Category Archives: Greece

Immigration and refugees

In the United States, we tend to focus on immigration issues in this country. The system – if it can be called a “system” in any sense – is functioning in a way that almost no one would recognize as sensible.

Increased immigration is not unique to the United States. There are many more immigrants in European countries than just 15 years ago. It is fairly common to see people of Asian origin speaking Italian or Spanish on the subways in those countries.

Illegal immigration is not unique either. In fact, it is a massive problem in Europe right now similar in some ways to migration from Cuba to the United States. In the mid-1990s, as the Congressional Research Service summarizes, many Cubans died in small boats escaping to the United States and this was widely reported in the press. It is little reported, but about 25,000 Cubans travel in small boats to the United States each year even now. (I am not sure how many are returned to Cuba by the U.S. government due to an almost incredibly horrible policy.)

Europe has a similar problem today. Thousands of people are fleeing the violence in North Africa. The simplest way is to sail in a boat across the Mediterranean. European countries are confronted by some of the same problems as the United States was then.

The first point of entry for many of these refugees is Greece. Greece hardly is in a position to help the refugees much. Permanent employment for an immigrant is a fantasy in a country with an unemployment rate of about 25 percent for the last seven years. So they move on from Greece.

Because of the open borders in the European Union, people can travel from Greece to many more attractive countries. Many of these other countries are concerned about the implications of many refugees ill equipped to live outside their native lands.

An opinion piece in the Greek newspaper Kathimerini suggested “To solve, Europe’s migrant crisis, give them a place of their own.” This sounds interesting for an instant, but not longer than that. In fact, it is a ridiculous proposal. The proposal is

The United Nations should … identify large areas where migrants could both live and work while retaining their nationality. Granted an indefinite stay, these migrants would also have the possibility of attaining citizenship. These areas would, by definition, be empty and probably inhospitable; the UN’s aim would be to make them comfortably habitable.

A short version of this: Let them live in the Sahara desert. But wait, that’s in the neighborhood of where they’re leaving. In Europe, I know of no such even relatively “empty and … inhospitable” area. Moreover, it would have to be owned by a government I guess or the owners would have to be expropriated.

The U.S. version of this would be: Let them live in Death Valley. What would keep them there when the bright lights of Los Angeles and Phoenix are where they can find gainful employment? “Empty and inhospitable areas” are not a great place to try to make a go of it.

What is the solution, or even a good solution? I don’t know. Arguably, free migration with private charity and no guaranteed benefits from the government would work reasonably well in many ways. The current world is so far from this. There are big arguments about immigration, of course.

There are two arguments that appeal to me. One argument: with current welfare in place, free migration would be a massive drain on taxpayers in the United States. Another argument: two wrongs don’t make a right. The existence of welfare should not stop a commitment to free migration of people. I incline to the former argument: free migration of people from Mexico and Central America given current institutions in the United States is a recipe for a big new burden on taxpayers in the United States.

Actually, under current arrangements, sponsored migration of refugees arranged by private groups seems to work reasonably well when it is feasible. I don’t know of such efforts underway now, although it seems that would be the ideal resolution for these refugees in the United States. It might work reasonably well in Europe. It also would deal with a complaint in the United States right now, that the U.S. government is not doing nearly enough to help Christians being raped and killed by ISIS.

Greece: Taking Stock

The third bailout of Greece is in progress. What can be said?

First, beware those forecasting what politicians will do. The Greek Prime Minister, Alexis Tsipras, got a 61-39 vote against an austerity program offered by other eurozone countries. He then promptly agreed to a more demanding program just a week later.

There are a variety of ways to view Tsipras’s about face. I find it most plausible that the other eurozone countries held fast and he found himself staring into an abyss with serious hardships for Greek people. And he did not want to be responsible for that. Whatever the reason, the real lesson is that politicians’ actions are hard to predict.

What can be learned more broadly?

It is worth starting out with a basic observation: This is a road that should not have been travelled in the first place. As part of the bailout programs, Greece has defaulted on private creditors already. It would have been better for Greece if this had been done immediately without piling on yet more debt.

Being in a monetary union does not require that member states not default. U.S. states defaulted in the 1840s and the commonwealth of Puerto Rico is very likely to default in the near future. Cities in the United States have defaulted on their debts as well. A default by Puerto Rico will not provide any evidence about the willingness of the U.S. government to service its debt and will have at most a negligible effect on the U.S. dollar or its use anywhere in the world.

A beneficial result of an immediate default by Greece might have been a widespread recognition in Greece that things could not continue as they were.

That said, bygones are bygones. That is not the path the eurozone has been on for several years.

Still, Greece will not have growth leading to incomes similar to other European countries without major changes in the economy, whether Greece defaults explicitly or it defaults implicitly by a restructuring of the debt.

There has been a lot of ink spilt about pensions in Greece. Government pensions in Greece allow people to retire and receive checks when people are younger than in Germany or the United States. Pensions currently are equal to one-quarter of Greek GDP and are expected to grow faster than even relatively high long-term predictions of GDP growth. Tsipras made the point that change was inevitable as part of a speech in Parliament this week. To the best of my knowledge, politicians in Greece have avoided even suggesting changes were necessary until now. Previous governments have blamed changes on the insistence of eurozone governments lending funds to the Greek government.

Instead of necessary reforms, politicians in Greece have been good at raising taxes, maybe lowering spending some but have made too few reforms that can have long-lasting effects.

While not suggesting it’s the most serious problem, Greece’s railroads are a good example of problems that affect much of Greece’s economy. Greece’s railroads are government owned and have a substantial debt and deficit. The railroads have borrowed a lot in the past leading to a large debt and they add to it every day they operate. The railroad union has secured relatively high pay and pensions.

One part of the proposed reforms in Greece is privatization of the railroads. Short of changing union contracts, it is hard to see Greek railroads having a positive value in a sale. Changing union contracts would be likely to mean a costly strike, and the difficulties facing the owners would only be worse if the new owners of the railroad were foreigners.

It is hard to see privatization of the railroads being successful without widespread support by Greek citizens. As things stand, there is no evidence such support is there.

It is hard to see the current bailout being more successful than the earlier two agreements. The major issue for Greece’s long-run growth is not taxes and government spending, although government spending and taxes are quite high even by European standards.

The major issue in Greece is an economy with little scope for private enterprise, which is the driver of long-term growth.

A note: I have not posted in while but will be more systematic now.

Greece’s sovereign-debt crisis heats up, a lot

I have been following the financial crisis since its beginnings in 2007. While in the United States it seems that the crisis is all over and has been for a while, the private financial crisis blended into and partly became a sovereign-debt crisis in Europe.

Everything calmed down for a while but things have heated up recently.

To summarize developments a bit as I understand them. I do have to assume some familiarity with Greece’s problems.

Greece has an extremely serious problem with deficits and debts, very high government spending, and a tax system with high tax rates but ineffective tax collection.

A new Greek government has been voted in, at least partly based on resentment against the terms imposed by the Eurozone, the European Community and the IMF to provide assistance to Greece. Today a meeting to agree on any new terms for the Greek government fell apart. There are no plans for a further meeting. The current bailout program ends on February 28.

If the Greek government is to attain its objective of getting better terms, there must be more meetings in the near future. Otherwise the Greek government will run out of funds in the next month or so, unless it goes along with an extension of the current agreement. But the new Greek government ran on a promise not to extend the current agreement and has said that extending the agreement is unacceptable.

A related development at the same time suggests that there is another problem. Greek people are withdrawing euros from the banks and storing them against the possibility that Greece will go off the euro. The banks have about 14 weeks of collateral to get funds from the Central Bank of Greece at the current rate of withdrawal, according to one estimate. This drain of funds from the banks will only accelerate.

The Greek politicians think raising pensions, employing more government workers and raising the minimum wage will lead to growth. The Germans and most other European politicians don’t agree. Not many economists would agree either.

I think the Greek government will stick to demanding they be able to institute these three policies. They are ideologues, Marxists actually. I also think the drain of cash from the banks will accelerate. I am not sure when they’ll have to limit withdrawals. I think capital controls are quite possible.

Then it depends, but I think the other Eurozone governments have relatively little wiggle room. They have voters too.

Any forecast is a forecast of what the Greek and Eurozone countries and politicians will do. I doubt the Eurozone will go along with the three demands by the Greek government. Maybe Prime Minister Alexis Tsipras will rise to the occasion; maybe not.

It’s a forecast. This whole thing has dragged out a lot longer than I thought it would. The Greek people do not realize how serious the problem is. No politician is telling them. The problems are the evil “troika” and especially the Germans (who conquered Greece during World War II), and this has been the story all along.

To illustrate the level of discussion in Greece,

A Greek leftist newspaper close to the ruling party in Athens published a cartoon last week which showed [German Finance Minister] Schaeuble in a Nazi uniform. He is quoted saying “we insist on soap from your fat” and “we are discussing fertilizer from your ashes”, references to the fate of Jews in Nazi death camps.