One rule for thee…

Back in the early 2000s, Italy, Portugal, and Greece were being chastised and threatened with fines by the European Commission for breaking the Stability and Growth Pact, which aimed to limit the fiscal deficit of member states’ budget to 3% of GDP. Then something happened around 2001 which caused the French and Germans to blow their budgets and go on a borrowing spree, and all of a sudden the Stability and Growth Pact didn’t matter (see this chart for historical deficits). It became quite obvious that EU rules are only to be enforced against certain countries, and exceptions made when it came to France and Germany; those less charitable thought it quite obvious that the EU was run for the primary benefit of those two member states.

Fast forward 17 years and we had the European Commission refusing to approve Italy’s budget because it breaks the Stability and Growth Pact. Then a short time later French president Emmanuel Macron, with his back to the wall facing the might of the gilets jaunes, decided to throw an €8bn – €10bn bung at them in the hope of saving his presidency. France’s budget was already perilously close to the 3% limit, and this pushed it over the edge. So the European Commission is going to take action, right?


The EU will accept a French budget deficit above the EU’s 3 percent ceiling in 2018 “as a one-time exception,” Budget Commissioner Günther Oettinger said in an interview published Thursday.

Now there’s a surprise, eh? If you follow the link and translate from the German, you find out why:

President Macron has lost authority with his budget for 2019, which exceeds the deficit limit of three percent. But he remains a strong supporter of the European Union.

Of course. The rules don’t matter provided you are France or Germany and you are a strong supporter of the EU. What a wonderful club. I can’t think why Britain voted to leave.


67 thoughts on “One rule for thee…

  1. I don’t think anyone is saying the Euro caused the Greeks to be bad credit risks. Clearly, they always have been.

    What the Euro did was enable a known bad credit risk to borrow a lot more money than they would have been able to otherwise. And at the same time, the Euro prevented them from the usual recourse of the debtor nation, that is currency devaluation.

  2. The euro did not do that. I already showed that Greece was borrowing much as other European countries before the euro. And without the euro Greece would have been in no position to devalue its external debts as those were largely denominated in dollars, deutschmarks and pounds. That’s why it used to default in the pre-euro days. Same reason as it defaulted post-euro

    You can only devalue your own currency.

  3. ” I already showed that Greece was borrowing much as other European countries before the euro. And without the euro Greece would have been in no position to devalue its external debts as those were largely denominated in dollars, deutschmarks and pounds. That’s why it used to default in the pre-euro days. Same reason as it defaulted post-euro”

    But it hasn’t defaulted post euro, thats the point. Its been bailed out, which in reality means forced to accept even more debts to pay off the earlier ones (and thus save the German banks of course).

    In the old days Greece borrowed money, either in drachma (which it could print and pay back in devalued money) or in hard currency which it could default on (if it chose to). Being in the euro has obviously removed the first option and also removed the second, because the EU won’t accept a country defaulting on its eurozone debts and/or leaving the euro, because it might show a route for other indebted eurozone nations a way out as well. Making Greece stay and pay is not an economic decision, its a political one.

    So Greece has been crucified on the altar of EU unity. Look how Iceland managed its part in the Financial Crash. It suffered a catastrophic drop in GDP in 2008/9 (a 25% drop in one year) but due to its free floating currency and its decision to default on banking debts has slowly recovered, reaching its old 2007 peak about 8 years later, and now is over 40% above the pre-Crash peak.

  4. Greece has defaulted at least twice while in the Euro, in addition to the bail-out. FGS, one of them was the largest fucking sovereign default in history.

    Here they are:

    09 Mar 2012: €152 billion worth of privately-owned bonds are written down to less than 50% and given longer maturity.

    30 Jun 2015: default on a $1.7 billion loan from the IMF.

    Note the currency of the second loan. How would inflation/devaluation have helped them repay that? It doesnt. It makes it harder to repay!!!

    The euro increases default risk, doesn’t decrease it, partly for the reasons you mentioned. Everyone knows that now, if they did not before. And it is very much a feature, not a bug. Governments can now go bankrupt (and the EU lets them, vide: Greece). So they better try not to.

  5. “And it is very much a feature, not a bug. Governments can now go bankrupt (and the EU lets them, vide: Greece). So they better try not to.”

    How very Germanic.

    ‘You vill pay your bills Herr Stavros, or else!’

    Your very argument proves the point everyone else is making. Yes Greece has a history of going broke, of stiffing its creditors, going back decades if not a century or more. Yet during all that they managed to survive reasonably OK. They were poor, yes, but not broken on the wheels of debt the way they are today.

    Then they join the euro, and they end up as they are today, and you argue that the one thing thats changed (them being in the euro) has nothing to do with their predicament. Nothing else has changed, the Greeks are as feckless and indolent as ever, as tax evading as they ever were, as extravagant with other peoples money, but the one thing that’s different this time is definitely NOT the problem.

  6. Correct, the one thing that is different this time is not the cause, nor the problem.

    When the UK government tries to tackle its deficit and leftists scream “Austerity”, we laugh at them. Those idiots, criticising the UK government for trying to live within its means and claiming this is unreasonable and unfair, waa waa waa. When exactly the same “Austerity” is a condition of a multiple-hundred-billion cash gift to Greece, HALF OF IT FROM PRIVATE CREDITORS, it’s apparently some kind of nazi imposition of slavery. Don’t forget, the alternative was that the market stopped lending and no one else stepped in. And that would have been the real catastrophe.

    Stavros was not made to pay. Stavros actually had half his debts written down in 2012, by those very greedy nazi german banks. This data is available to anyone who isn’t pathologically incapable of looking at the issue dispassionately because they want to grasp at any old euroskeptic fake news they can.

    Stavros, like Germans, like British leftists, needs to learn how to pay his own way, not to steal from the future and cry about “nasty German austerity” when the credit card is declined. If “Austerity” means stopping stealing from the future, I am all for Austerity. As, I suspect, you are.

  7. What you seem to be ignoring is the pain that is being enforced on the Greek public, all in the name of trying to make Greeks into Germans, and to enforce some sort of Germanic financial discipline. Its not necessary. Its only being imposed for political reasons – the Greeks can’t be allowed to repudiate their debts, leave the Euro and prosper in any way outside it, because that might destroy the political construct that is the Euro. The most sensible course of action would be to repudiate the euro debts entirely (thus breaking the German banks, but thats the Germans problem) and maybe even leave the euro, to get some semblance of competitiveness back into the Greek economy. But no, they must be forced to keep going with the ‘discipline’ that the Germans love (for others naturally, when they broke the spending rules they weren’t fined, of course)

    The Greek people are effectively being held hostage, not with guns, but with money instead. The political class don’t suffer, the ordinary people do. The EU political class created the Greek tragedy, by allowing a known drunk to have the keys to the cellar because he had promised he’d become a teetotaller and would never drink again. And then when he’d drunk himself into a stupor, locked him in a room and made him go cold turkey.

  8. What you are ignoring is that Greece was enabled in the repudaition of a huge tranche of their debts!!!!

    People who are too deep in debt to repay their debt have to get forgiven some proportion those debts, and that – despite your willing it not to be true – is what actually happened. That the following bail-out (to keep the country from all-out collapse) comes with some conditions to make it less likely in future is a good thing, surely? To make the place more competitive.

    Now how, precisely, is it in “Germany’s” interest that another country becomes more competitive and therefore a threat to some of its industries? I am confused. Some times it seems we are holding our jackboot on the gasping throat of deadbeats, other times we are spending hundreds of billions to turn them into lithe and powerful competitors. What is it to be then? Or does it depend on the fake point you are trying to make at each particular instant?

    Greece can leave the euro any time it wants, but no country in that position for so long (things are much better now) would ever do so because it would make those euro-denominated external debts impossible to manage. Indeed your other example, Iceland, applied to JOIN the euro the minute the shit hit the fan in 2008.

    Going bust hurts. It has to, otherwise people would do it all the time. Greece is not exactly (yet) a success story (though Ireland, Portugal, Cyprus came out the other side of the pain really well, proving it is possible), but the alternative was probably the total collapse of the country, not the mythical milk and honey of devaluation/default/inflation and carrying on spending other peoples’ money regardless. The market shut Greece out. Cut the entire country off. It has only now come back because there is a sliver of credibility that they won’t do the same again in the short term. And it has returned to international debt markets after several years of haircut, default, and bail-out.

  9. There are structural things that clearly have to change to make a better system than we have now. Here are three suggestions, two of which widely debated, and that I think would be good ideas (I oppose a eurozone “household budget” beyond the roughly 1% of GDP the current EU costs us, because it risks a creep towards federalism, harmonized tax rates and so on. The strength of the EU is that it has been for so long a liberalising force and fostered competition, and I don’t want to see this structure handed over to avaricious and jealous leftists who want to take us back to the 90% tax rates of the 1960s).

    A genuine EU-wide banking market rather than the national segregation we still have.
    Granting the ECB lender of last resort powers.
    Holding bank shareholders in unlimited liability for losses.

    You need to accept that default has always been with us, and always will be. How, exactly, it is done, through repudiation, or inflation/devaluation (always overrated because of the foreign currency nature of most external debts) is largely cosmetic. Value is value, the currency in which you denominate it is largely irrelevant. If the value isn’t there it cannot be returned to your creditors, irrespective of whether it is denominated in Drachma, Euro, Dollars, or Afghan Kamelturds.

    Greece’s recent bankruptcy is far from the first time a government has gone bankrupt, and it will not be the last. Its being in the euro makes very little difference to the fact that someone has to eat the losses.

  10. “Greece can leave the euro any time it wants”

    No it can’t, the EU won’t let it. They’d crucify it, just to make the point, pour encourager les autres. Destroying a country via economic means rather than bombs. Just as they want to do with the UK over Brexit. Its all down to political ideology over compassion. There’s not an ounce of human kindness in it all, everybody must agree with and strengthen the EU or must face destruction.

  11. “Its being in the euro makes very little difference to the fact that someone has to eat the losses.”

    Except of course the German banks, who would be broke themselves if they had to take a full haircut. So the Germans throw their weight about and protect them.

  12. Before we proceed, would you be so kind as to address at least some of the large number of points I have made in the last several posts that you have selectively ignored?

    In particular, the fact that Greece recently pulled off the largest sovereign default in history, and was forgiven at least seventy billion euros in debt, by private creditors (including Germans)?

  13. The German banks were recapitalised by the German state. Meaning, the German taxpayer, i.e. – me. Not by Greece’s deadbeat government, and not at the expense of Syriza-voting Greek leftists screaming about “German austeriry”.

    I just proposed the ECB should be allowed to do that instead, which it currently isn’t (How self-interested of me!) And then that the ECB should be able to go after every penny that the German bank shareholders (currently: government of Germany) have.

  14. “the fact that Greece recently pulled off the largest sovereign default in history, and was forgiven at least seventy billion euros in debt, by private creditors (including Germans)?”

    The ‘biggest default in history’ means nothing in these days of inflated fiat currency numbers. And even after all that, they still can’t afford the debts they’ve been left with. Their debt to GDP ratio is now higher than it was at the start of the crash, 180% of GDP, vs 110% in 2008. Total Greek debt is now approaching the peak it reached in 2012 before the bailout. How can that be considered sustainable, or ever be repaid? The Greeks need far more debt forgiveness if they are to ever see any semblance of an economic future.

    But they also need some competitive edge, which they can’t get in the euro. Its pricing them out of markets. Even their traditional market, tourism has been decimated because of the euro. Prior to the euro a friend of mine used to go to Corfu every year for a summer holiday. A fortnight staying in a basic apartment, she’d take £200 worth of drachma and not spend it all, despite eating and drinking out every night. Then the euro came along, and everything shot up in price. Suddenly her holiday was still no frills, but cost 50% more. So she didn’t go back. Thats the euro’s effect on Greece in a nutshell.

    The Greeks are not capable of making the changes needed to reform their economy to make it be able to prosper in the Euro. They need to return to their own currency, and live within the natural constraints that produces, rather than be part of a far larger currency bloc that enables them to access debt markets they never used to have access to. They should never have been lent the money they were, the borrowers need to accept they will never be repaid, and the Greeks need to accept they will have to go back to the drachma and the natural constraints that imposes.

    But of course the Greek political class is as contemptuous of the Greek public as the political class is of electorates across Europe, and they will never countenance that, it would remove them from the EU trough. The Greek tragedy is another example of the disconnect between governors and governed that we are seeing across the Western world.

  15. There is no point debating with you further as you refuse to acknowledge the incontrovertible FACT that Greece’s creditors forgave over seventy billion euros of debt (and rescheduled the rest) in 2012.

    Until and unless you are prepared to ackowledge incontrovertible FACTS, the rest of your waffle, intentionally blind (to be charitable) to one half of the balance sheet, is a pile of steaming bullshit.

  16. “You refuse to acknowledge the incontrovertible FACT that Greece’s creditors forgave over seventy billion euros of debt (and rescheduled the rest) in 2012.”

    Where have I refused to acknowledge that?

    All I’m saying is that was like taking a man with £1m in debts and unable to cover the interest payments, and saying ‘You know what, we’ll take £250k off that for you, and shift the rest to maturing over 50 years [which of course means the lender gets more interest] Now get to working, you layabout!’

    The 2012 bail out was primarily about saving French and German banks from utter bankruptcy that would have sunk the French government, probably no the German one though.

    It most certainly wasn’t about setting Greece on a course whereby it could manage to grow it way out of trouble.

  17. Plenty of interesting data in this article about Greece and its economic woes since the GFC:

    Note how the growth rate for Greece prior to joining the euro was a regular system of growth spurts and recessions, but nominal GDP kept rising throughout, and the regular recessions would have purged small amounts of bad debts out of the system every few years, plus provided a healthy incentive not to over borrow. Then post euro there was an unprecedented decade long boom, presumably driven by increased debt levels across the board, public and private, followed by the mother of all crashes, and a nominal GDP flatline since. With no way out – no control of interest rates, no control of currency level, no control over budgets and spending, and massive debt repayments soaking up every spare penny of revenue.

    Which incidentally would have been the UK’s fate, had we been forced to stay in the ERM post 1992.

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