I checked their FB about 30 minutes ago and had the same experience as you: only a few comments on their post, all of them positive. Checked again a few minutes later and some 40+ comments had been reinstated, including Teddy’s and Joey Cain’s. Looks like someone “hid” all the negative comments and later on someone else “unhid” them. Interesting.

French economist Jacques Sapir has a good article out about why even aggressive or “unconventional” ECB policies can’t save the Eurozone. English translation here

Don’t know if anyone’s still reading this thread, but yes I agree with you that the current situation is untenable. Throwing money at the debt while ignoring the structural imbalance is like trying to plug a leaking bathtub when the whole house is collapsing. (Or, at very best, built on bad foundations). It’s treating the symptom, not the problem, and it’s utterly unsustainable.

In terms of the structural problems, I see (broadly) three possible solutions: 1) a radical structural overhaul of the whole E.U., including fiscal and political centralization, 2) reversing the trade imbalance by allowing inflation to increase and by raising wages and state expenditure within Germany, or 3) a total or partial end to the Eurozone itself.

I say “total or partial” end because, by itself, a Greek exit won’t solve the structural imbalance. The same scenario also applies to the rest of the “periphery” (Spain, Portugal, Ireland, etc) so if you remove Greece from the equation you’ll just see the same dynamics eliminate the other weak economies one by one. (It isn’t even a question of “contagion” because the structural problems are already there.) So yes, a total or at least substantial Euro breakup would ultimately (potentially) resolve the balance of trade but the question is whether Europe itself could handle a massive breakup and how (of if) the world economy will weather it. There’s a chance that you’ll take down the entire global economy in the process of trying to rectify the situation. (And of course, there’s a chance you won’t; no one really knows what happens when you push the red button.)

Europe is scared sh*tless about trying that option; at the same time, there isn’t the political will for centralization (option 1) and the Germans aren’t willing to try option 2 because it would mean admitting that they are a part of the problem. The result is that the current situation is untenable and yet no one is willing to try anything else! It’s pretty crazy.

A fourth option, which unfortunately hasn’t really been discussed, is that not Greece butGermany leave the Euro. This would solve the structural imbalance from the other end, not by taking out the weakest country but the strongest one. The value of the Euro would then deprecate against the Deutschmark, rendering German exports less competitive, and the rest of Europe would slowly start lessening the productivity gap. Of course this would put an end to the German export model but they’re strong enough that I think they can weather that, and it’s less likely to trigger investor panic because no one will have the fears about the Deutschmark that they would about the Drachma. While initially counter-intuitive, I think this is actually the best of the (mildly realistic) options, and if I had to choose one it would probably be that.

@yellowsnapdragon: Thanks! I’ve been a lurker on FDL since at least last summer, but something about the Greek situation finally pulled me out of the woodwork. I’m familiar with Richard Wolff but haven’t read a lot of his work (one more thing for the reading list); but since my economic lens is largely Marxian it makes sense that we’d be in agreement.

@maa8722: I didn’t think you were saying anything positive about Merkel. My point was that her position is (much) more shaky than it appears from the surface. Yes, she’s absolutely the representative of the establishment position, but the establishment position is increasingly untenable. One way or another, things are going to get shaken up in the next few months and, precisely because Merkel represents the (now failing) dominant narrative, I doubt she’ll be sitting comfortable.

You have to look at it in terms of flows.

Germany has had strong growth over the last ten years and yet domestic demand has literally flatlined. How has Germany kept growing if no one in Germany is buying anything?

Answer: exports. The adoption of the Euro kept German products trading at an artificially deflated price (compared to price in Deutschmarks). This, combined with concerted wage-suppression, meant that German goods were being exported and sold well below their objective market value.

What this means for a country like Greece is that their industry is rendered uncompetitive; suddenly it’s cheaper to buy a car from Germany than to produce one for the home market. Greek production couldn’t keep up with artificially deflated German prices and, following the inexorable logic of the market, closed up shop.

So then you have the Greeks buying and the Germans selling. Again, this is just simple market logic; in order to have a strong export-oriented economy you have to have an “import economy” somewhere else. And, in the short run, this was very good news for Germany; their fantastic growth over the last ten years is a *direct product* of sales to countries like Greece.

In the long run of course a trade imbalance opens up; if Greece keeps buying more than it sells they’ll grow progressively impoverished vis à vis their northern neighbors. But likewise, Germany will keep growing richer if and only if they keep on selling more than they buy–they have a vested interest in keeping Greece afloat so that they can keep on selling goods.

The solution, in the boom years at least, was to recycle money back into Greece in the form of credit, for the simple reason that then the Greeks could keep on buying. (Something very similar happened on the US market with consumer credit.) For a while, this looks like a great solution; money keeps flowing into Germany and getting cycled back out in order that it can flow in again, progressively enriching the German market every time. The Germans get a profit from their sales, *and* they get a profit off the line of credit they extend in order to allow the sale to take place. So its a double win.

The problem, beneath the surface, is that the gap between German and Greek domestic product keeps on widening. When the gap grows too wide for people to keep on ignoring it, you have a crisis!

So that’s kind of where we are right now. But when you look at it in terms of flows, you can’t just blame it on the Greeks while excusing the Germans. Sure, the Greeks were buying “beyond their means” (i.e. buying more than they were selling), but this was a direct result of the fact that Germans were “selling beyond their means,” due to Euro integration and German fiscal policy. Beyond that, the Greeks didn’t really have any choice; without high import tariffs or domestic currency measures (both rendered impossible by E.U. integration), they had no way to prevent German goods from being cheaper than their own and thus no choice but to sit back and watch the progressive widening of the trade imbalance.

All this to say that you can’t look at it as a flat picture, where Germany is rich and Greece is poor. On the contrary, it’s a direct relation: Germany is rich *because* Greece is poor, and vice versa. To ask “Why can’t Greece be a prosperous country like Germany?” is to ask “Why can’t everybody just sell stuff and no one buy anything?” It’s a nonsense question. Of course the ideal goal would be to have *both* Germany and Greece producing and importing in equal measure. But this would require a paradigm shift in the German economy as well as (if not more than) in the Greek. In other words, and bluntly, the Germans would have to stop making their profits off the backs of other European countries. And this is precisely what they’ve been (utterly) unwilling to do.

Thanks everyone for your kind comments! As a long-time lurker, it’s exhilarating and a little nerve-wracking to dive into the fray…

@defogger: A lot of people are deeply invested in the status quo, and psychologically I understand that: if you start questioning the dominant narrative the whole floor falls out from under your feet. It’s difficult to get people to examine their preconceptions. And yet I also maintain a (perhaps naïvely) optimistic faith in people’s capacity to think critically. Dialogue and development are the necessary preconditions for social and political change; the first battle is *precisely* a battle over belief(s).

Merkel must be re-energized and feel like Thatcher now. I understand the Germans now feel they have no reason to budge in principle but may “magnanimously” suggest stretching the terms for a year or two. It would kick the can briefly yet again. That’s what I gleaned scanning some WSJ pieces, didn’t read details though.

On the contrary, I think Merkel must be running scared. Everyone’s doing exactly what she asked for and yet nothing is happening the way she wants; neither the Spanish bail-out nor the Greek election results have succeeded in calming the markets, capital flight continues, and there’s a growing sense that the leaders don’t have a hold on the reins. It’s bad news when the whole world capitulates to your plan and then your plan doesn’t work…