Saturday, February 28, 2015

An Irresistible Force May Soon Meet with an Immovable Object

In the biased but accurate words of the Huffington Post:
The House of Representatives voted Friday night to avert a shutdown of the Department of Homeland Security, so they can come back and have the same fight in a week.  The vote was the result of a divide between Republicans in the House and Senate over whether to surrender now or hold out for one more week.
Anyone who actually cares is welcome to tune in next week for further entertainment.  I prefer to pass and move on to far more important matters; what will happen if the Supreme Court rules that Obamacare only grants subsidies to people buying insurance in a state exchange and not a federal exchange.

To recap: Obamacare called on states to set up exchanges to buy insurance an provided that if the states did not set up exchanges, the federal government would set them up instead.  It also provided subsidies to make insurance more affordable.  However, in a little glitch overlooked at the time, it said that subsidies would be available on an "exchange established by the states" and neglected to include exchanges established by the federal government.  No one at the time noticed the glitch, and the IRS made regulations making the subsidies available on federal exchanges as well.  The majority of states then refused to establish exchanges, so federal exchanges went up instead.  Then some libertarian organization discovered this glitch and brought suit to block subsidies in states.  They argued not only that this glitch blocked subsidies in states that used federal exchanges but that Congress intended the law to work that way in order the pressure states into setting up their own exchanges.  The lawsuit is known as King v. Burwell.

There there is little doubt to my mind that if King v. Burwell had reached the Supreme Court before the exchanges were up and running, the majority of states run by Republicans would have supported it.  The advantages would have been obvious.  They could have blocked subsidies for the people of their states, thus preventing them from buying health insurance, but they would still have been required to pay the fine.  This would have helped create pressure to repeal the monstrosity.  But the suit reached the Supreme Court too late.  Now states are facing the prospect of people losing subsidies they already have.  This has led 22 states to file briefs calling for the subsidies to stay in place.  Their main argument is that the Supreme Court has held that any time the federal government makes a benefit conditional on states doing something, it must clearly say so, and there was never the faintest him of such a threat in this case.  Once again, I am confident that if the federal government had made receiving subsidies conditional on the states establishing exchanges, many states would happily have blocked the subsidies by refusing to establish exchanges, but blocking their citizens from receiving a benefit is one thing; taking it away is another.  Seven states (Alabama, Georgia, Indiana, Nebraska, Oklahoma, South Carolina, and West Virginia) are urging the Supreme Court to strip their citizens of subsidies.

So, what happens if the Supreme Court does, in fact, vote that only people who buy their insurance on the state exchanges can receive subsidies?  Well, instantly an estimated 8 million or more people will lose their subsidies.  Most of these people will presumably not be able to afford insurance without them.  All will have incomes above 125% of the poverty line and many will be middle class and sympathetic.  Some of them will have serious medical problems, so that having health insurance will be a matter of life and death to them.  Republicans are beginning to realize that dancing in the street for joy at the prospect is really bad politics.

The immediate Republican response will presumably be twofold (1) blame Obama for "illegally" dispensing subsidies, and (2) argue that this outrage shows why the monstrosity that is Obamacare should be repealed right away.

Response (1) may have emotional resonance, but it will only get the Republicans so far.  In the end, people losing their health insurance will want a way to keep it, not someone to blame for the loss.  It will be particularly unsuccessful if Obama is holding out an easy solution ("just correct the typo") and Republicans are fighting it tooth and claw.  Response (2) may be a good applause line, but needless to say responding to millions losing their health insurance by taking it from millions more will not be widely popular!  The pressure will be on for an actual solution, and fast.

How strong will the pressure be?  Well, when the federal government shut down, undoubtedly serious problems would have resulted if the shutdown had continued, but in the time it lasted, most people suffered nothing worse than not getting to see some monuments.  Refusal to raise the debt ceiling would undoubtedly have had catastrophic consequences, but the threat of them was enough to end the showdown.  And defunding Homeland Security is unlikely to result in anything worse than some employees not getting paid, but Republicans are already preparing to cave.  A "victory" in King v. Burwell would lead millions immediately losing health insurance and the prospect of costs spiraling out of control for those remaining.  The pressure to reach a solution fast will be overwhelming.

But pressure on the other side will be overwhelming as well.  For five years now, Republicans have considered any collaboration with Obamacare as the vilest possible act of treason.  The Tea Party faction will be out in force.  An irresistible force will meet with an immovable object.

A lot of Republicans must secretly be praying that their side will lose its Supreme Court showdown.

Wednesday, February 25, 2015

Never Mind DHS. Think Obamacare Subsidies

All right, enough of Greece for a length of time to be determined by the news cycle.  Back to the US. Last year the lame duck Congress passed a bill keeping all the US government except the Department of Homeland Security (DHS) funded for the remainder of the fiscal year.  This will prevent government shut downs until October or thereabouts, although it will not prevent another debt ceiling showdown, which is really a lot more dangerous.  Homeland Security, on the other hand, will run out of funding at the beginning of March.  Republicans are seeking to tie funding of DHS to ending Obama's offering of temporary visas to certain people who are in the country illegally.  Democrats are filibustering the measure in the Senate, and Obama has vowed to veto it if it does pass, so a shutdown of the Department of Homeland Security may be eminent.  In the latest chapter, Senate Republicans have agreed to separate the measures and have passed funding for DHS without the immigration provision.  It has passed by a vote of of 98-2!  The measure blocking Obama's visa program is next.  I have to wonder the Democrats, in exchange for Republican support of the "clean" funding bill, have agreed not to call the filibuster on the anti-visa measure and will allow Republicans to pass it by a simple majority.  Of course, it will be meaningless even if they do, since Obama will simply veto the measure.  At worst that will might be mildly embarrassing to him, but probably not even that.  Naturally, House Republicans recognize this fact and are dead set against it, vowing to vote only for a measure the that links the two.  So the Department of Homeland Security may run out of funding in a few days.

And my only reaction can be YAWWWN!

As countless others have pointed out, shutting down the Department of Homeland Security sounds bad.  It makes it appear that Republicans are putting our safety at risk.  It is an easy issue for Democrats to demagogue.  But really, most DHS employees are considered "essential" and will therefore continue to work, though without pay.  They will be angry about that, of course, and legitimately so.  But there is no danger to US security.  Very few Americans will be even minimally inconvenienced.  Certain police departments won't get their anti-terrorism funding and training.  So much the better!  Some people have suggested that Boehner will, once again, be forced to pass a clean funding bill with mostly Democratic votes once enough pressure builds.  My guess, though, is that this time the pressure will be a lot less intense than last time, and will build much more slowly. Presumably it will have two main sources, Democratic demagoguery (Republicans are shutting down our Homeland Security!) and DHS employees legitimately angry about not getting their paychecks.

Some people say that Republicans want to avoid the debacle of the last government shutdown.  Others say, what debacle?  Being blamed for the shutdown didn't prevent Republicans from getting a landslide in the 2014 elections.  My own thinking is somewhere in between.  On the one hand, the government shutdown could hardly be called a disaster from the Republicans insofar as it did nothing to stop their landslide a year later.  On the other hand, it wasn't a great triumph either, in the sense that they were forced to back down in a humiliating fashion and did not get any substantive concessions.  So my guess is that if the Republicans had a choice between (A) having a showdown, begin humiliatingly forced to back down, getting nothing in exchange, and going on to win by a landslide and (B) getting no substantive concessions and winning by a landslide, but without the humiliation, my guess is they would prefer to avoid the humiliation.  I could be wrong.  Maybe the satisfaction of a showdown is more important to some Tea Party types than the ultimate outcome.

Likewise, what about John Boehner?  Is it true that his speakership is in danger if he passes the bill with mostly Democrats?  Or, given the number of times he has done just that, is he safe in his perch, knowing that no one else wants the thankless job?  Here again, I am inclined to take an intermediate view.  If Boehner made a regular habit of passing routine legislation with mostly Democratic votes, his caucus would be (justifiably) outraged and would no doubt depose him.  But if he limits the practice to real must-pass bills, such as budgets and raising the debt ceiling, my guess is that a lot of Republicans have some sympathy and want him to succeed, although they would not dare express that view openly by, say, actually voting for the measure.

But in the end, I just can't get very excited about the DHS funding psuedo-drama.  It interests me mostly as a dress rehearsal for the real drama that may be coming up in June if the Supreme Court cuts of people's Obamacare subsidies.  Now that will be some serious drama!

Tuesday, February 24, 2015

A Vacation from Greece (I think)

And now, if the extension is approved, I will take a break from modern Greece for about four months. I will take a break from ancient Greece until I have done more reading up on it.

And if the extension is not approved, I will probably be posting on modern Greece very soon.

So no promises this time.


The latest update from Greece:  The European Commission (EC) and European Central Bank (ECB) have approved Greece's plan for a four-month extension.  Now all that has to be one is for member parliaments to approve it.  Uh, good luck with that one.  So, if by some miracle they all agree, we have a reprieve until the end of June for Greece to either submit a new plan to continue in the euro, or to plan for the Grexit.  

The usual suspects are warning Southern Europe not to give up on austerity now just as it is finally beginning to pay off.  And, of course, they are warning of disaster if Greece leaves the euro.  But here is the thing.  I can imagine that their counterparts in 1932 or 1933, around the Roosevelt election saluting Hoover for his brilliant economic stewardship and warning Roosevelt not to abandon Hoover's policies just as they were starting to pay off.  After all, they would point out, despite immense pressure, Hoover did manage to maintain the dollar peg to gold.  And around the summer of 1932, the US economy really did bottom how and really was starting to show the beginnings of a feeble recovery.  And Roosevelt's election really did set off a panic in the finance system.  I outsource this history (which I had never learned before) to Scott Sumner.

From 1929 to 1932, the world economy in general and the U.S. economy in particular were experiencing massive deflationary pressure.  And deflationary pressure, for a wide variety of reasons, is bad.  For one thing, prices, and especially wages tend to be "sticky" and to resist falling.  When they experience downward pressure, instead of simply falling, they introduce widespread distortions into the economy.  Unemployment, for one.  But even in the absence of wage/price stickiness, deflation would cause problems.  For one thing, when nominal incomes fall, even if prices fall at the same rate, debts become more burdensome relative to incomes.  (This is a huge problem with sovereign debt in Southern Europe today).  For another, deflation means that nominal makes real interest rates higher than nominal interest rates, so borrowing necessarily becomes arduous.  This discourages investment.  And besides, under deflationary conditions, holding cash pays real interest, which discourages borrowing and (again) reduces investment.  In extreme cases, severe deflation can lead to currency collapsing altogether and ceasing to circulate, so that country has to resort to barter. (That is what happened to Russia in the 1990's).

What caused the deflationary pressure in the 1930's, or what causes it in general is controversial.  But one clear source of deflationary pressure is an over value currency.  And in the 1930's there was a huge obstacle to countries relieving the pressure of an over value currency -- the gold standard.  David Frum describes what that meant for the US:
Between 1929 and 1932, the U.S. money supply collapsed, as banks failed and bank deposits and commercial credit vanished. . . . . Why didn't the Federal Reserve act to prevent the contraction? Again: the gold standard.
In a modern recession, the Fed will buy Treasury securities in the open market. After the purchase and sale, the Federal Reserve has more securities -- and the former owners of the securities have new cash.
Those new cash owners then spend or lend their cash, spurring economic activity. But in 1930, the new cash owners didn't spend or lend. They swapped their cash for gold. The "open market" operations that were supposed to accelerate economic activity instead accelerated the country's gold drain.
So the Fed ceased -- and instead passively allowed the economy to collapse in order to save the nation's currency.
That is, in effect, what Southern Europe has been asked to do since 2008.  Governments that have gone along have been praised by all the VSP's for their wise stewardship.  No doubt the VSP's of the 1930's praised such wise stewardship by Hoover as well.  So why did the US go along with it?  In large part, because the slightest suggestion of any change of heart set of financial panic.  The financial system certainly panicked over the election of Roosevelt.  Sumner describes how stocks dropped every time Roosevelt seemed to gain in the polls and the financial press dreaded that possibility.  Hoover boasted that he had saved the dollar from going off gold.  Once Roosevelt won, a five-month interregnum ensued.  (Presidents were inaugurated in March in those days).  General financial panic gripped the country over fears that he would devalue the dollar.  Sumner:
[U]nder a gold standard if there is uncertainty about whether a devaluation will occur then gold hoarding increases, which is deflationary. This happened on four occasions during the Great Depression, and on each occasion asset prices and industrial production declined sharply.
FDR basically had three choices. The traditional route would have been to lie and say that he would adhere to the platform, maintaining the gold standard while working toward an international agreement to give silver a monetary role. The markets knew that other countries weren’t going to adopt silver. Then when he took office he could have said; “Because I wasn’t able to get agreement, we have to go it alone with a currency devaluation.”

Or he could have told the truth and said he was going to devalue the dollar. That would have forced Hoover’s hand, and a devaluation would have occurred almost immediately. . . . .
Instead he was continually evasive.
Once Roosevelt did devalue against gold, improvement was immediate.  Sumner's conclusion, "The irony is that while a hard gold standard is far far worse than fiat money. A gold standard where there is uncertainty about the future dollar peg is much worse than even a hard gold standard."

The graph below is often taken as proof that the gold standard was responsible for the Great Depression.  I am not so sure.

Really it proves nothing except that (1) every country eventually left the gold standard and (2) every country eventually recovered.  Of all the countries shown ONLY the US experiences a real turning point upon leaving the gold standard.

Now, industrial production appears to be more vulnerable to an over valued currency than total GDP.  If the graph on the left is to be believed, the correlation between recovery in industrial production and leaving the gold standard is much clearer.

The parallels to present-day Southern Europe are obvious.  The euro serves in the place of gold.  If leaving the gold standard was so beneficial in the 1930's, why doesn't all of Southern Europe rush to leave the euro.  Well, there are at least two reasons.  First, in the 1930's, although currency was backed by gold, at least paper currency physically existed.  The drachma, the lira, the peseta and so forth  no longer physically exist and will have to be made anew.  No one quite knows how to do it.  Second, the position of the US in the 1930's was unusual.  For one thing, we were a creditor country.  Most countries that devalue are debtors.  Second, the US economy was large enough relative to anyone else's that the external effects of the devaluation were minor.  In most countries, the external effects of a major devaluation are immense and traumatic.  Import prices surge, leading real incomes to plummet.  External debts surge, leading to widespread bankruptcy.  But exports become cheap and grow.  Domestic industry ceases to be undercut by artificially underpriced imports and can recover.  Economies may stage a quick recovery.  But the short term impact is painful in the extreme.  Consider some "successful" devaluations:

Russia:  When Russia devalued in 1998 its currency had collapse to the extend that much of the economy was operating on barter.  In the aftermath:
Russian inflation in 1998 reached 84 percent and welfare costs grew considerably. Many banks, including Inkombank, Oneximbank and Tokobank, were closed down as a result of the crisis. . . . Prices for almost all Russian food items had gone up by almost 100%, while imports had quadrupled in price.
Many citizens were stocking up for bad times and throughout the country shop shelves were being emptied, leaving a shortage of even the most basic items, such as vegetable oil, sugar or washing powder. The crisis reduced demand for food and lowered food consumption, because substantial depreciation of the ruble significantly raised domestic prices for food stuffs. 
Yet recovery was rapid:
Russia bounced back from the August 1998 financial crash with surprising speed. Much of the reason for the recovery is that world oil prices rapidly rose during 1999–2000. . . Another reason is that domestic industries, such as food processing, had benefited from the devaluation, which caused a steep increase in the prices of imported goods.
Also, since Russia's economy was operating to such a large extent on barter and other non-monetary instruments of exchange, the financial collapse had far less of an impact on many producers than it would had the economy been dependent on a banking system. Finally, the economy has been helped by an infusion of cash; as enterprises were able to pay off arrears in back wages and taxes, it in turn allowed consumer demand for the goods and services of Russian industry to rise.

Argentina:  Argentina had pegged its currency to the dollar.  When the dollar began to soar in the late 1990's, the Argentine economy came under pressure.  The IMF expected the Argentines to allow it to collapse in order to preserve the dollar peg.  When this proved unsustainable, Argentina defaulted and devalued. The immediate effects were again traumatic:
Many private companies were affected by the crisis: AerolĂ­neas Argentinas, for example, was one of the most affected Argentine companies, having to stop all international flights for various days in 2002. The airline came close to bankruptcy, but survived.
Most barter networks, viable as devices to ameliorate the shortage of cash during the recession, collapsed as large numbers of people turned to them, desperate to save as many pesos as they could for exchange for hard currency as a palliative for uncertainty.
Several thousand newly homeless and jobless Argentines found work as cartoneros, or cardboard collectors. The 2003 estimation of 30,000 to 40,000 people scavenged the streets for cardboard to eke out a living by selling it to recycling plants. This method accounts for only one of many ways of coping in a country that at the time suffered from an unemployment rate soaring at nearly 25%
Agriculture was also affected: Argentine products were rejected in some international markets, for fear they might arrive damaged from the poor conditions they grew in.
 Yet recovery was again rapid as exports surged and domestic industry was no longer undercut.*

These, then, are the choices faced by Southern Europe in general and Greece in particular.  Leaving the euro means the certainty of immediate trauma, followed by the possibility of rapid recovery. Staying (at least on current terms) means more of the same grind.  Continued uncertainty means -- well, see the link on the Hoover-Roosevelt interregnum for what continued uncertainty means.  Let's see what four months (or less) bring us.

*Incidentally, these events took place under a left-wing government.  Another development was that as many businesses failed, the work force took them over.  This measure was an act of desperation, not a deliberate policy, and had no official encouragement.  But the government in power was ideologically inclined to passively tolerate such actions instead of move to crush them.  Another thing for Syriza to consider.

Sunday, February 22, 2015

EU: All the Weakness of Both Democracy and Oligarchy with None of the Advantages

Watching the debacle of Greek negotiations, it appears I am going to have to modify my theory that democracy is bad at handling economic crises, but oligarchy is worse.  I believe this remains true on the national level.  But looking at Greek negotiations today, I am starting to think that democracy may be worse than oligarchy at the international level.  So how to I square that with my statement that global creditors are demanding that countries be run for the good of international banks instead of their domestic population?  Well, for one thing, by now Greece's creditors appear to be foreign governments instead of foreign banks.  But that is not so extraordinary.  More to the point, that most enlightened group are not actually financial oligarchs the the philosopher kings (economist kings?) of central banking.

The most enlightened actor here appears to be the IMF.  That comes as a shock to people of my generation who are used to seeing the IMF as the people who believe that eating is an unaffordable luxury when banks losing money is at stake.  But the IMF seems to have learned something from experience and is now probably the actor most willing to allow some relief from austerity.  Next comes the European Central Bank (ECB), which seems to be tardily reaching the same conclusion that the Fed did some time ago -- that political actors are paralyzed, so monetary expansion is necessary to save the economy, that an all-consuming obsession with fighting inflation is misplaced in an economy on the brink if deflation, and that expansion, not contraction, is what is needed to save the economy.  These things are harder for the ECB to do than the Fed, because the Fed has a mandate to balance inflation and unemployment, whereas democratically elected governments have given the ECB a mandate to focus on price stability only.*  The ECB ended sovereign debt crises in Europe by promising to backstop every country's debt.  And the German government has been fighting it every step of the way.  I have a less clear picture of the European Commission (EC).  On the one hand, they are technocrats who regard democracy as a nuisance to be avoided as much as possible.  On the other hand, if anyone is prepared to work for a real fiscal union that will avoid such crises in the future, they appear to be the ones.

The least enlightened actors are the democratically elected governments, who are united in their determination never to cut Greece the slightest break, or the rest of the debtors will be wanting one too.  Germany gets the biggest rap for this, but in fact all national governments are presenting a united front against Greece.  It is easy to see why this would be so for the creditors.  They don't want their tax payers on the hook for some other country's irresponsibility.  But the debtor countries are equally adamant.  Some of this is simply the outlook of we suffered, so should you.  Paul Krugman offers the following graph to show why this outlook is unwarranted:

Greece has cut government spending by over 20%; far more than any other country.  But there is another reason at work as well.  Other debtor countries, under considerably less fiscal pressure than Greece, put their economies through grinding austerity and suffered severe economic downturns.  At last all of them are beginning to experience a bottoming-out and even the feeble beginnings of a recovery.  If Greece were to get a break, it would lead to "political contagion," i.e., the rest would want a break too.  The first article warns that governments committed to austerity must not allow Greece to benefit from any relaxation or they, too, will lose to anti-austerity candidates.  And it quotes a pro-austerity politician as saying,  “We all know what to do, but we don’t know how to get re-elected once we have done it.”  In other words, we all know that austerity is necessary for economic recovery, but somehow the recovery just isn't showing up.  In such a case, maybe you should reconsider your assumptions.  As for the other, it warns of the terrible, avoidable tragedy that could take place if countries give up on austerity just as it is starting to pay off. Somehow, I can imaging some commentator making a similar comment in 1932 or '33 in the transition between Hoover and Roosevelt.  (More on that later).

So maybe my initial statement that democracy is worse than oligarchy at the international level needs further refinement.  The creditor countries are behaving like democracy in predictably bad ways -- nationalist, indifferent or hostile to the interests of other countries, and prone to kicking down.  Such things are familiar enough.  It is exactly how the US in general and bankers in particular reacted to the Latin American debt crisis of the 1980's.  And the Asian crisis of the 1990's.  And the renewed Latin American crisis of the turn of the millennium.  For that matter, the balance of payments crises that followed WWI and contributed so much to the global depression were much the same story.  The US would not give Britain a break on its debt, so Britain would not give France a break, so France would not give Germany a break, and Americans asked why France was being so unreasonable.

But pro-austerity governments in debtor countries are behaving more like a typical oligarchy -- confusing its privileges (in this case, its electoral prospects), panicking at the slightest challenge to its privileges, and refusing to learn from past mistakes.  Right now, rather than admit that they made a mistake and inflicted years of needless suffering on their populations, they are willing to crush the Greek economy and continue to squeeze their own.

Or, to put it differently, the EU appears to have combined all the weaknesses of both democracy and oligarchy with none of their strengths!

*But fear not.  There are plenty of people in the US who are enraged at the Fed for trying to save the economy and want it to stop at once and be prevented from ever doing it again.  Of course, this may at least partly be politically motivated.

In Which I Mix Some Metaphors and Use Some Cliches, but Who Cares

Remember my promise to drop Greece, ancient or modern, for the time being?  Well, I lied.  Or rather, made a foolish promise.  I will drop ancient Greece until I have done some more research. How often I post on modern Greece will depend on what the news cycle provides.  Right now, it is providing ample post material.

On Thursday, Greece requested a six-month extension of its loans to think things over.  Germany refused, saying that no extension would be given unless Greece agreed in advance that the terms would remain unchanged.  This amounts to a refusal to negotiate until the other side has surrendered. On Friday, the parties reached a deal to extend Greece's loans for four months -- conditioned on Greece submitting a list of reforms by Monday that would be accepted by the IMF, European Central Bank (ECB) an European Commission (EC), the three institutions known as the troika. What this means, in simple English, is that we get to breath again until Monday, at which point the troika may reject the Greek proposal and start the crisis all over again.  After that, all bets are again off.

The agreement was made acceptable to both sides by the use of weasel words that will allow both sides to spin it as a victory, and to parse the agreement to mean what they want.  The Greeks can argue that the new agreement gives them more autonomy in running their own government and limits austerity by what they can afford.  The Germans can argue that old targets remain unchanged.  So sure, weasel words can be useful in persuading rival sides to sign a scrap of paper.  But they do no good whatever when it comes to implementation.  If the sides can't reach an agreement papering it over lasts exactly until words on paper translate into facts on the ground, at which point the agreement falls apart.  This might make sense if the delay were a reasonable length of time.  How much time?  That depends on the circumstances.  I wholeheartedly agree with Paul Krugman that a government that has been in power less than a month cannot reasonably be expected to have a plan in place.  So a delay of four to six months, or even two or three, would give Syriza time to offer a plan for modified terms, if accepted, and to be ready for the Grexit if not.  But a delay of two days is worthless.

So speaking as a strict amateur, this would be my advice to the Greek government.  Get an extension. If that means continuing the status quo for a few more months, so be it.  Explain it as a truce to prepare for the oncoming confrontation, which it is.  Then get together the best team of international experts you can find and start making plans.  Make this a two-track plan.  Openly plan a modification of terms for the benefit of the domestic populace.  Be public about it, and be prepared to drive a hard bargain.  But, as discretely as possible, plan for the worst -- leaving the euro.  Gather together the best experts you can find who managed a successful default-and-devaluation in Russia, Argentina, Iceland, etc.  Figure out a way to physically re-introduce that drachma as quickly as possible.  Have a plan in place for appropriate capital controls.  Know just how far you can go *financing operations by printing money and be prepared to go hitherto but no further.  And conduct the negotiations publicly enough and in such a manner that if they fail, but public will be mad as hell at the EU/troika/Germans or someone.  Mad enough to be willing to accept sacrifices.  Mad enough to do whatever will be helpful in case of a catastrophic devaluation.  Mad enough to buy Grexit bonds as a patriotic act.

And if talks on Monday fail?  Well, then we are back where we started from, but with only a week left to avert disaster.

*In a country operating as far below capacity as Greece is today, the answer has to be some.  But not as far as Syriza would undoubtedly wish.

Monday, February 16, 2015

Wanted: A Top-Notch Demagogue

The same source I quoted before has another article criticizing Greece's negotiation style.  For one thing, the negotiators are criticized for not understanding what they are up against:
Greece’s idealistic new leaders seem to believe that they can overpower bureaucratic opposition without the usual compromises and obfuscations, simply by brandishing their democratic mandate. But the primacy of bureaucracy over democracy is a core principle that EU institutions will never compromise.
Not very encouraging!  But the author is making somewhat the same confusion when he gives advice on negotiating style.  It should be possible, he says, to reach a reasonable agreement, since what the Greeks want most is relief from austerity and what the Germans want most is no reduction in nominal debt.  As for how to negotiate it, he offers the example of Mario Draghi, head of the European Central Bank.  What Draghi wanted most was a large-scale quantitative easing (monetary expansion). In negotiating with the Germans, he took a hard line on an issue of great importance to them -- debt sharing in case of a default.  After holding the line, beating his chest, and insisting that debt-sharing was absolutely essential, he then backed down after getting what he really wanted -- approval of a large-scale monetary expansion that Germans traditionally regard as anathema.  The author proposed the the Greek finance minister could do the same -- treat debt reduction as the primary issue, and then back down after getting concessions on austerity.  Both cases would all Germany to celebrate a symbolic victory that masked a substantive defeat.

What the author ignores is that such a strategy is a lot easier for an EU bureaucrat or a central banker than for a democratic politician.  An EU bureaucrat or a central banker speaks only for a few fellow bureaucrats or central bankers who are in on the joke and won't take symbolic defeat too hard.  A democratic politician has to deal with a large public who will take him at his word and be outraged at the symbolic defeat and not assuaged by assurances of the substantive victory.  If a democratic politician makes a loud, public, chest-thumping declaration that debt reduction is non-negotiable, the democratic public is going to hold him to it.  If he yields at the last minute and then insists that concessions on austerity are really what is most important, the public will not be in on the joke and will not be amused.  Such things have brought down democratic governments.  Granted, a crisis of that type can be somewhat averted by having the finance minister, not the prime minister, do the negotiating and backing-down and be the fall guy.  Then the government can remain, but with a new finance minister.  If concessions on austerity lead to real recovery, the remaining government will ultimately be forgiven.  Hell, even the finance minister might start to look prescient in hindsight.  So you can say the sacrifice was worth it if it brings about a real recovery.  But real recovery takes time, and in the short run, this sort of diversionary tactic is a very chancy gambit.

Alternately, the author suggests that the finance minister might be more conciliatory, agree that there will be no debt reduction, and show that none is necessary for relief.  This will bring on less public wrath, but is a much weaker negotiating technique.  What is worst, the author says, is to waver between the two.

In the meantime, news from negotiations is uniformly bad, with a position of no concessions.  Well, maybe they will pull a rabbit out of the hat in the next week or so, but I am inclined to think that Greece needs to be preparing for the worst and hoping that it will be just a bluff.  In case it isn't, what they need is (1) a first-rate team of economists, with experience managing successful devaluation-and-defaults, such as Russia, Argentina, or Iceland; and (2) a first-rate demagogue to serve as front man and make the people angry enough to endure that hardships that will be inevitable under the best of circumstances.  A demagogue is (usually) someone who says no concessions when it is an utterly unrealistic position to take.  Well, occasionally they can come in handy.

And now enough of Greece (ancient or modern) for the time being.  I expect to return to one or the other before long.  But in the meantime, the subject of politicians who say no concessions when it is unrealistic is coming up yet again (and again and again) in domestic politics, so I intend to turn there for a while.

Sunday, February 15, 2015

Some Recent Greek History (as in, WWII)

This article has some interesting comparisons between Greece's current economic crisis and Argentina's turn-of-the-millennium crisis.  Short version: It is pointless to squeeze Greece's economy any more; all squeezing will do is keep Greece depressed.  Europe should relax Greece's fiscal burden to allow a recovery; Greece should take advantage of the recovery to implement structural reforms to its deeply dysfunctional economic and political system.  All quite conventional.  It would prefer a negotiated settlement to the Grexit.  But given the history of Argentina, the authors appear to regard the Grexit as the lesser evil compared to continuing the status quo.  The authors appear to be speaking primarily in the context of a negotiated settlement allowing Greece to recover when they urge, "The new Greek government should not use the European Union – or Germany – as a scapegoat."  To this, I reply, if there is a negotiated settlement that allows the Greek economy to recovery, no scapegoat will be necessary.  But if creditors refuse any concessions and, if Greece holds firm, force the Grexit, then, then even if Greece bounces back as fast as Argentina, the short-term results will be an economic catastrophe of the type much easier to endure if there is a convenient scapegoat handy.  If the EU needlessly imposes such hardship, it will be an entirely appropriate scapegoat.

Put differently, people are more likely to endure that sort of hardship if it is accompanied by chest-thumping nationalism and seen as a necessary sacrifice to reassert sovereignty against a foreign power that wants to take it.  In Latin American, the usual scapegoat is the IMF, although everyone knows that the IMF is really just the front man for Yankee imperialism.  In the Baltics, it was Russia. And in Southern Europe today one can blame the EU, but you are likely to get more traction by treating the EU as a mere front man for Germany.

It also occurred to me that if you want to drum up nationalism to endure coming hardships and treat them as necessary sacrifices to endure in protecting one's sovereignty, it helps to have plenty of national history to draw on about your country's past glorious heroic sacrifices in protecting its sovereignty from earlier imperialists.  And, of course, a country as old as Greece has a lot of history to draw on.  But it also occurred to me that if you want real resonance, the best choice not be anything so distant as Classical Greece resisting the Persians, or Byzantine Greece resisting the Turks, or even modern Greece winning its independence from the Turks.  If you want Germany as your scapegoat and want to drum up hatred of Germany, the best point of comparison might be last time Greece was at war with Germany.  I must admit that I knew very little about Greece's role in WWII, except through the eyes of its next-door neighbor Yugoslavia (or, perhaps more accurately, Serbia).  What little I knew was that Mussolini invaded Greece and ran into trouble, that Hitler had to bail him out, that Hitler cut a deal with Yugoslavia that would allow German troops to pass through into Greece, and that this proved so unpopular in Serbia as to provoke revolution and extreme German retaliation.  But I knew very little about Greece, other than that if the Nazis behaved there the way they behaved everywhere else, they would make drumming up hatred of Germany easy.

So, with no more than a Wikipedia-level knowledge of Greece in WWII, I can say that there is some useful history there, but it will require selective editing.  The useful history is roughly as follows:

Ochi Day
By fall of 1940, the Axis seemed fully triumphant.  Hitler had swept up Poland, Czechoslovakia, and much of France.  Most of Central and Eastern Europe was scrambling to make the best accommodation possible.  Britain had not fallen, but seemed in imminent peril.  The Soviet Union was neutral and not even thought of.  Mussolini had seized Albania and was engaged in systematic provocation against Greece.  On October 28, 1940, Mussolini made an intentionally unacceptable ultimatum, which the Greeks indignantly refused.  The refusal is celebrated every October 28 in Greece as Ochi Day (NO! day).  Great outpourings of patriot fervor ensued.  The Italians invaded. The Greeks drove them back, and advanced well into Albania.  These were the allies' first victories in Europe, and inspired many who had begun to despair.  Greek courage was uniformly admired, even by the Germans.

It was also in vain.  When Hitler came to his ally's assistance, the Greeks has moved so much of their army to fight the Italians in Albania as to leave their northern border almost unguarded.  The Germans easily overran them.  The Nazis proceeded to behave as endearingly in Greece as they did everywhere else.  They requisitioned great amounts of food from Greece and plundered outright, as well as forcing huge payments from the government.  Famine ensued.  Tens of thousands starved.  Hundreds of villages were destroyed, sometimes with the execution of their entire male population.  A million Greeks lost their homes.  The Germans even executed thousands of Italian soldiers who attempted to limit such atrocities!  But such brutality did not break the Greek will to resist.  A regular guerrilla movement broke out that the Nazis were never able to crush, and persisted to the very end.  Mass protests and strikes even occurred in urban areas, despite the danger.  Special honor is due to Damaskinos, Archbishop of Athens, who proclaimed all Greek Jews to be equal fellow-citizens and called on all Christians to protect the Jews in their midst.

All right, so it should be easy to fire up anger against the Germans, celebrate the Greeks' heroic resistance, call for a new Ochi! and remind the Greeks that no matter what they suffer this time, it will not compare with what their forebears endured.  But a lot of selective editing will also be called for.  The story of Greece in WWII is a controversial one that remains divisive to this day.

Salute to Metaxas
For starters, the leader who told Mussolini Ochi! was the controversial Ioannis Metaxas, a right wing dictator who used a fascist-style salute and called his regime the "Third Hellenic Civilization."  And while WWII in Greece was a time of Nazi atrocities, great suffering, and heroic resistance, one thing it was not was a time of unity.  Although outright collaborators were few and universally despised, the resistance was split between pro- and anti-Communist factions, who fought each other as much as they fought the Germans, sometimes to the point of arranging a truce with the Nazis to concentrate fire on each other.  As German defeat became more and more certain, the resistance focused less and less on fighting the occupiers and more and more on fighting each other.  Once WWII ended, a Greek civil war ensued, marked by atrocities on both sides, that left the country in even worse shape than it had been at the end of the German occupation.  This war left scars.  True reconciliation did not begin until the 1980's.  Suffice it to say that all of this history is well known to the Greeks and remains highly controversial and not helpful.

Nonetheless, we all tend to view the past through rose-colored glasses.  And if you are trying to stir up patriotic defiance and hatred of the Germans . . .

Tuesday, February 3, 2015

Fiscal Union and the US

Paul Krugman likes to point out the benefits of fiscal union, and the dangers of monetary union without it, by comparing Europe's financial crisis to our Savings and Loan crisis.  A few things should be taken into account here.  First of all, compared to the total size of our economy, the savings and loans failing were quite manageable.  Second, the crisis was nation-wide, with old style bank runs taking place in Ohio and Maryland.  But third, although failing thrifts occurred nation-wide, they were not equally distributed nationwide.  Texas, fueled by oil money, had about half of the total, both in terms of failed thrifts and in the volume of losses.  As a result, about half of the total funding spent cleaning up the mess went to Texas.  Furthermore, Krugman points out, this amounted to about a quarter of Texas' GDP, an amount Texas could never have raised left to itself.

A few point are worth emphasizing here.

First, the Savings and Loan cleanup was much less controversial than the 2008 bank bailout because we had a longstanding statutory and contractual obligation to insure depositors and an established mechanism for doing so.  Besides, honest citizens who put their money in the wrong bank are a lot more sympathetic than Wall Street high flyers. Most people look at people losing their savings when a bank fails and think, that could be me.  Most people look at Wall Street high flyers losing money and think, serves 'em right.

Second, there was nonetheless controversy surrounding it.  People criticized the expense, how it was done, and even whether we should continue to insure deposits at all.  But, Krugman emphasizes, one thing that was never a subject of controversy was that Texas was benefiting disproportionately. Certainly, along with a lot of gallows humor about banks and savings and loans in general at the time, someone might occasionally throw in a dig about Texas Savings and Loans being particularly unreliable. But no one ever suggested that those improvident Texans were getting an unfair break.  It was the Savings and Loans being cleaned up.  Texans were our fellow Americans and not regarded as a special or separate category.

Third, for anyone worried about moral hazard, relax.  Texas did not avoid suffering the consequences of its bad decisions.  Texas fell into recession even as the rest of the country prospered.  But if Texas had been forced to handle the mess with only its own resources, it would undoubtedly have been a lot worse.  And to be quite fair to Texas, they learned their lesson from the experience and enacted strict banking regulations that have served the state well.  During the 2000's housing bubble, Texas, though in the middle of the Sun Belt, got off relatively lightly, thanks to a combination of lots of land, light land use regulations, and strict financial regulations.  High oil prices helped lift Texas early out of the recession.  But this time Texas was able to keep oil money from fueling a financial bubble.  Texas is hurting now from falling oil prices, but not as badly as if there had been a bubble.

But here is another point worth thinking about.  If you look at the US circa 1865-1933, you may very well see another example of the dangers of monetary but not fiscal union.  Before the Civil War, the US did not have a national currency in any meaningful sense.  Yes, the U.S. government made gold and silver coins, but there were not enough such coins to finance the economy.  So each bank issued its own notes.  Many states had their own central banks that issued state bank notes.  The U.S. government tried its hand at a central bank a few times, but Andrew Jackson pulled the plug in 1836 and it wasn't tried again until 1913.  During the Civil War, the US began issuing paper money -- the greenback.  And it held.  After the war, the U.S. imposed a prohibitive tax on notes issued by all other banks, and the greenback became the single national currency.

Also following the Civil War, the South fell into a serious economic decline.  The reasons for the decline are controversial.  It is generally agreed that it was not wartime damage because recovery from such things is usually remarkably fast.  The end of slavery is often offered, though morally troubling.  Another answer is most certainly that the 1850's had been a time of unusually high cotton prices and so a time of abnormal prosperity in the South to begin with.  Furthermore, with the US taken out of cotton production, many other countries started growing and exporting cotton instead, bringing about a permanent decline in prices.*

But another explanation may be monetary.  Simply put, the US then had a problem rather like what Europe has now.  Monetary policy that was/is appropriate for the North was/is too tight for the South and caused/s serious damage to its economy.**  And, of course, the thought of fiscal union had never so much as occurred to anyone at the time.  If this is true, then the economy of the Southern US was being treated much as the economy of Southern Europe is being treated now.  And it went on for almost 70 years!  No wonder the South was one of the strongest proponents of fiscal union when the opportunity came along with the New Deal!  This also means (as Krugman has also pointed out), that and Republican/Tea Party attempt to move away from fiscal union would be moving us right back to where we were for those 70 years, and where Europe is now.

*That was one thing I was surprised to learn doing economic research in college -- how many countries that are major cotton exporters to this day got started during the US Civil War. 
**Actually, both in the 1870's and today, monetary policy was probably too tight for the North and hurt its economy as well.  But the South was hurt even more.

Greece and Its Dear Aunt Agatha

The most infuriating link from the previous batch was this one, comparing Greece and the EU to Jim the Spendthrift and his dear Aunt Agatha.  Apparently Jim and Agatha are based on the works of P.G. Wodehouse, a humorous fiction writer who wrote a serious of novels and short stories about Bertie Wooster, an old money ne'er-do-well and his general misadventures, often involving his despised, domineering Aunt Agatha, who is always trying to run his life.

Aunt Agatha gets a character lift from Daniel Davies, going from a hated control freak to a "beloved aunt," and a "generous creditor." When her spendthrift nephew runs into trouble, Agatha bails him out, charges much less than the usual rate of interest, keeps rolling over the loan indefinitely, and comes to the rescue when he runs into trouble.  In return, all she asks for is some very reasonable attempts for Jim to live within his means.  Occasionally she makes a questionable demand, like not paying for Jim to go back to school and qualify for a better-paying job. Eventually, Jim's finances come into balance and he realistically could stop paying, but it would be immoral, and besides, Aunt Agatha is an old woman who will probably die soon and is expected to write off Jim's debt in her will.*

The author makes some reasonable points here, especially that "Jim" can't afford to stiff his aunt when he is still spending well beyond his means and getting a large share of his income from her.  But otherwise, his portrayal of kind-hearted Aunt Agatha rescuing her nephew just because he is family seems a bit unrealistic, either as a description of the EU or of the fictitious Aunt Agatha.  Bertie apparently calls his Aunt " the one who chews broken bottles and kills rats with her teeth," "the one who kills rats with her teeth and devours her young," "strongly suspected of turning into a werewolf at the time of the full moon," and says, "When Aunt Agatha wants you to do a thing you do it, or else you find yourself wondering why those fellows in the olden days made such a fuss when they had trouble with the Spanish Inquisition."  Most Greeks would no doubt agree.  And this description seems strangely contrary to Davies' other post,  in which he freely acknowledges, "The purpose of its [the Greek debt's] existence is as a political quantity; it’s part of the means by which control is exercised over the Greek budget by the Eurosystem."  Now that sounds like the Aunt Agatha we all know and hate.  As for Aunt Agatha dying and writing off the debt in her will, that is supposed to represent European fiscal union which will take the pressure off of Greece, but seems like a much more remote prospect than an old aunt dying.

And why is the young spendthrift called Jim anyhow, instead of Bertie?  And if you are going to deviate from the original in this detail, why not give him a nice Greek name like, say, Greg.  (It's short for Gregorios).  Agatha is a Greek name to begin with.  So, let's see if we can make Greg a little more true to life than Jim.

Greg is the single father of two young children.**  Even his best friends will admit he has been a bad father.  He has been spending recklessly without the slightest thought to what he can afford, including showering his children with expensive but useless toys and baubles.  His children have gotten used to it, thinking that is how father's show their devotion, and, truth to tell, they have gotten rather spoiled. Then financial disaster strikes, and Greg has no one to turn to but his bottle-chewing, rat-eating aunt. Aunt Agatha is all too glad to take advantage of the crisis to run her irresponsible nephew's life and tell him how to bring up his children properly.  She forces him to make drastic cuts in spending, and to sell many over priced luxuries he as bought, including taking the expensive toys from his crying children.  Not only does she keep Greg from going back to school and qualifying for a better job, she forces him to sell the tools of his trade and to cut off many legitimate work expenses.  As a result, Greg's income plummets.***  So stringent are Agatha's notions of what is an excessive expense versus what has to be paid to creditors that Greg's children are reduced to searching through the garbage for food.  Whenever he raises the question of his children with Aunt Agatha, she says that they will be a good object lesson in the evils of over spending.  Also, Agatha has several other nieces and nephews, none as irresponsible as Greg, but some of whom have run into trouble on some foolish investments.  She insists that they, too, sell the tools of their trade and cut off work expenses as a condition of financial assistance, and they, too, lose a lot of income as a result.

Well, now, in spite of everything, Greg had gotten his finances in order and asks Aunt Agatha for a break.  She lets it be known that she has no intention of making any sort of concessions because to do so would mean relinquishing control over his life.  The best she can offer is the possibility of releasing his debt in her will, although she makes clear that she has not written any such will, yet. Furthermore, Greg knows that if she should show such uncharacteristic generosity, some of her other nieces and nephews will try to get her declared incompetent and the will invalidated.  And I can only ask you, who has the stronger moral claim on Greg, his domineering, controlling aunt, or his children?

*So why doesn't Jim just declare bankruptcy? Granted, it will do only limited good so long as he is still running a large deficit, but once he brings his finances into balance, but still has a huge debt service burden and and unpayable debt -- well, that's what bankruptcy is for, after all.  The answer, of course, is that the EU rules don't allow for it, which just goes to show that treating countries as individuals doesn't work so well.
**And where is their mother?  She vanished into a puff of plot necessity.
***Another case of what works for individuals translating poorly into countries.  Such massive cutbacks in budget, regardless of where they are made, have a multiplier effect that they would not normally have in individuals.  Granted, in the case of Greece everyone agrees that austerity was inevitable, or all credit would be cut off and it would have to balance the budget overnight, with an even worse multiplier effect.  But the EU has been forcing similar measures on other countries not facing a fiscal crisis.  See above.

Monday, February 2, 2015

Why Turning Right Might Suit the European Periphery Better

All right, so I have suggested that Southern Europe is turning left instead of right because it does not have enough Muslim immigrants to fuel an anti-immigrant, anti-Muslim party.  But another element of the European right is its general hostility to the whole concept of the European Union. Left wing parties are indisputably unhappy with the Eurocrats for imposing austerity on them and demanding that they run their economies for the benefit of foreign creditors instead of the domestic population.  But that is merely anger at what the EU does, rather than what it is.  Their goal is to persuade the EU to give equal weight to creditors and debtors, instead of reflexively siding with creditors.  The European right, by contrast, is angry at the EU for what it is -- an outsider undermining their national sovereignty.

Well, now, liberal that I am, I would love to see more harmonious cooperation between European countries and the EU become more of what it promised -- a forum for working together between equals, rather than a way for creditors to impose their will on debtors.  But as a realist, I am prepared to acknowledge that that just ain't in the cards.  All accounts I read of Syriza preparing to renegotiate its debt seem to agree that the creditor countries -- not just Germany, but the entire European "core" -- is saying no breaks for debtors.

This collection of comments on Syriza is interesting, and shows just how far apart creditors and debtors are in their thinking.  Paul Krugman gives the Greek perspective -- its debt is unpayable, and servicing it is draining the Greek economy of much-needed resources.  Cut the Greeks a break, and the multiplier effect will take effect and kickstart the Greek economy.  But the trouble is that that is exactly what the creditor nations -- not just Germany, but all the creditors -- most fear.  Because everyone agrees that the Greek economy is in the worst shape of any economy in Europe.  Cut Europe's biggest and most irresponsible debtor a break and see it prosper, and all the rest will be wanting a break, too.  Hurting debtors, in other words, isn't an accidental side effect of the creditors' policies; it is the whole point.  A face-saving deal might be acceptable, in other words, so long as the Greek economy and people don't derive any substantial benefit from it.  This is where the really nasty threats come out.  Think you can afford to default because you are paying back more than you are borrowing?   We'll torpedo your banks.  Thinking of leaving the euro?  We'll crush your economy. To Krugman this is intolerable, especially in an organization dedicated to democratic ideals and international cooperation.

Daniel Davies, giving the Eurocrat perspective is less squeamish.  Of course everyone knows the Greek debt is unpayable, he says.  The point by now is not economic; it's political.  To agree to a reduction is to give up control over Greek policy:
Don’t think of the Greek debt burden, either in cash € terms or as a ratio to GDP, as an economic quantity. It basically isn’t an economically meaningful number any more. The purpose of its existence is as a political quantity; it’s part of the means by which control is exercised over the Greek budget by the Eurosystem. The regular rituals of renegotiation of the bailout package, financing of debt maturity peaks and so on, are the way in which the solvent Euroland nations exercise the kind of political control that they feel they need to have if they are going to be fiscally responsible for the bills. There’s more than a couple of Germans I’ve spoken to over the last few years who have pointed out that although Germany got massive debt relief in the twentieth century, it got it in the context of an equally massive national admission that the entire political system was rotten and needed to be totally restructured with foreign help; this was also the basis on which the integration of Eastern Germany was managed in the 1990s. 
Well, there's a word for that.  It's called imperialism.  When a country's creditors say, "Well, sure, we know your debt is dragging your economy down and can never be paid, and we can afford to give you a break, but to let you recover would mean giving up our control over you," the only appropriate response for any leader, left, right or center, is one of chest-thumping, swaggering reassertion of national sovereignty.  I suppose that is why the Latin American left knows how to do nationalism, and why the Mideastern left was good at nationalism too, back when there was a Mideastern left. Because nationalism is no longer the preserve of the right when it means standing up to imperialists. But the European left hasn't had to stand up to imperialists much, so it doesn't do nationalism.

Now, granted, Davies offers a carrot as well as a stick.  He promises:
One day, fiscal union will happen in the EU and Greece’s debts will disappear into a common pool. Everyone knows this, but it’s not politically acceptable to say so at present. Given that, it makes little sense to risk the relationship for a short term gain.
To which the host caustically comments:
It seems to me that Daniel Davies is saying that the fact that even though the Euro Troika has done the wrong thing over the past seven years Syriza should still avoid trying to play hardball because the Troika are going to do the right thing in the future, any day now.
Yeah, basically.  What's not politically acceptable to say is usually not politically acceptable to do.  Fiscal union won't happen so long as the creditor countries see it as giving the debtor countries an unfair break.  Nationalism once again wins out over international harmony and cooperation.  All Syriza's right wing allies in the European "core" who applaud it for defying the Eurocrats and their austerity demands might start singing a different tune altogether once they find out they are the ones being asked to cut Southern Europe a break.

So what happens if Syriza defaults?  No one knows, but the Europeans just might torpedo Greece's bank.  And what if the Europeans torpedo Greece's banks?  Well, the general consensus is that the Greek government will have no choice but to freeze bank accounts until it can introduce its own currency.  No one knows how long that will take.  But what if Greece stages the Grexit?  Well, everyone agrees that the short-run effects will be traumatic.  The drachma will plummet.  Import costs will soar.  Everyone's cost of living will skyrocket.  Private debts to foreign countries will also skyrocket.  But the deflationary pressure on the Greek economy will be relieved.  Greek exports will become much cheaper.  Domestic industry will become more competitive with imports.  We know that other countries, like Russia, Argentina, and Iceland defaulted and devalued.  After a highly traumatic beginning, the country bounced back remarkably quickly.

Now, it has been argued that what worked for Russia and Argentina won't work for Greece.  Russia and Argentina are countries of great natural wealth -- in oil for Russia; in wheat, soy beans, beef and wine for Argentina -- while Greece is not much more than a pile of rocks.  I will let others debate the issue.  But one thing is clear.  Even assuming the best, a rapid recovery, the first year or two will be extremely rough sailing.  Will the Greek public, after years of fruitless sacrifice, be willing to accept yet a deeper trauma to their economy?  Once again, I don't know, but there are two things that make a country more likely to be willing to endure such hardship.  First, if they believe it is temporary and will lead to improvement soon.  And second, if they believe it is not just an inevitable misfortune, but is being imposed by Eurocrats and foreign bankers in a deliberate attempt to break us.  In other words, if their leadership can convince the people that these are necessary patriotic sacrifices to regain our sovereignty, people can be convinced to endure a great deal. But it will call for some chest-thumping nationalism.  And the European right is a whole lot better at that than the European left.

Europe: Why is the Core Turning Right and the Periphery Turning Left?

The usual suspects are either outraged or baffled that Europe's right wing parties are cheering for Syriza in Greece.  How is that possible, they ask.  All they have in common is a dislike for austerity and running the country for the benefit of foreign banks.  How can they work together when they disagree about the really important issues like gay marriage?  Sarcasm aside there are real differences between non-mainstream parties of the left and right.  Parties of the right scapegoat immigrants. Parties of the left embrace them.  Parties of the right oppose the European Union altogether.  Parties of the left would rather reform it.  But they agree with each other and disagree with "respectable" and "mainstream" parties on the most important issue of the day -- ending austerity and running the country for the benefit of their domestic population, not foreign banks.  It should in no way be surprising that they are aligned.

And it does cast doubt on my own hypothesis, that economic crises tend to turn politics to the right, unless the right has been discredited, in which case they turn politics to the left.  Clearly the right has been rising in Europe in response to the economic crisis.   But the big exception appears to be the countries that are hardest hit by the crisis.  Right wing parties are surging in France, in the Low Countries, in Britain, and even in Scandinavia.  But not in the crisis countries, at least not primarily. In Greece, Syriza on the left is beating Golden Dawn on the right.  In Spain, the alternative is Podemos.  In Ireland, Sinn Fein.  In Italy, the Renzi Democrats.  And Portugal apparently doesn't have any insurgent party at all.  What is going on here?  I suppose I can guess.

Some of it can be written off as individual ideosyncracies.  In Greece, the right wing Golden Dawn is certifiably nutty and repulsive, using Nazi symbols and formerly wanting to start a war in the Balkans.  In Ireland, to be of the right is to be pro-Catholic, and the Catholic Church has forfeited all moral authority.  In Italy, Silvio Berlusconi has given the right wing a bad name.  In short, the right may be for various reasons discredited in many of these countries.

But I am inclined to think the reason has more to do with the diagram on the right, giving the size of Muslim population in various European countries.  The main point is, in no country is it even 10%.  But in the European "core" it is more likely to hit 5% than in the "periphery."  Anti-Muslim and anti-immigrant parties are most likely to thrive in countries with larger Muslim populations.  And I am inclined to think that is the real difference going on here.