Flickr\/Brookings Institution. Some rights reserved.At the end of April the media reported that a
\ngovernment "downgraded" the role of its finance minister because
\nof his allegedly poor handling of the negotiations over the Greek debt. I
\nregret that this targeted the wrong finance minister, Yanis Varoufakis not Wolfgang Sch\u00e4uble.
\nIf as speculation has it, the role change for Mr Varoufakis from direct
\nnegotiations to long-distance oversight resulted from his abrupt and inflexible
\nmanner, that only reinforces my view that the wrong finance minister took a
\nhit.\u00a0 Elements of the German
\nmedia also assessed its finance minister as a bull in the negotiation china
\nshop.<\/i><\/p>\n
Mr Sch\u00e4uble is a man most insistent
\nthat the Syriza government fulfil the policy "reform" agreement
\nreached with the previous, discredited government led
\nby Antonis Samaras. When a journalist pointed
\nout to him that the Greek electorate had rejected that agreement, Mr
\nSch\u00e4uble took the opportunity to put the knife in, <\/p>\n
"The Greeks [sic! Greek government] certainly will have a The German finance minister also gave short A serious mistake practiced not only by Mr Greece does not have a debt, nor do the people The concrete problem that the other EU finance Except for trivial matters in no country do the Imagine if instead of using the term International and national practice has While some of the current debt of the Greek public At this point the analysis requires a third So, international practice obligates The policies of the Samaras government failed Two charts show the demonstrable failure of I interpret the first counter-factual measure On the contrary, measured in constant prices, The blue line represents a counterfactual in Greece<\/strong>: Gross Public Debt as Percent of GDP, Actual (black),\u00a0<\/strong>Constant level of Debt <\/i><\/p>\n If the reader remains unconvinced, I offer more The chart tells a simple story and conveys a The message from the chart is that relying on Greece<\/strong>: Contribution of <\/i><\/p>\n The persistent and indiscriminate use of 1. 2. 3. Thus:\u00a0By From this reality arises an obvious exit from If you enjoyed this article then please consider liking Can Europe Make it?<\/strong><\/em> on Facebook and following us on Twitter @oD_Europe<\/em><\/p>\n","protected":false},"excerpt":{"rendered":" Flickr\/Brookings Institution. Some rights reserved.At the end of April the media reported that a government "downgraded" the role of its finance minister because of his allegedly poor handling of the negotiations over the Greek debt. I regret that this targeted the wrong finance minister, Yanis Varoufakis not Wolfgang Sch\u00e4uble. If as speculation has it, the…<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3],"tags":[],"class_list":["post-1358","post","type-post","status-publish","format-standard","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/googmn.com\/index.php?rest_route=\/wp\/v2\/posts\/1358","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/googmn.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/googmn.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/googmn.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/googmn.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1358"}],"version-history":[{"count":0,"href":"https:\/\/googmn.com\/index.php?rest_route=\/wp\/v2\/posts\/1358\/revisions"}],"wp:attachment":[{"href":"https:\/\/googmn.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1358"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/googmn.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1358"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/googmn.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1358"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\ndifficult time to explain the deal to their voters.\u00a0 As long as the [troika] programme [of
\nDecember 2014] isn\u2019t successfully completed, there will be no payout."<\/strong><\/p>\n
\nshrift to notions of EU mutual support among EU countries, "Solidarity
\ncannot replace necessary decisions by [governments of] member states".
\nWhatever Mr Varoufakis is accused of (by
\nother finance ministers), he can scarcely match Mr Schauble for rude boorish
\nbehavior.<\/p>\nFrom the abstract to the catastrophic<\/strong><\/h2>\n
\nSchauble but also by most commentators both official and in the media is this
\nfailure to make the basic distinction between "Greece" and the Greek
\ngovernment.\u00a0 The former refers to a
\ngeographic territory and should not be used as collective noun.<\/p>\n
\nof Greece. Both legally and in practice what the media and Mr Schauble call
\n"the Greek debt" represents loans taken by various Greek
\ngovernments.\u00a0 The distinction is important,
\nnot least because in a democracy governments rule by the consent of their electorates.\u00a0 <\/p>\n
\nministers wish to avoid by use of "the Greek debt" should be
\nobvious–public debts remain after the governments that incurred them depart
\nthe scene. The Greece\/Greek government distinction implies another invalid abstraction,
\n"the Greek people". For some purposes in international law we can
\nrefer to the Greek government as representing "the Greek people". A
\nmundane example is that Greek embassies in every country have the obligation to
\nrepresent all their citizens.<\/p>\n
\npolicies of governments reflect the will of "the people". The
\npopulation of every country has class, ethnic and regional differences generating
\nconflicts of interest. It is this political reality that the term "Greek
\ndebt" seeks to avoid confronting. <\/p>\n
\n"Greek debt" and referring to "Greek obligations" the EU
\nfinance ministers were to enter the world of concrete reality and discuss the Greek government's debt<\/em>. It would then
\nbe necessary to explicitly consider which government incurred the debt and the
\nextent to which that debt should be honored by subsequent governments.<\/p>\n
\nestablished the precedent that sitting governments should service the debts
\nincurred by previous governments. There are notable exceptions, most frequently
\nassociated with a consensus that the debt-incurring government lacked
\ndemocratic legitimacy.\u00a0 The funds
\nborrowed by the Nazi government represent an obvious and extreme case of illegitimate
\nor "odious" debt, and was formally recognized as such in the 1953
\nLondon Agreement
\non German External Debts. <\/p>\n
\nmight be considered "odious", the Syriza government has a stronger
\nargument for reimbursement of the principle and interest for the forced loan to
\nthe Nazi occupying authority towards the end of World War II. However it is
\nresolved, the forced loan claim will not help the Syriza government meet its
\nimmediate debt service.<\/p>\n
\ndistinction, between the generally accepted legitimacy of the debt service
\nfaced by the Syriza government and the policies to make that servicing
\npossible. At the end of January 2015 the Greek electorate did not formally deny
\nresponsibility for the public debt (Syriza did not include debt cancellation in
\nits platform). A plurality of voters sufficient to remove the Samaras
\ngovernment rejected the policies it implemented with the purpose of meeting
\ndebt service obligations.<\/p>\n
\ngovernments to service inherited public debts. It does not require incoming
\ngovernments to continue the same policies as preceding governments. To put the
\nmatter simply, obligation to service debt passes from one government to the
\nnext; the policies to achieve debt service do not convey from one government to
\nthe next. The latter, a generally accepted principle outside the euro zone,
\nholds all the more if the previous government's policies failed in their
\npurpose.<\/p>\nDemonstrable
\nfailure<\/strong><\/h2>\n
\nto achieve the narrow purpose of debt service and debt reduction. This
\nconclusion was reached not only by critics, also by one of the Troika members,
\nthe International Monetary Fund (see reports from different perspectives, in
\nthe Financial
\nTimes<\/em> and The
\nGuardian<\/em>).<\/p>\n
\npre-Syriza policies. The one below traces three measures of the ratio of public
\ndebt to GDP by quarter, 2009-2014:\u00a0 1)
\nthe ratio of the measured debt to measured GDP (solid black line); 2) the ratio
\nof the 2009Q1 debt value to actual GDP (dashed black line); and 3) the ratio of
\nactual debt to GDP at its 2009Q1 value (solid blue line).\u00a0 <\/p>\n
\nas the "austerity path", indicating the effectiveness of the
\n2010-2014 policies of demand compression\/output-suppression.\u00a0 The result of this counterfactual tracks the
\nactual ratio very closely.\u00a0 In other
\nwords, the entire increase in the public debt to GDP ratio resulted from
\ndeclining GDP, not increase in debt.\u00a0 <\/p>\n
\nfor example the composite EU price index, the public debt of Greece was lower
\nat the end of 2014 than it had been five years before (the nominal increase was
\nby 1.4%, see Central
\nBank of Greece spreadsheet).\u00a0 Demand compression policies sought by the EU and
\nIMF and duly implemented had their predictable result, declining output and
\nreduced ability to service the public debt.<\/p>\n
\nwhich "bailout" funds would be used to maintain public expenditure
\nand aggregate demand such that nominal GDP did not change (zero growth). In
\nthis case we find no increase in the public debt to GDP ratio.\u00a0 The chart sends a clear message: the public
\ndebt to GDP ratio rose because output fell.<\/p>\n
\n& Actual GDP (black, dashed), and\u00a0<\/strong>Actual Debt &
\nConstant GDP (blue), 2009Q4 – 2014Q4<\/strong><\/p>\n
\nevidence of demonstrable failure in the chart below that reports the
\ncontribution of changes in expenditure and revenue to reducing the fiscal
\ndeficit. These contributions are shown as positive numbers; i.e., an
\nexpenditure reduction is a positive contribution to the fiscal balance, and a
\nrevenue decrease is a negative contribution.<\/p>\n
\nclear message.\u00a0 The simple story is that
\nfrom 2010Q1 to 2014Q4 the fiscal balance changed from minus \u20ac36.3 billion euro
\nto minus 6.4 billion, a reduction of \u20ac30 billion.\u00a0 Over 100% of this reduction came from cuts in
\nexpenditure. This \u20ac30 billion decline ("improvement") in the fiscal
\nbalance resulted from a 10 billion decline<\/em>
\nin revenue off-set by a 40 billion contraction in public expenditure.<\/p>\n
\nexpenditure reduction to achieve a positive fiscal balance produces extremely
\ndysfunctional side effects. The output decline must by necessity be a multiple
\nof the expenditure reduction. The fall in spending results in falling output
\nthat reduces revenue. The side effects take the form of falling household
\nincomes, contraction in public services and a rising incidence of poverty, all
\nwithout progress toward the professed goal, reduction in the nominal public
\ndebt.<\/p>\n
\nChanges in Expenditure and Revenue\u00a0<\/strong>to Reducing the Fiscal Balance, 2010Q1 – 2014Q4
\n(billions of euros)<\/strong><\/p>\nClearing away the fog<\/h2>\n
\ninvalid abstractions by the official creditors of the Greek government has made
\nnegotiations over the public debt a protracted and futile exercise. The
\nabstractions obscure a reality inconvenient for the creditors:<\/p>\n
\nGovernments not countries or peoples contract debts and incur the obligation to
\nservice them;<\/p>\n
\nThe obligation to service debts passes from one government to the next, but the
\npolicies to achieve debt service do not.<\/p>\n
\nPolitical parties offer alternatives to the citizenry and in the EU elections
\nprovide the legitimacy of a government and its policies.<\/p>\n
\ninternational practice the current Greek government has the obligation to
\nservice the debt incurred by previous governments, but need not do so with the
\nsame policies.<\/p>\n
\nthe currently stalled and acrimonious negotiations in which the basic dispute
\nis that the EU and the IMF claim that they not the Greek government have the
\npower to dictate domestic economic and social policies. The EU finance
\nministers, with the formidable Wolfgang Schauble in the lead, should follow
\ninternational practice and tell the Syriza government, "You must service
\nthe public debt; how you do it is your problem, not ours".<\/p>\n