This Monty Python Greek-German soccer match is wonderful. Thinking of the euro zone, perhaps it also says something about each country’s personality.
Sources and Resources: The Monty Python video was from YouTube, here.
Tag Archives: eurozone
Posted by: adminEcon
Tags: austerity, eurozone, eurozone humor, Germany, Greece, Greek debt, Greek-German humor, Greek-German soccer match, Monty Python, Socrates
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With a euro zone update on Greece unfolding (they might lease some islands but we’ll get to that in a moment), here is some Greek math that Michael Lewis presents in Boomerang.
Referring to the deficit, during October 2009, the Greek government thought it was 3.7% of GDP. A closer look from a new finance minister soon resulted in a revision to 14%. How could they have been so wrong (assuming the new figure is valid)? They actually had no independent group gathering statistics. Instead, the political party in charge managed the math.
The 2009 Greek deficit (spending minus revenue for one year) was close to 14% of GDP. The Greek debt (the total amount they owed) might have been 114% of GDP. Why could the Greeks borrow so much?
Comparing Greece’s GDP to its deficit is sort of like comparing your income to your mortgage and then having a wealthy uncle who would guarantee what you borrowed. After the Greeks joined the euro zone, their borrowing costs plunged because lenders assumed the Germans would be there to support the loans. Even though the German economy was much healthier than Greece’s, their governments could borrow at similar rates–and those rates were low. As a result, Greece could go on a borrowing spree and use the money to run unprofitable government businesses like the national railway, to pay generous pensions to retired government employees and to ignore nationwide tax evasion.
Now, Greece knows it has to cut the public payroll. A recent Bloomberg article tells us that they are using incentives to encourage retirement and also placing people on 75% pay if they receive a poor evaluation or disciplinary action. However, as one IMF official told Michael Lewis, “I’m all for reducing the number of public-sector employees. But how do you do that if you don’t know how many there are to start with?” (from Boomerang, p. 79).
And finally–why do the Germans and French care about Greek math? Here we have reality. German and French banks hold Greek debt.
For an excellent video from the St. Louis Fed on “The Greek Tragedy,” I recommend this YouTube video and all others from the series. And this Washington Post book review tells more about Michael Lewis’s financial disaster tourism in Boomerang.
Posted by: adminEcon
Tags: Angela Merkel, default, early retirement, eurozone, France, French banks, German banks, Germany, Greece, Michael Lewis, pensions, PIIGs, President Hollande, selling islands, sovereign debt, tax evasion
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The results of a European Pew Research opinion survey among 8 nations reminded me of a dysfunctional family. As you look at the tables below from the Pew Report, you might think of Germany as the successful sibling, Greece as the “black sheep,” and the growing dissatisfaction with how the family makes a living.
1. Stereotyping in Europe
Who Works Hardest, Who’s Corrupt
| Views in: | Most Hardworking | Least Hardworking | Most Corrupt | Least Corrupt |
| Britain | Germany | Greece | Italy | Germany |
| France | Germany | Italy | Italy | Germany |
| Germany | Germany | Greece | Italy | Germany |
| Spain | Germany | Greece | Spain/Italy | Germany |
| Italy | Germany | Romania | Italy | Germany |
| Greece | Greece | Italy | Greece | Germany |
| Poland | Germany | Greece | Poland | Germany |
| Czech Rep. | Germany | Greece | Czech Rep. | Germany |
From Pew Research Center
2. Asked about whether they viewed Germany favorably, France, the Czech Republic, Poland, Spain, Britain and Italy resoundingly said yes. However, 78% of the Greeks who were surveyed said no. (p. 36)
3. Support For Free Market Declining
% Completely/mostly agree
| 2007 | 2010 | 2012 | 2010-2012 Change | |
| % | % | % | ||
| Britain | 72 | 64 | 61 | -3 |
| France | 56 | 67 | 58 | -9 |
| Germany | 65 | 73 | 69 | -4 |
| Spain | 67 | 62 | 47 | -15 |
| Italy | 73 | – | 50 | – |
| Greece | – | – | 44 | – |
| Poland | 68 | 68 | 53 | -15 |
| Czech Rep. | 59 | – | 50 | – |
From Pew Research Center
To see Pew’s conclusions and additional tables that are fascinating, here is the entire report, ”European Unity on the Rocks.” A second report, reflected by the following table, highlights the differences between US and European values. Please note that tables were directly copied from Pew.
Posted by: adminEcon
Tags: corruption, EU, EU crisis, European Union, eurozone, Germany, Greece, monetary union
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Analyzing more than 1.6 million putts, including Tiger Woods, 2 University of Pennsylvania economists concluded that professional golfers putt better when avoiding a bogey (a stroke over par) than when trying for a birdie (a stroke under par). The reason? Our brains are wired to worry more about loss than gain.
Writing in The New Yorker, financial journalist James Surowiecki relates loss aversion to Greece, Germany, and eurozone negotiations. Surowiecki points out that avoiding a Greek default and departure from the euro zone–a Grexit–would have a beneficial ripple. The Greek economy, the peripheral eurozone nations like Italy and Portugal, banks and Germany would benefit.
Rather than working together, though, Greece and Germany are ”fixated on what is fair.” And, because a fairness focus always biases us toward ourselves, our self-interest and what we perceive is right, neither Greece nor Germany is emphasizing the big picture. One sees austerity as huge unfairness. The other sees bailout as unfair assistance. Perceiving its own position as fair, each is engaging in loss aversion when it refuses to compromise.
Surowiecki says Europe needs to aim for what is possible–not what is fair.
And that returns us to golf. What is possible is like the birdie. It is a gain–a gain that golfers and politicians and voters pursue less vigorously than the bogey.
Starting with economics Nobel laureate, psychologist Daniel Kahneman, and his recent book, Thinking Fast and Slow, you might enjoy reading about the behavioral implications of loss aversion (Chapter 28). Particularly interesting, in How We Decide, journalist Jonah Lehrer takes loss aversion to investing. Also, the University of Pennsylvania putting study, “Is Tiger Woods Loss Averse?” is here and The New Yorker article on fairness in here. Keeping loss aversion in mind, here is a totally different perspective from CNN that says the eurozone solution is Germany’s departure and here, The Economist takes us to Spain’s banks.
Posted by: adminEcon
Tags: Daniel Kahneman, eurozone, fairness, Germany, Greece, Jonah Lehrer, loss aversion, Thinking Fast and Slow
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A British charitable trust has offered a hefty reward for the best eurozone break-up plan. Their goal? Improve and influence policy though a 250,000 pound ($393,430) incentive prize.
As I read through the finalists’ plans, the unfathomable complexity of unraveling the euro became increasingly apparent because each proposal had a different but crucial focus:
- One plan emphasized reconfiguration through which stronger and weaker economies formed separate groups.
- A second said we should “unscramble the euro eggs” by establishing 2 new currencies, a stronger “new euro white” and a weaker “new euro yolk,” each with predetermined values to avoid currency flight.
- A third approach was most concerned with legal jurisdiction over assets and obligations. With 17 sovereign nations, who would have the final say?
- For another proposal, timing and the details that would be implemented after a sudden German/French declaration were described. This plan said secrecy would be paramount, then the announcement, and then a weekly time table.
- Finally, a fifth finalist said the key was focusing on how the weaker nations should “default” and “devalue.”
The winner will be announced on July 5.*
Fascinating but lengthy, the plans can be read from the links in this Guardian article. Also, if you are interested in other incentive prizes, here is a chart from The Economist.
An update: Here is information about the winning entry:
Submitted by Capital Economics, the plan focused on the exit of a weaker country. Quoted from the Wolfson website, here are some specifics:
“The team’s submission, Leaving the euro: A practical guide, centres on the departure of a single weak member such as Greece. It suggests that:-
- A new currency is introduced at parity with the Euro on day 1 of an exit.
- All wages, prices, loans and deposits are redenominated into it 1 for 1.
- Euro notes and coins would remain in use for small transactions for up to six months.
- The exiting country would immediately announce a regime of inflation targeting, adopt a set of tough fiscal rules, monitored by a body of independent experts, outlaw wage indexation, and announce the issue of inflation-linked government bonds.”
Posted by: adminEcon
Tags: austerity, Belgium, break-up, default, devaluation, eurozone, Finland, France, Germany, Greece, incentive prizes, Netherlands, Wolfson Prize
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