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Let Them Stew In Their Own Greece

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If you ever start thinking no place could suck harder than the good ol' U.S.A., just look to the glory that is Greece. The Greek government is responding to its self-inflicted debt crisis by doing just about every single thing wrong.

Sorry you peaked 3,000 years ago, folks!

That might not be clear from most of the media coverage. To comprehend any of the popular descriptions of Greece's public debt problem, you need to be a yes man as mindless as the guy whose job it is to keep saying "Certainly, Socrates…You're quite right, Socrates…" in the Platonic dialogues.

The New York Times blames the investment banks that held a gun to the crowned heads of Europe and forced governments to take on more debt. The Guardian says it was deregulation and privatization of state enterprises that caused public spending to, um, increase? (Just go with it.) Greek tax collectors say the problem is that tax collectors need to be paid more. And because he knows that being able to print your own money always encourages fiscal responsibility, Paul Krugman says it's because Greece went off the drachma too soon. (That problem may be working itself out faster than anybody planned.)

But the beauty of Greece's looming default is that it is a totally straightforward story of uncontrolled public spending and the determination of governments to run up impossible debts. In this case, as the above Times article spells out, those debts were run up in duplicitous ways that in fact violated the public debt rules of the EU from which Greece is now trying to get a bailout. Your worst nightmare of a wastrel American politician—call him Barack Schwarzenegger—would have a hard time mismanaging state finances this badly. Since getting on the euro in 2001, the Greek government has apparently been fudging its budget statistics, a practice countenanced by both conservative and socialist governments. To its credit, the current government kicked the current crisis into high gear when it released a deficit-to-GDP number of 12.7 percent—double the previously announced figure, and by far the highest in Europe.

You get to a number like that by spending too much. And the Greek government's response to the crisis is to continue spending too much. Even under the so-called austerity program necessary for bailout consideration, Greece is set to raise public sector pensions this year by 1.5 percent. If all the proposed spending cuts are completed, that will still leave Greece's deficit at more than twice the EU's allowable debt ceiling.

So if Greece isn't serious about cutting spending, what can it do? Of course: Raise revenues! Under the government's new plan, the top tax bracket of 40 percent will be lowered to include people making an annual salary of 60,000 euros. That's $81,588 a year. Now, more than $80,000 is still a lot of money, even in a place that is more expensive than most American coastal cities. But does anybody think an income like that is huge enough to justify having to forfeit 40 percent to the government? You could reanimate Lenin's corpse and he would tell you that's excessive.

Throw in a few more wealth-destroying initiatives, including the pure cockamamitude of outlawing all cash transactions above 1,500 euros, and you have the worst of everything: a socialist economy trying to reform itself to comply with the demands of government-guaranteed megalenders.

Fortunately, there are signs of hope. The political climate in France and Germany has turned the Greek bailout, which seemed to be a done deal last week, into a longshot. The media have begun to pick up on the general dissatisfaction: Reuters argues that the least-bad outcome is for Greece to default, let its creditors take the hit (and for a clear explanation of why Goldman Sachs would be able to survive this default too, try this piece by John Carney), and deal with the new world of reduced credit, just as any recovering alcoholic must adjust to a world with no more booze. Or in this case, ouzo.

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  1. why don’t we just fucking default. What is china gonna do. Nuke us?

    1. Nah, that’s too drastic. But a carrier or two?

      You actually think Barack the loser would actually nuke China in response to losing approx. 10k servicemen?

      Hell, him and his hole of a wife would probably cheer.

  2. I applaud reason on coining a new term “cockamamitude”

  3. […]the current government kicked the current crisis into high gear when it released a deficit-to-GDP number of 12.7 percent – double the previously announced figure, and by far the highest in Europe.

    You get to a number like that by spending too much. And the Greek government’s response to the crisis is to continue spending too much.

    This is inevitable: Governments act under totally different incentives than us mere mortals, that is, political incentives rather than Economic (with a capital “E”.)

    With the power of the different special interest groups bidding in the auction of stolen goods, it will be difficult to have a person willing to put a stop to the hemorrhaging unless that person has either no other political ambitions, or a death wish.

    There is STILL hope for the US because people still cling however tenuously to the idea of individual freedom, whereas Greeks have grown accustomed too much on the Free Lunch. They will have to pay the piper.

  4. The political climate in France and Germany has turned the Greek bailout, which seemed to be a done deal last week, into a longshot.

    In other words, “we raised our retirement age to 67, but we have to bailout these guys who are going on strike rather than raise their retirement age from 63” is a pretty potent slogan in Germany.

    1. I just wake up every morning expecting to see an article about how we’ve bailout out Greece for some inexplicable reason, complete with the customary headshot of Giethner’s blank stare.

  5. I was thinking of the immortal words of Socrates, who said…”I drank what?”

    1. “You called it an all natural energy drink!”

    2. +1 for the vague Val Kilmer reference

      1. Sorry, that must have been an accident, I was merely mocking those imbeciles who praise anything that’s “all natural” as being healthy and beneficial by default. Maybe those “organic food” (anybody here eaten “inorganic food”?) douchebags would like to try the Socrates Brand All Natural Herbal Remedy (TM) too?

    3. +2 for not quoting MBFGW.

      1. I laughed so hard at that I spewed on the screen. Thankfully I had some Windex to clean it off.

    4. King Val bestows his blessings upon you.

  6. A bailout wouldn’t even by popular in Greece, since it would come with strings attached. Nobody hates the IMF more than people in countries receiving IMF aid.

  7. To its credit, the current government kicked the current crisis into high gear when it released a deficit-to-GDP number of 12.7 percent — double the previously announced figure, and by far the highest in Europe.

    what’s the number on the US’s current debt:GDP ratio

    1. Our debt to GDP is about to cross 100%, but our (apples-to-apples) deficit to GDP is about 10%. This is roughly double the highest previous figure outside of a world war.

      http://www.usgovernmentspendin…..chart.html

  8. As a Greek bastard myself and putative member of the Greek lobby, I can only view this article and any other criticism of the Greek government, or lack of a willingness to support them with your tax dollars, as unabashed anti-Hellenism.

    1. If they went on the gold standard over this it would be Hellen of Troy ounce.

      1. Your Karma ran over my Drachma!

  9. I just woke up from a zombie Lenin dream, so thanks a lot. I had worked so hard to put them behind me.

  10. Come on, when you bigshot americans were swinging from trees and killing each other with bows and arrows we Greeks were inventing drama, history, medicine and all kinds of other cool stuff. You owe us. Send us your money so we can continue to sit around the cafenio and gossip.

    1. Stamata na les malakias.

  11. Well, the post’s title is a slightly better play on the Greece/grease homonym than what has been repeated ad nauseam on financial news headlines and blogs.

    1. Why this debt is automatic. It’s systematic. It’s emblematic. Why it’s Grease Blightning.

      1. I’m not sure why, but I laughed.

      2. You’re the one that’s in debt,
        whoo whoo whooooo.

  12. They aren’t just outlawing cash transactions. They also want to outlaw “autonomous taxation” aka self-employment, I presume because such persons remit their own taxes rather than being subject to withholding.

    Did you see the astonishing bit on Greece’s public-sector wages? They’ve risen 88% since 2001!

    1. Well duh – given the inevitable inflation to follow, how else are they gonna keep up with the Joneses Papidakises?

  13. How much Saganaki would that buy Germany? ‘Cause that shit is awesome.

    1. Oh hells yes! I’ll take some haloumi too.

      When a place does the saganaki so that there’s a thin fried skin while the cheese underneath is an oozing custard, they know what they’re doing.

    2. I love saganaki. I took the gf out for greek on valentines day and we got some saganaki, taramazatlata, and this amazing prawns dish.

      But I have heard some vague rumors of a saganaki fondue. There is a vineyard in California that makes it once a year in march. I must be there for it this year.

  14. There is no problem of recalcitrant Greek overspending that can’t be fixed with a couple of Panzer Corps. The EU will never die!

  15. You mean saute in their own greece.

    One can’t stew in grease, but grease is the word.

    1. Obviously you’re never had food at a Golden Corral or you’d know that it is entirely possible to stew everything in grease.

    2. One can’t stew in grease, but grease is the word.

      I thought Bird was the Word.

      Ba-ba-ba-bird, bird, bird
      Bird is the word.
      Ba-ba-ba-bird, bird, bird
      Bird is the word.

      1. My first thought. Watched Family Guy during figure skating last night and that episode was on. The song was stuck in my head all night. Not that that is a bad thing.

        1. Thanks for the tip! Still like it in Full Metal Jacket a hair more for the contrast, but this is good stuff.

      2. FF to O N-J in leather pants; Grease is the word.

  16. “The Guardian says it was deregulation and privatization of state enterprises that caused public spending to, um, increase?”

    TV Tropes has an article to help you understand this.

    Then again this is the Grauniad speaking; if the last remaining survivor of a meteorite impact was a Grauniad reader he’d probably blame capitalism and free enterprise.

  17. It’s payback, really bad karma, for taking it in the ass all those years.

    1. I blame Bush

      1. Something tells me it’s lack of bush that they were after.

  18. for a clear explanation of why Goldman Sachs would be able to survive this default too, try this piece by John Carney

    Who the fuck is selling CDSes to Goldman, anyway? It’s like giving homeowner’s insurance to a serial arsonist.

  19. “In this case, as the above Times article spells out, those debts were run up in duplicitous ways that in fact violated the public debt rules of the EU from which Greece is now trying to get a bailout. ”

    According to everything I’ve read, the “duplicitous” transaction was, essentially, a currency hedge that enabled them to move debt of their books. Although worthy of an Enron accounting award, at the time it was done it was (again, from what I’ve read) both legal and disclosed to EU auditors. The scheme was cooked up by Goldman Sachs. In the socialist governments defense, when they re-approached them to engage in another hedge, the government declines (although by that time, the rules had changed to bar such transactions – so not sure they get much points).

    So, what’s to blame here – deregulation? The reality is that almost any system can be gamed (especially when all the participants, including the regulators are willing or passive) and, given the chance, most people (inside or outside of government) will be ready to play the game. But the problem becomes especially acute when the party playing the game doesn’t have to bear the consequences when the shit hits the fan. Hence, the Greeks have always (rightly) assumed the Germans and French would bail them out. The US New York banks ALWAYS assumed the government would bail them out (both through the explicit FDIC guarantees and the implicit Fed lender of last resort guarantee), and the US government can engage in the biggest Ponzi scheme in history in the form of Social Security, because they can literally “print” the problem away (until they can’t) due to our status as international reserve currency.

  20. Now, more than $80,000 is still a lot of money, even in a place that is more expensive than most American coastal cities. But does anybody think an income like that is huge enough to justify having to forfeit 40 percent to the government? You could reanimate Lenin’s corpse and he would tell you that’s excessive.

    This is highly unlikely.

    In Lenin’s time, direct taxes were still pretty low, but he was strongly in favor of increasing them in a ‘progressive’ manner, and abolishing indirect taxes. (note: this was a standard menu item in programs of most social democrat parties of the time)

    Lenin usually refrained from elaborating on rates and brackets, possibly because different sorts of income were viewed differently, e.g., shareholder dividends and land rent were ‘bad’ income to be taxed more heavily.

    In War and Revolution, Lenin writes that 100% is excessive, while 90% is not:

    You could take 80 or 90 per cent of a millionaire’s income […] If the Soviets had the power they would really take it, but not all of it they have no need to. They would take the bulk of the income.

    Of course, this is a response to Menshevik proposals to expropriate shareholder dividends completely, and Lenin trying to show Bolsheviks as ‘more moderate’.

    In short – don’t underestimate Bolsheviks, neither those of Lenin’s time nor present ones.

  21. who would’ve thought spending beyond your limits leads to being broke and in debt.

  22. “From 1. Jan. 2011, every transaction above 1,500 euros between natural persons and businesses, or between businesses, will not be considered legal if it is done in cash.”

    What’s a transaction? 😉

  23. Federal 25%
    FICA 15.3
    State 5.8
    Local 2.2
    —-
    48.3%

    The 25% bracket for singles goes up to 82,400 this year, so about the same as the 81+k mentioned. I would love to only be paying 40% marginally.

    1. I wonder what private sector debt to GDP is the US? Not that it matters.

      1. According to usdebtclock.org, personal debt (mortgages, credit cards, etc.) stands at 16.67 trillion, which is roughly 116% of GDP, and total U.S. debt (personal, business, financial, state, local, federal) stands at 54.78 trillion, or a whopping 383% of GDP.

        1. I think it can be argued that we should cut taxes to virtually nothing in order to increase personal income – personal debt is generally at a higher rate than government debt, so in a situation where we added $1 of government debt and lost $1 of personal debt is a net positive for the country.

          Not that I think the money would get used that way.

    2. What type of payroll taxes/SS taxes and VAT do they have in Greece, though?

  24. If you ever start thinking no place could suck harder than the good ol’ U.S.A., just look to the glory that is Greece. The Greek government is responding to its self-inflicted debt crisis by doing just about every single thing wrong.

    Obama is Greek?

    1. He only goes Greek when Michelle isn’t around.

  25. The glory that was Greece; the grandeur that was Rome.

    Why does Greece always get glory and Rome grandeur?

    1. The fondness for Glory Holes?

      1. Eeeyewww.

  26. Tim, this fact free blogging has got to stop. The New York Times never said anything about banks forcing Greece to take on more debt. The Times article alleges that Goldman Sachs offered the Greeks a way to trade in extremely speculative derivatives under the umbrella of a currency transaction, thereby keeping the deal secret. If true, Goldman helped Greece circumvent EU law and made a sizeable profit in the process.

  27. Personally, I think the US should start concentrating on its own problems!

    Jess
    http://www.privacy-tools.de.tc

    1. This is a private discussion privacy bot. Go away.

  28. I read about the “no cash transaction over E1500” headline yesterday and it has sprained my brain into permanent WTF mode, so does anyone here know: What the hell is the ostensible motivation of this? My guess is that the debit or credit card lobbies coughed up some serious money to push the legislation, but what is the “It’s for The People’s benefit” explanation being given? Especially such a low amount of money; I don’t now what the average Greek cost of living is, but I’d be surprised if the average person’s living expenses were less that than for a single month.

    1. I would speculate that the idea is that people are cheating on VAT and other taxes by having a cash discount. Plus there’s the good old “stopping drug deals” angle.

  29. I read about the “no cash transaction over E1500” headline yesterday and it has sprained my brain into permanent WTF mode, so does anyone here know: What the hell is the ostensible motivation of this? My guess is that the debit or credit card lobbies coughed up some serious money to push the legislation, but what is the “It’s for The People’s benefit” explanation being given? Especially such a low amount of money; I don’t now what the average Greek cost of living is, but I’d be surprised if the average person’s living expenses were less that than for a single month.

    1. No, it’s a typical bureaucratic attempt to control the economy by making the grey and black market illegal.

      It will work just as well as all such attempts do, especially in Greece, where cheating the taxman is considered a family duty.

      1. A) The gray and black markets are by definition already illegal; and

        B) Not every cash transaction is black or gray market. I pay cash for almost everything, and everything I buy these days is aboveboard. Fifteen hundred Euros is only — what? About two thousand dollars? A single car-repair bill can run more than that. (Hell, in lots of Northeastern cities, a single month’s RENT can run more than that.)

        1. Sorry, I meant that they were trying to make it more difficult to deal in the black and grey markets.

          1. By effectively increasing the number of transactions that are officially deemed “gray market.” Assholes.

        2. “Differently coloured markets” please. It’s bad enough that you’re endorsing markets, there’s no need to be a racist too.

        3. A) The gray and black markets are by definition already illegal

          Like that’d stop a legislator from legislating. Least, not a ‘murican one.

  30. In itself, the 40% rate is not unusual, as robc @ 9:08 says. That level is occurs in the US, Canada and most European countries. What is unusual is the low threshold for that rate, especially when coupled with the high Value Added Tax (19%).

    1. Is it that unusual? They were starting the 40% rate at 80k. That is the top end of the US 25% rate, which as I pointed out, comes to about 48%. Yeah, the VAT makes it worse, but it isnt like the US is sales tax free.

      1. *cough* Delaware *cough*

        (yeah yeah, its not “The United States” entire, but hey)

  31. Sweet Jesus-in-a-dolma – did you see their new bank deposit policy?

    BANK DEPOSITS

    Deposits in banks outside Greece are exempted from audits of their origin if they are repatriated within six months of the passing of the tax bill and are taxed with a 5 percent rate

    They’re practically begging the world to deposit their black market income in Greece. I wonder how much traction they’ll get out of this: how many former UBS & other Swiss bank depositors they’ll attract.

  32. Cash transactions are by their nature untraceable, so how exactly do you police a prohibition on cash transactions over a certain amount?

    1. I wondered the same thing. If this becomes law, how long before “No cash transactions over X amount” morphs into “NO possession of cash over X amount?”

  33. Greek tax collectors say the problem is that tax collectors need to be paid more.

    C’mon, can’t blame em for tryin 🙂

  34. So, who was the genius on here yesterday touting the dollar as a sound investment?

    Foreign demand for US Treasury securities falls by record amount as China reduces holdings

  35. MUAHAHA! SURRENDER NOW EU OR YOU WILL FALL LIKE TROY!

  36. My limited reading here suggests that the Greeks have found numerous ways to avoid their current tax burden and why they put in place the $1500 cap in place.

    The Greeks have become experts at beating the system (gov’t intervention in economic life) and the only question is why does anyone think this will change by increasing gov’ts role in the greek economy?

  37. With many new announcement about the wizard of oz movies in the news, you might want to consider starting to obtain wizard of oz books

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