A few minutes ago I suddenly got curious about Greece. What's happened in the years since their great financial crisis of 2009? Here you go:
It's been 14 years since the Greek economy collapsed under the weight of loans they couldn't repay and they still aren't close to full recovery. Meanwhile, Germany, which loaned them all the money in the first place and declined to provide any substantial relief, has grown 23% since 2009.
While they haven't recovered from 2009 it at least looks like they've recovered from the worst of the aftermath. Just eyeballing the chart it looks like they were at about -28% by about 2013, so at -16% they've gained back a bit of ground. And the chart looks to have a positive trend.
Yes. And I GreekAustin can feed my family on less negative growth than anticipated since 2009. Thanks to all of you, disinterested people from around the world, in me and my family’s plight here in Greece.
That's percent since, not negative per year.
Sure. But the point is, Greece is significantly poorer than it was fifteen years ago. We're talking about a very real, very substantive decline in quality of life for millions of people.
That's an utterly horrendous outcome. And it's an outcome that was entirely unnecessary but for the requirements of domestic German politics.
Indeed. The population of Greece has decreased by a little more than 5% since 2008, too. Which I suppose might account for some of the lack of recovery, but is more significantly a clear indication that the grinding economic crisis there has driven people to emigrate away.
If Greece had their own currency they could devalue, and the cheap Drachma would attract tourist Euros and make Greek olive exports cheaper and more attractive. Instead Greece is exporting it's young people.
Is Greece now a European Haiti? Or like the folks with student loans they never can repay?
Greece, even with it's long-term decline in material standard of living, remains something like thirty times richer than Haiti.
So I'm gonna go with "no" as an answer to your question.
Let’s just say that a greexit would have been much worse and those were the only two choices.
No, there was at least one more choice: Let German banks suffer the consequences of their own fully-informed decisions.
What ever happened to the "If I owe the bank a million, I have a problem. If I owe a billion, the bank has a problem." doctrine?
That apparently only matters if you’re in a country that the world cares about. If you’re in some peripheral country? Meh. Sucks for you for a generation or more.
a) inflation
b) governments are not banks
The statement is incomplete. More accurately, it's, "If I owe you a billion dollars in a currency you control, I have a problem. If I owe you a trillion dollars in a currency I control, you have a problem."
Yeah, that.
Bingo. The Euro was invented to solve this problem.
The graph really shouldn't start at 2009. My theory is that the Greek GNP was artificially high at that point due to borrowing all that money.
Interesting and plausible theory, but I have no idea if it is true. But that must have been analyzed to some significant extent. Do you have a link to a more illuminating graph? (Not criticizing you at all, just wondering about the facts)
"... Do you have a link to a more illuminating graph? ..."
A longer term graph of Greek GDP can be found on this page . It may take a while to load. It generally supports the idea that Greek GDP was artificially high in 2008. But I expect there are lots of ways of looking at this.
Yes.
These kind of moral judgements on budgets, standards of living or fiscal policy are always a bit silly.
There is nothing fake or true or artificial about any of these stats. They are just a statistic. Borrowing money doesnt make growth or output artificial.
Greece's GDP and growth rates look very similar to other poor and moderate income EU countries in the lead up to the 2008/9 crash. Greece's situtation really only looks different because of what happened afterwards.
Imagine throwing a guy in jail and watching his financial situation deteriorate...then justifying the jailing by rationalizing his financial tailspin as proof that his prior situation must have been artificial.
Randomly deciding that a sprinter must be punished by breaking his ankles....then determining that his now much slower running speed proves that his prior sprint times were artificial, so its no big loss.
Makes no sense.
"There is nothing fake or true or artificial about any of these stats. They are just a statistic. Borrowing money doesnt make growth or output artificial."
It can. Suppose you borrow money to build blocks of apartments. And then in a few years it turns out that you have grossly over built and the apartments were shoddily constructed anyway so they can't be sold and your loan goes bad. Or shopping centers or warehouses or whatever. Do this on a national scale and things can look great for a while. But then the bills come due and it is revealed that it was all an illusion.
"Markets can remain irrational longer than you can remain solvent. —John Maynard Keynes"
As I have mentioned before this is a false attribution.
Well, it’s a clever comment. So, to whom should it be attributed?
Apparently A. Gary Shilling
https://quoteinvestigator.com/2011/08/09/remain-solvent/
OTOH, Trump voters can remain irrational indefinitely.
It looks like if you started your graph in 2018, Greece would be outperforming Germany and your story might have been very different, like "10 years after financial crisis, Greece outperforms..."
Between you and James, a giant +1
No comments about German selfishness and intransigence? I seem to remember a number of snide remarks about the unwillingness of Germany to help out the Union because they were reaping the benefits of EU membership but suddenly it was "not their problem".
German economic historian Albrecht Ritschl describes his country as "king when it comes to debt. Calculated based on the amount of losses compared to economic performance, Germany was the biggest debt transgressor of the 20th century."
-This must be true because I found it on Wikipedia! Hahahahaha
The narrative at the time was that those wascally Greeks had tricked those poor, innocent, naïve German bankers.
The Dutch and the Finns were also strongly opposed to forbearance for Greece although I don’t think that Finland had much at risk.
It’s generally considered to be the obligation of a government to work in the interests of its own people and institutions. Would this be considered ‘selfishness’ for any nation but Germany?
Yes. When any country gives its financial sector incentives for bad behaviour, it's to the detriment of every country's people and institutions. Are you arguing the U.S.'s 2009 financial sector bailouts -- with little to no repercussions for the people who actually made those bad decisions -- was a good thing? You can argue otherwise, but then, at the very least, Germany should have very publicly pinned the blame on the guilty parties, i.e., the banks, and then proceeded to do what they in fact actually did.
I'll say it one more time: Yes, it would and should be considered selfishness for any nation, including Germany.
So Greece should never have been loaned the money in the first place.
Not if the lending institution's business model was based on 'too big to fail'. Scare quotes definitely intended.
Certainly not as they did, without the due diligence to establish how the Greek government would be able to repay the debt.
Oh, they did their due diligence alright. They just knew there was no downside for them should the loans go South.
Not a good thing, but arguing a less bad thing. The bailouts only began after the collapse of Lehman Brothers seemed about to cause a nationwide financial panic.
I don’t know that either the US or Germany actually incentivized bad behavior; rather, the arguments of people like Robert Rubin led to reduced regulation, on the assumption that banks’ distaste for losing money was disincentive enough. They little appreciated how assiduously some players would work to conceal risk and exaggerate returns.
Knowing that the government considers you 'too big to fail' definitely incentivizes bad behaviour. The argument you cited is pretty much just another 'the free market is self-regulating' justification for lack of oversight.
Oh, yes, i don’t buy that argument at all; but Ronald Reagan and Bill Clinton did. I think, though, that ‘too big to be allowed to fail’ was an after-the-fact rationalization for bailouts.
Most definitely. I agree 100% that it was an after-the-fact rationalization. That's why I put 'too big to fail' in scare quotes.
I don't think "since the Greek economy collapsed under the weight of loans they couldn't repay" is quite right. The economy collapsed under the weight of the austerity measures forced upon the Greeks by banks.
Did those banks force Greece to take the loans in the first place?
Should banks always be made whole when they make knowingly risky loans?
Exactly. When someone can't pay back a loan, you can't just blame them. The lender also shares some blame, since they clearly failed in their due diligence. The Western tradition of everybody-blame-the-borrower doesn't withstand scrutiny.
If they are forced to make those loans. Of course when banks don’t make loans to risky groups then they get bashed for that too…
And now you just made any further conversation with you pointless.
So had the German banks not made those loans you assert they knew or should have known were risky, you assert the Greeks et al would have simply shrugged and said “oh well” ?
Tell me, I'm curious; why should I respond to such stupid and stupidly obvious trolling?
I don't know. Why did you?
I did?
If you are hinting at that old charge that laws against redlining, particularly the Community Reinvestment Act, were the cause of the financial crisis and the Great Recession, that has been disproven: https://fdic.gov/regulations/laws/federal/2010/10c01AD60.PDF
The large majority of subprime loans were made by institutions not subject to the CRA.
The initial impacts of the global financial/banking crisis hurt Greece when Tourism related revenue dropped off rapidly at the onset of the global crisis.
Greece didnt really do anything wrong other than being heavily exposed to the first domino that falls during a worldwide recession.
The austerity measures that came later made a bad situation even worse.
"Greece didnt really do anything wrong other than being heavily exposed to the first domino that falls during a worldwide recession."
Greece did lots wrong including electing a leftist government that pursued a confrontational strategy (egged on by lefties worldwide) that accomplished nothing but pissing off their creditors.
Do not feed the troll.
If you examine Greece's GDP from about 2004 to 2012 you see rapid growth. Certainly, the large loans Greece received is a major factor in the rapid growth.
Without the large debt, I doubt Greece would have achieved this growth.
https://tradingeconomics.com/greece/gdp
You can go back further on that page, and see that from 2000 CE to 2008, Greece’s economy more than doubled. Of course, this is measured in monetary units, not in terms of actual widgets produced or services rendered.
On this page, https://meansquarederrors.blogspot.com/2015/07/greek-economy-how-terrible-was-it.html , a pseudonymous blogger tried to show that the pre-crisis Greek economy was not as bad as generally thought. The problem with that graph is that Greeks worked many more hours in a year than Germans or French/wo/men. Factoring that in, Greek productivity was half that of Germany. As skeptonomist and I are fond of pointing out, productivity in the medium and long term is almost entirely a function of investment. For Greece, that is a problem, but also an opportunity — when you are that inefficient, you don’t need to be at the cutting edge of technology; you just need to look at your neighbors and copy what the Germans and French are doing already. The high level of Greek public debt would not have been nearly as great a problem if the borrowed money had been invested in productivity improvement.
Before I look at that piece, could you tell me if it considered relative industry compositions of both countries? My impression is that some sectors of the economy inherently require more people and are not susceptible to more investment.
Tourism and real estate are the major parts of the Greek economy and both seem like a fairly low productivity sectors.
That's what I recall. Thanks for the info.
Productivity as it is measured for a whole economy can be increased by increasing the value of output as well as by reducing labor input. Remember when shoe manufacturers found out they could triple the price of sneakers by stamping an athlete’s name on them?
Do you have a citation for ‘not susceptible to more investment’?
You’re giving me an argument for industrial policy (which I’ve been in favor of for a long time). If your traditional sectors are maxed out (don’t know if that was true of Greece), find new areas to invest.
I didn't think of this as being an endorsement of industrial policy. But as it happens, yes, I am very much in favor of industrial policy at the federal, state, and local levels.
Debt is usually a good tool to create growth. Greek investment was quite high in the years leading up to the 2007/8 financial crisis.
The massive economic contraction and stagnation following the German/EU imposed austerity is also associated with a massive drop in investment. Not a good plan in the short term, or the long term.
Greece should be a wealthy country, but bad governance has held them down. Compare them to Eastern Europe and Baltic countries that were under the Soviet communist thumb for many decades, and you see that all of those countries now have GDP per capita higher than Greece. Governance matters.
Post made me think of Iceland which also had a crisis.
Wow, there are some wild differences -- https://www.worlddata.info/country-comparison.php?country1=GRC&country2=ISL
Ah, that would be the instance where the Icelanders refused to take any crap from their bankers and knew where they lived.
From a bit of looking around, it seems like Icelanders were willing to let their banks become too big to bail out.
That's capitalism.
¯\_(ツ)_/¯