow non-residents to open accounts, but many (most?) charge a substantial annual fee for the privilege.

[TakeTheSkyRoad]

Re: Moving bitcoins out

Depends how much money you are moving and why.

If you're talking savings and you trust or have faith in Bitcoin then you could just leave the money as Bitcoins. Just be VERY careful with your security to protect that all important private key.

If you're wanting to spend then if it's small amounts then Bitcoin ATM machines are getting more common (3 in London I think) so you could just withdraw bitcoins as cash. There are limits though so this is only practical for small amounts and most ATMs will want you to register your identity documents (passport).

Spending bigger amounts would be a problem but the rich can usually just afford lawyers and accounts to sort this out. There are specialist bitcoin brokers too who trade large amounts outside of the usual exchanges to enable individuals to trade for a fixed price. Again, identity checks would be required and bank accounts in the appropriate currency.

[Mark 65]

Re: Moving bitcoins out

My problem is with the statement that...

This does also mean that one can make a transfer into an alt-coin exchange within the country. That can then, in turn, be moved to another alt-coin exchange anywhere in the world: a pretty handy way of getting your money out of Greece.

So, you want to move your money from your bank account to that of an alt-coin exchange in the country (as only intra-country transfers are still permitted) in order to purchase digi coins and move the money overseas. This is because, presumably, you don't want to be the one without a chair when the music stops.

However, does the exchange not also have the same issue? They now have an account full of immovable currency in place of bitcoins. Sure, they may have seriously haircut you on the purchase but then they now have a much bigger issue when the music stops. Currency controls affect everyone so how are they magically mitigating this? Buying gold, diamonds?