Monthly Archives: January 2015

Germany vs Greece: The battle commences!

Well done Syriza and well done Alexis Tsipras! The only way is up from here. Surely the economic crisis can’t get any worse for Greece! We’ll see.

The German population will have been fed a steady stream of disinformation on reckless, untrustworthy, lazy Greeks who agreed to borrow money they had no intention of ever repaying and which they have now squandered etc etc.  It’s all nonsense of course!

So where to now? If Greece’s creditors wish to see any of their money back, there has to be a recognition  that something has to change, and notwithstanding any useful improvements that might be made to the Greek taxation system, primarily that change has to come from the Germans and the EU governing class. The Germans, and others, have to realise that if they want to run a trade surplus, which they seem to like doing,  (it was about 7% of GDP the last time I looked), then they should be actively encouraging other countries, including Greece,  to run deficits. The larger their deficits the higher the German surplus.

Naturally, those trade deficits translate into government budget deficits too. That way the Greek government spends Euros into its economy so that ordinary Greeks will be able to afford more German imports and so further increase German trade surpluses.

If there sounds to be an element of  Alice-Through-The-Looking-Glass about all this, and that  everything is working backwards, that’s because there is. As Alice put it:

“If I had a world of my own, everything would be nonsense. Nothing would be what it is, because everything would be what it isn’t. And contrary wise, what is, it wouldn’t be. And what it wouldn’t be, it would. You see?”

Well, no not quite. And, neither do we quite see the point of Germany insisting that Greece and everyone else in  Euroland runs a surplus too.  How can Germany ever be repaid when it always wants to run its own, even bigger, surplus?  Why does it even care  about being repaid in money it can never spend? Germany, and German creditors,  can only ever be repaid when it decides to change its ways and run a deficit in trade and a deficit in its Government budget.

In the world of international trade, debts can only be repaid in things.  ie real goods and services. If Country A exchanges more things, for fewer things, with Country B, so putting Country B into debt, that debt can only be repaid, at some time in the future if Country B gives Country A more things than it gets back.

So, the battle isn’t just between Greece and Germany. It’s between German neoliberal economic stupidity, otherwise known as  ordo-liberalism,  and the idea of scientific rationalism.

As Alice, herself said:

“It would be so nice if something would make sense for a change! “




Revaluing the Swiss Franc

There seems to have been rather a lot of surprise over the recent revaluation of the Swiss franc. (CHF).  It jumped about 30% at one point against the Euro but has now settled back slightly. To quote the Guardian :

” What is really baffling is that absolutely no one predicted the SNB’s sudden change of strategy.

There shouldn’t have been any surprise. It had to happen. The economics are very straightforward.

The Swiss were running a 16% of GDP trade surplus. What is the point of that? What’s the point of swapping more goods and services for fewer goods and services, year in year out?  Unless the Swiss Population, individuals and companies, are saving huge amounts even a moderate budget surplus is likely to represent quite loose fiscal policy. So there was some inflationary risk. Swiss unemployment is reportedly at about 3% which would tend to support that view.

The Swiss were in the position of shipping out useful goods and services in exchange for foreign reserves denominated in pounds, dollars and Euros which they can never spend until they decide to become net importers. In addition they had to keep their exporters happy by creating extra Swiss francs to pay them.

We will have to wait and see if the Swiss will let their currency float that freely. They will probably still manipulate it downwards to maintain an export surplus, albeit a smaller one. But, even so, they could have started to realise that imports are a net benefit and exports are a net cost to any economy. Theirs included. Maybe the Gnomes of Zurich have been reading Bill Mitchell and Warren Mosler!

The Euro Cannot Survive Without Greece!

The consensus of opinion of the ‘great and good’ of European politics and economics is that the Euro can now survive perfectly well without Greece. The Germans aren’t going to succumb to blackmail this time as they did in 2012. They have since worked out what needs to be done.  If the Greeks want to go then ‘good riddance’ seems to be the underlying message.

Have they really thought this through? Maybe they have and aren’t saying quite what they think. That’s probably why they are being so hard on Greece and are doing  their utmost to try to ensure Greek voters change their minds and vote for one of the ‘sensible’ and ‘responsible’ parties like New Democracy of course!

It will all change after the election result if Syriza win. The Greeks will get all they want and more besides. Sure, technically the Eurozone would probably be better off without Greece, but what if the Greek economy starts to improve once they have left the Euro? It can hardly do any worse. Economic output is some 25% below its 2007 peak. Unemployment is running at close to 30%.  Wages are down even for those lucky enough to have a job. There’s no possibility of any significant growth any time soon under the present economic system.

Anyone who understands MMT knows that the Greek economy is almost bound to improve after the initial shock of leaving. A new Greek currency will make the Greek islands ultra competitive. German, and other, tourists will flock there. The Greeks will need to take some lessons on board. They know they need to improve their taxation system. They know they can’t expect a free ride and they’ll have to do whatever it takes to make their new economy work. It should become a matter of national pride for Greece that it does work. That would wipe the smile off the faces of those smug and self righteous individuals  who have pointed the finger at Greece with accusations of laziness and other racially based slurs.  As the economy improves their currency will rise again, just like it did in Iceland after the shock of the 2008 events.

The powers-that-be in the EU will know this too, deep down. Their worry will be that Ireland, Spain, Portugal, and even France and Italy will see that being outside the Eurozone is working for Greece and will want to be outside too.

That would certainly bring about the end of the Euro. They can’t allow that. Or can they? We can only hope!