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	<title>Love of History &#187; Greek default</title>
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		<title>Greek Austerity or Greek Default?</title>
		<link>http://loveofhistory.com/greek-austerity-or-greek-default/</link>
		<comments>http://loveofhistory.com/greek-austerity-or-greek-default/#comments</comments>
		<pubDate>Sun, 28 Jun 2015 09:06:00 +0000</pubDate>
		<dc:creator><![CDATA[constantinakatsari]]></dc:creator>
				<category><![CDATA[Modern]]></category>
		<category><![CDATA[Opinions]]></category>
		<category><![CDATA[Greek crisis]]></category>
		<category><![CDATA[Greek default]]></category>
		<category><![CDATA[greek referendum]]></category>
		<category><![CDATA[troika]]></category>

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		<description><![CDATA[Greece, a country with the longest democratic tradition in the world, announced a referendum. The Greek people are called to decide, whether they accept a new austerity program or not. The decision is a difficult one, not least because most of the population does not hold a PhD in economics. Well I do! And I can assure you that I also find the longwinded documents perplexing. Let me see what evidence I have in my hands. The new austerity measures follow the same recipe that created the Greek crisis as we know it today. Specifically, Public debt reached 175% of the GDP. Bearing in mind that 99% is the psychological point before an increased risk of default, the number is astonishing. The debt reached 320 million EUR. So, each Greek citizen should pay back 32,000 EUR. Unfortunately, more 30% of the Greek population live below the poverty line. Even 32 EUR would be a large amount. Public deficit was reduced. The numbers indicate a 20% adjustment! Public servants were reduced by 30%! Salaries were reduced by 37%! Pensions were reduced by 48%! Unemployment reached 27%, while it is around 60% for young people! On the whole, the economy contracted by 27%. A similar contraction was achieved during the Second World War, when 10% of the Greek population died of hunger! The destruction of the Greek economy is almost complete. In view of this situation, the EU, ECB and IMF decided that they should finish the job they started. So, they recommended more of the same austerity measures. Among them, admittedly, there are some measures that will foster a competitive economy. For example, a decrease in bureaucratic process is badly needed! There is no doubt that the Greek economy is in need of reforms; reforms that should have taken place in the last three years. Clientelism needed to be eradicated. The oligarch needed to lose their power. And so forth. Unfortunately, previous governments that profited from the status quo did not take the necessary decisions. And they left us with an economy that contracted by 27%, instead of the predicted 5-10%. The necessary reforms, though, should not involve further cuts in pensions. After all, the Highest Administrative Court of Greece declared this practice unconstitutional, since the pensioners have already paid their contributions. Salaries have already been squeezed to the point that the average household has cut down the consumption of food by about 20%! General taxes that affect businesses reached almost 70%. Existing property taxes ruined what was left of the middle classes. I can go on and on but I will spare you the pain! After all, it does not matter what numbers say. Numbers can be presented in contradictory ways to achieve contradictory results. Statistics can be manipulated to create one or another effect. The technical reports we are asked to vote on are nothing but a fiction of numbers that may or may prove to be true. They are based on fictitious projections on how the Greek economy will perform! Well, it is not the first time the IMF made a deadly mistake! I will tell you also another secret. Economics is more akin to astrology than science! Economists are called to predict the future. So, they study different parameters and they come up with educated guesses. If one parameter is missing, the prediction collapses like a tower of cards. In the Greek case, many parameters were not included. These involved primarily but not exclusively the psyche of the Greek people, consumerist behaviours, the political cultural and many others. Of course, such parameters can not always be quantified; a fact that the technical groups prefer to ignore.  This is one of the main problems we face in macroeconomics. We may worship neoclassical or institutional economics but we do not take into account the more important behavioural economics. I will not go into the theoretical details of how this impacts modern economic decision making. Suffice to say that the same measures should not be applied in every situation. Each country is different, economically, politically, geopolitically, culturally, traditionally, environmentally etc. So, where do we go from here? We obviously have to take a very difficult decision. I have already taken mine, based on the evidence I have at hand. Let me explain how I reached that decision. You never know, it may help people clarify their own thinking. First of all, I am convinced that a YES in the referendum will be as catastrophic for the Greek economy, as previous decisions were, for all the reasons I outlined. Same measures will only bring similar outcomes. The current economic policies failed and should not be re-implemented at all costs. We cannot afford more impoverishment, especially if this kind of situation continues for the next two decades or so. What happens, though, if we vote NO? The Troika, individual European countries, the world is warning Greeks that a default and a Grexit will follow. Of course, nobody can be certain that this is the only outcome. After all, who can really predict the future? Especially since the outcome will not be just the result of economic policies; instead, it will be the combination of political aspirations, geopolitical decisions, national ideologies and conflicting power struggles within the European Union. Based on the evidence I have in my hands, I could predict how a radical left Greek government would react in a possible NO. First of all, they would not leave the euro and certainly not Europe. For as long as they are part of the current institutional European system, they have certain advantages (as well as disadvantages). Hence, their steps will be very careful. And yet, they will still have to face a possible default. I know I am oversimplifying the situation but defaults are usually divided in ‘structured’ and ‘unstructured’ ones. Such a structured default took place in Greece in 2012. Of course, they did not call it as such. Instead, they preferred to call it a ‘haircut’ in order to avoid the harsh reaction of the markets. This type of default took place with the full consent of the creditors. Unfortunately, it was of limited nature. At that point, it should have ‘cut’ at least 70% of the debt. It didn’t, with disastrous results. After a NO vote negotiations will start that will determine the nature of the next default; either structured with the consent of the EU, ECB and IMF (these are the creditors today), or unstructured without their consent. I would assume that the European Union would not like to rock the boat too much. We are literally travelling in unchartered waters today. A false move can bring down several European parties. And yet, stupidity reigns, as recent negotiations with the Greek government indicated. And I cannot exclude the possibility of an unstructured default. Even such a default will not happen overnight. Bear in mind that this is a process. We will not wake up one morning being bankrupt. The results of a possible default, especially if it is unstructured, should be divided into short, medium and long term ones. This way we will understand better what awaits us and for how long. To be absolutely clear, I have the Argentinean model in my mind, because it was the latest state bankruptcy that assimilates the Greek one. After all, the Argentineans also had their currency pegged to the dollar, in a similar fashion as we use the euros. There are, of course, differences. Among them the scale of the Argentinean economy is much larger than the tiny Greek one, while their currency was freed from the dollar almost immediately. Following the Argentinean example, we should expect a steep contraction of the Greek economy as a whole in the first six months. Economists estimate it to another 10% on top of the 27% we already experienced. This is actually better than I thought. If we vote yes and we accept the new program, the contraction of the economy will probably reach another 5-6%. What does this mean for the people? I think that capital controls are unavoidable. The government may restrict withdrawals from the bank to 300 euros per week, that is 1200 euros a month. To tell you the truth, I know very few people who make 1200 euros a month. I even know a lot less people who have any money in the bank! So, I do not think that the measure will affect the majority of the population. Problems, though, will arise in the energy sector, food and medication. I think that we import 40% (if I remember correctly) of our energy consumption mostly from Bulgaria and Turkey. If credit is altogether cut, we should expect power cuts that will affect up to 40% of our day. Our habits in terms of cooking, reading, watching tv etc. will have to change. Similarly, gasoline and gas will be affected. We also import a large amount of our foodstuff. I am afraid I do not have the statistics for that. I suspect that some items will altogether eclipse from the markets. My biggest fear have always been that chocolate will be found nowhere! The existing government despite entering harsh negotiations has not taken any measures to increase local production. I suspect that part of this reason was because it did not want to upset the Central Agricultural Policies of Europe.  Food consumption will be reduced, the black market will flourish and Greek people will suffer. Rationing is expected. We will face the same situation with medications. I suspect that the lowest incomes will be hit the hardest as they will not be able to find medicines in the local market. I have friends who already stocked up in antibiotics and painkillers for the kids… just in case. However, I suspect that these may be found and bought from online pharmacies. The humanitarian crisis will become more pronounced in the cases of cancer patients. It will be very difficult to treat them on Greek soil. When this situation is realised a large package for help will be voted in the European Union. Unfortunately, we will have to rely on external help to face the problems creditors as well as previous Greek governments created. The help will be substantial and short lived. I cannot possibly believe that the EU will face a humanitarian crisis of these proportions in the heart of Europe without reacting. Such an omission would trigger social unrest and geopolitical shifts that would be best avoided. These short lived effects will last around 6-8 months. Then we will notice a stability in the system. The country will start recuperating slowly but steadily. The people will settle in a new normal, the budget will become more balanced (although now we are very close to primary surplus), more jobs will be created, stability will start attracting foreign investment. This will be 1-2 year period, depending on the mood of the Greek population. If they keep positive, they will recuperate faster. The true growth will come afterwards. Two years beyond the default may see growth of around 8%! Greece has not seen such growth since for ever. The economy will be vastly more competitive, entrepreneurship will be modus vivendi with a lot more businesses opening up, the power of the state will be reduced and, hopefully, the oligarchs will lose part of their hold on political affairs. No we will not leave Europe! Only sick minds can suggest such an outcome. And it is highly unlikely that we will leave NATO. Greece is a very small country of people with loud voices but no real power. It would be best for everyone, if we kept our existing alliances. We have been part of European processes since the 1950s. We officially joined the European Community in 1981 (the same year as Ireland did). Traditionally, we are very much part of Europe, long before we adopted the same coin. I cannot say the same about keeping the euro, though. In fact, I am not even sure the euro will survive this pan-European crisis. There is certainly strong political will from the vast majority of the countries to keep it in place. For now! However, if austerity in Europe continues, the people may start voting for the ‘wrong’ governments. I am looking forward to see how the Podemos in Spain will fare in the next elections, for example. No matter how loudly some Greek parties shout for keeping the Euro, I am not entirely certain this is feasible. If Europe decides to ‘punish’ the Greek government and decreases the liquidity of the banks, SYRIZA will be left only with one option. If there is a default of any kind, euros will stop flowing into the country. In fact, they stopped flowing almost a year ago. The government will have to issue IOUs. Effectively, this is additional credit. Legally speaking, it is not currency. So they do not break any European laws. So, Greece will remain in the Eurozone. In my opinion, staying the eurozone in the long run is not a good idea. The competitiveness of the Greek economy does not lie in the deflationary policies the Troika imposed in the past 5 years. I have already stated that these policies failed. The only way forward is to create, or rather recreate, our own coin. This coin may be the drachma or something else. We should not expect it, though, to happen overnight. It will be long process before we see the ATMs in Greece spitting out drachmas. Do you remember how long it took before we adopted the euro? We are probably looking into a similar process. So, now that I have a fair idea of what is going to happen, I need to take a decision. My decision will be based not on what is best for me today but what is best for my children in the future. I am fully aware that in the short run myself, my family and my wealth will suffer if we vote NO. In the long run, though, the Greek economy will grow. My children will be able to live, study and work in the most beautiful country in the world. Or at least, they will have the choice to do so. For these reasons, as an economist and as a Greek I recommend NO for the impending referendum. I am voting for Hope! Image: http://en.protothema.gr/sps-timeline-of-the-greek-crisis-see-statistics/]]></description>
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		<title>A comparison of the economic crisis of Greece in the 3rd century AD and today</title>
		<link>http://loveofhistory.com/a-comparison-of-the-economic-crisis-of-greece-in-the-3rd-century-ad-and-today/</link>
		<comments>http://loveofhistory.com/a-comparison-of-the-economic-crisis-of-greece-in-the-3rd-century-ad-and-today/#comments</comments>
		<pubDate>Sun, 26 Apr 2015 20:43:30 +0000</pubDate>
		<dc:creator><![CDATA[constantinakatsari]]></dc:creator>
				<category><![CDATA[Ancient]]></category>
		<category><![CDATA[Modern]]></category>
		<category><![CDATA[Opinions]]></category>
		<category><![CDATA[Greek default]]></category>
		<category><![CDATA[Greek economic crisis]]></category>
		<category><![CDATA[Roman Greece]]></category>
		<category><![CDATA[third century economic crisis]]></category>

		<guid isPermaLink="false">http://loveofhistory.com/?p=3629</guid>
		<description><![CDATA[&#160; When I published my monograph on the Roman Monetary System in 2012 I was accused that I did not tackle adequately the third century crisis. This was the most long lasting crisis in the Roman Empire that eventually led to an entirely new political, economic and social system in Late Antiquity. When I published my monograph on the Roman Monetary System in 2012 I was accused that I did not tackle adequately the third century crisis. This was the most long lasting crisis in the Roman Empire that eventually led to an entirely new political, economic and social system in Late Antiquity. The reason I did not present my views in full was because I was planning another monograph. Regrettably, I have not had the chance to finish it, since I decided to leave academia and pursuit a different path in life. As I keep writing my love of history blog, it would be a good idea to present briefly my views on the topic. These views changed slightly in view of the economic crisis Greece is facing for the past few years. I hope you will excuse the fact that I will not be using any references and that the language will address the educated public and not my ex colleagues. The third century economic crisis has not been called a ‘crisis’ for more than a decade. The German scholars, especially, were very keen to rename it into ‘Transformation’. They insisted that we are just witnessing the political transformation, which led to economic and social changes. Or vice versa. One of the economic indicators, which proves this theory, are archaeological evidence, which indicate a proliferation of large villas. This is true! If you study excavation finds, especially in Greece, you realise that the Roman villas are increasing in size. Similarly, the surrounding buildings are multiplying. So, how is it possible that such a wealthy region is suffering from an economic crisis? On the other hand, we encounter a few inscriptions with complains about the authoritarian behaviour of the authorities. At the same time, the monetary system is collapsing and in many cases it is replaced with the exchange of bullion! By the end of the third century Diocletian is trying to tackle rampant inflation and moralises on the exorbitant prices. The third century situation is very similar to the Greek situation today. The ‘haircut’ (see default) of 2012 affected only marginally the Greek oligarchs. Statistics indicate that their tax contributions increased by 9%, while the tax contributions of the poor increased by 337%. At the same time, property prices dropped by 40% and building labour costs decreased at an equal rate. This is the best time to buy a large mansion or build a Roman villa! Wealthy individuals and foreign companies have been scooping up entire neighbourhoods in the middle of Athens. The Greek population has been complaining about the corruption of Greek authorities for some time now. The oligarchs own the media and have substantial influence in the Greek government. For years they managed to secure lucrative contracts, avoid taxation and, thus, cause the downfall of my country. The voices of the people are loud and clear. They may not come through official channels but you can hear them in the streets and in social media (facebook seems to be a national pastime). They resemble the Roman Greeks who during the third century complain to the imperial authorities… in vain. As for the monetary system… well… where do I start! Roman Greece did not have its own system. The region was fully embedded into the Roman monetary system and used the silver and gold coins issued in Rome. There was some leeway with small change. Local cities could issue bronze coinage for the daily needs of the inhabitants. This coinage did not have a massive impact on the overall system, since it was exchanged at Roman imperial rates. On the whole, money monopoly belonged to the central imperial authorities. Similarly, modern Greece uses the euro, which is issued in the Central Bank of Europe. Monetary sovereignty is a thing of the past. I am currently close to believing that also national sovereignty has been lost in the pursuit of … prosperity and economic convergence. European authorities control liquidity, ‘benefactions’ (European Regional Growth Fund), minting, exchange rates. They have full control of the money monopoly. Greece needs to follow central directives and obey central rules. Which is ok, as long as there is a a central political agenda. But there is no such thing! Greece is sacrificed in the altar of Euro Survival. Similarly, Roman Greece was sacrificed in the altar of the political and military aspirations of the 26 emperors who ruled over a 50 year period! Roman Greece as modern Greece are both suffering from the inherent deficiencies of the central monetary system. In the Roman period the continuous debasement caused the collapse of the denarius. In Europe the political disparity between North and South is causing the instability of the euro and threatens economic prosperity. I cannot help but mention one major difference between the two periods. By the end of the third century inflation plagued the markets. In 2015 Greece is suffering from deflation. As an economist I understand very well that deflationary tendencies last longer and cause deeper depressions. In both cases the vast majority of the population suffers. The rich become fewer and richer, while the poor (or middle class) become poorer. I cannot blame the Romans for what happened to third century Greece. After all, Greece has been really Roman for almost 5 centuries. I do blame the Roman emperors, though, for having total disregard for the need of the population and for pursuing their own ambitions. I can blame the Europeans, though, for how they treat the Greeks. 10 million human beings at the heart of Europe are closer than ever to default! Suicides are increasing at a rate of 40% per year. 30% of the population is below the poverty line. 60% of our youth is unemployed. 35,000 medical consultants left Greece. Over 200,000 people emigrated, 180,000 of which are university graduates. 3 buses caught fire in the last 2 months, because of the lack of maintenance. Cancer patients are left untreated. Children go to school starving. Where does it end? Although we do not have similar statistics for the Roman empire, I believe that there is some scope for comparison. In both cases, the gap between the rich and the poor widened. In both cases, the population suffered.  I am sure some future historians will call the current Greek crisis a ‘Transformation’. It sure as hell does not feel like one! &#160;]]></description>
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