[gutnor]

I'm personally not exactly happy how the EU handled Greece, especially the harsh social consequences on its citizen that the EU could have smoothed and the lack of proper management of Greece "creative" accounting that let Greece join the EURO.

But the EU did not cause the massive hole Greece dug for itself for years/decades. Reckoning was coming. The EU agreement was harsh, I think there could have been a softer version available, especially had Greece not been in the EURO.

But outside the EU entirely, Greece would have eventually defaulted on its debt, and considering the insane amount of debt and massive budget imbalance that caused it in the first place, that would have sent the Drachma spiralling out of control. Without the backing of the EU, Greece would have had a hard time coming up with an economic and social plan to earn back some international credibility. It is unlikely it would have maintained inflation in control, but even if it did, high inflation would have been dramatic in an economy so reliant on import for basic necessities. It is extremely doubtful they would have been better off.

One way (in the EU) or another Greece was looking at terrible consequences for their politicians mismanagements.

[coldtea]

>But the EU did not cause the massive hole Greece dug for itself for years/decades.

I think that has several causes:

1) Greek politicians (and Greek elites complicit with them) consumed a lot of infrastructure money from EU in BS overpriced public works projects. That said, Greece infrastructure wise is a totally different country from Greece in 1980. But those infrastructure projects didn't and could't themselves generate money.

2) Greek economy was traditionally based on smaller production units (SMEs). When global outsourcing (and later China and co) became an option for everything of that kind, Greece competence in the area dropped to 0. The small business owners at the time didn't have the savvy to market their products as premium goods and justify higher margins (like e.g. Italy does at least for some things), neither did they have the brand name to assist them in moving production abroad (and continue selling). The quality+price points they competed at were no longer possible. Tons of such Greek industries died off in the 80s and 90s with no replacement.

(Add to the mix a bevy of EU policies that were in fact protecting interests of major EU nations (Germany, France, mostly), against competition from the South).

3) Even so, Greece had control over its debt, which was never a major part of GDP before 2001, using its monetary policy. The inflection point was the switch to the Euro, when suddenly a volatile economy was tied to a "strong" currency, with no room for corrections (imagine the US debt if the Fed couldn't print dollars and the world didn't accept dollars as a de facto exchange currency -- now imagine that with an much weaker economy to begin with).

[pas]

The 2008-2010 crisis never would have left Greece standing, EUROzone or not.

Their debt might have been okay in 2001, but don't forget how reckless they have been with spending (photos of sport related infrastructure the 2004 Olympics is a nice reminder), and they put off reforms for decades.

Infrastructure projects are a must have for a globally competitive economy, profit generating or not. Upkeep is an issue of course, but for some reason Greece wanted to not go back to sheep herding.

[intended]

As I recall, the Greek public sector was a large part of its economy, and jobs available through connections over merit.

[coldtea]

Smaller public sector than e.g. Denmark. But worse management.

[soVeryTired]

I think one major point is that a devaluation in the drachma would have made Greek industry more competitive again. Inflation goes up, yes, but imports decrease and exports increase.

Greece would have experienced market discipline instead of discipline by government fiat. The latter is much more dangerous politically, as we saw with the election of Syriza.

I think it's telling to contrast the fate of Greece with the outcome for Iceland.

[cinquemb]

>But the EU did not cause the massive hole Greece dug for itself for years/decades. Reckoning was coming.

Yes, and that "reckoning" was a digging bigger hole. The real reckoning is when European sovereign yields go through the roof when the ECB runs out of ammo…

[RobertoG]

The ECB can't "run out of ammo", but you are right that they could stop, for political reasons, financing the Euro countries covertly in the secondary market like they are doing now.

Or maybe they just will keep that gun to the head and they will use that thread for running the show and impose more counter-cyclic policies. In that case the answer will come from the voters (like it's happening in Italy now).

[pas]

> In that case the answer will come from the voters (like it's happening in Italy now).

Could you expand on this please, what's happening in Italy, how that connects to the ECB open market policies?

[RobertoG]

I can try..

The Euro is basically a foreign currency, so Italy have lost any saying in its monetary and fiscal policies. Austerity in times of recession is craziness, but is the order that come from Brussels.

The new government in Italy is basically anti-euro. Those so called "populist" governments don't happen by accident but when the people is very unhappy with the economy.

As the Euro is, in essence, a foreign currency, there is really a risk that Italy and others could be in the situation where they can't finance themselves. That would be the end of the Euro.

In the year 2012 that almost happened. There was a public debt crisis that finished the (and this is not an exaggeration (1)) exact day that the ECB decided to finish it.

What the ECB is doing now (since 2012), is buying the public debt of Italy, Spain and others in the secondary markets (2).

They can't do it directly because is forbidden. This has to be done, because, otherwise will be the end of the Euro.

Interestingly, buying in the secondary market is also against the treaties (3) but they hide it in technicalities.

At the same time, this is used as leverage for dictating the economic policies of those countries from Brussels.

The result of those policies is what bring the "populist" to the government.

(1)-https://www.telegraph.co.uk/finance/financialcrisis/9428894/...

(2)-https://www.bloomberg.com/view/articles/2015-12-04/the-ecb-s...

(3) https://elpais.com/elpais/2012/10/24/inenglish/1351097206_05...

[emn13]

For another perspective on this: although I totally agree with what you say, there's also the side of the story where in people love to blame others for failings. When greece plunges into crisis; people blame politions, blame the EU - even though those entitities are entirely and truly democratic. They're not blaming themselves. When northern europe decides to ignore the southern problems even though they're in a union, they blame perhaps their own politicians or the EU for mismanagement, and perhaps their southern neighbors, but certainly not themselves.

But this weird perspective also correlates with a drop not just in voter participation, but perhaps also in the care taken in voting. Seriously, protest votes are a kind of shooting yourself in the foot because the guy next door is so mean - but quite common, at least nowadays.

Almost certainly those who will suffer most from populism in italy will be the voters who voted for them; just as those who voted for e.g. trump are likely to achieve the exact opposite of what they're so angry to... prevent? achieve?

It's not just one country; almost every single modern democracy is afflicted to some extent. We may have misattributed democracies past successes to the technicalities of voting, missing the much larger, less trivial social context in which it works. But certainly whatever the cause - it's much deeper than something like the ECB mishandling the situation in Italy.

[RobertoG]

"But certainly whatever the cause - it's much deeper than something like the ECB mishandling the situation in Italy. "

This is not a mishandling, the ECB is what is, for now, saving the Euro.

The problem, in Europe, at least, is the design of the Euro is flawed. A different question is if that flawed design it's being used for other goals.

[pas]

Thanks for the effort, the details, the links, and the comment!

How do these two things square against each other?

> Austerity in times of recession is craziness, but is the order that come from Brussels.

> What the ECB is doing now (since 2012), is buying the public debt of Italy, Spain and others in the secondary markets (2).

It seems to me that "austerity" is the buzzword used by states that want to inflate away their debt.