1 of 4
1
Debtocracy, the Greek debt and Odious debt
Posted: 05 October 2011 01:05 PM   [ Ignore ]
Sr. Member
RankRankRankRankRankRankRankRankRankRank
Total Posts:  1906
Joined  2007-10-28

What is Debtocracy?

From the wiki on Debtocracy

Debtocracy (Greek: Χρεοκρατία hreokratía) is a 2011 documentary film by Katerina Kitidi and Aris Hatzistefanou. The documentary mainly focuses on two points: the causes of the Greek debt crisis in 2010 and possible future solutions that could be given to the problem that are not currently being considered by the government of the country.

The Greek debt:

The documentary asserts that the current debt of Greece is due to the nationalisation of failing private companies, the systematic failure of the state to tax fairly, the restrictions of the Maastricht treaty, the new loans that were issued to pay older debts and the current economic policies of Greece, the International Monetary Fund and the European Central Bank, which will result in an even higher debt, equal to 167% of the country’s GDP in 2013.

Solutions:

The solution suggested for the Greek crisis is the formation of a committee for the analysis of the debt in a similar way that Ecuador did. If the analysis proves all or part of the debt to be odious the people should not have to pay for it and therefore it should be erased.

What is Odious debt? From the wiki on Odious debt

In international law, odious debt is a legal theory that holds that the national debt incurred by a regime for purposes that do not serve the best interests of the nation, should not be enforceable. Such debts are, thus, considered by this doctrine to be personal debts of the regime that incurred them and not debts of the state. In some respects, the concept is analogous to the invalidity of contracts signed under coercion.

In other words, the regime should be solely accountable for its mismanagement of the finances of the country and not the people who should not be made to pay for the debt by austerity enforced by the regime.

 Signature 

I am, therefore I think.

Profile
 
 
Posted: 05 October 2011 06:04 PM   [ Ignore ]   [ # 1 ]
Moderator
RankRankRankRankRankRankRankRankRankRank
Total Posts:  5551
Joined  2010-06-16

Possibly, but the Greek citizens’ feeling that cheating on their taxes was acceptable certainly helped.  Very few of them paid anywhere near the amount they should have been assessed.  Agreed that the wealthy were probably the most egregious scofflaws, and the government and financial institutions were a main cause.  It’s pretty bad when a society that came up with some of the earliest works on ethics is falling because of its widespread loss of ethics.

Occam

 Signature 

Succinctness, clarity’s core.

Profile
 
 
Posted: 05 October 2011 06:30 PM   [ Ignore ]   [ # 2 ]
Sr. Member
Avatar
RankRankRankRankRankRankRankRankRankRank
Total Posts:  1995
Joined  2008-09-18

Inasmuch as the Greek government was democratically elected, the responsibility for its actions falls squarely upon the people. If the elections had been unfair or the government violated Greek law, the Greek people should prosecute the evildoers, but the responsibility for the debts still falls on the people.

Profile
 
 
Posted: 05 October 2011 11:02 PM   [ Ignore ]   [ # 3 ]
Sr. Member
RankRankRankRankRankRankRankRankRankRank
Total Posts:  1906
Joined  2007-10-28
Chris Crawford - 05 October 2011 06:30 PM

Inasmuch as the Greek government was democratically elected, the responsibility for its actions falls squarely upon the people. If the elections had been unfair or the government violated Greek law, the Greek people should prosecute the evildoers, but the responsibility for the debts still falls on the people.

Notwithstanding that the Greek government is democratically elected, it does not automatically mean that the people are ultimately responsible for the country’s debt even if the government deliberately or incompetently mismanaged the country’s finance/economy leading to near bankruptcy.

There is a case for odious debt.

From the wiki on Greece

Political, economic corruption and inefficient government:

The country suffers from high levels of political and economic corruption and low global competitiveness relative to its EU partners. The Greek economy faces significant problems, including rising unemployment levels and an inefficient government bureaucracy.

Government misrepresentation and excessive spending:

In early 2010, it was revealed that successive Greek governments had been found to have consistently and deliberately misreported the country’s official economic statistics to keep within the monetary union guidelines. This had enabled Greek governments to spend beyond their means, while hiding the actual deficit from the EU overseers.

And from this article HERE

A culture of corruption:

Under previous prime minister Costas Karamanlis’ administration from 2004-2009, there were so many scandals involving politicians and priests Greeks needed a score card to keep track, but almost nobody was convicted of anything.

Most corrupt state in the Eurozone:

In recent years Greece has dropped several notches on Transparency International’s corruption index and continues to rank as the most corrupt state in the Eurozone of the 16 countries which use the euro as their currency.

 Signature 

I am, therefore I think.

Profile
 
 
Posted: 05 October 2011 11:17 PM   [ Ignore ]   [ # 4 ]
Sr. Member
Avatar
RankRankRankRankRankRankRankRankRankRank
Total Posts:  4538
Joined  2007-08-31
kkwan - 05 October 2011 01:05 PM

Solutions:

The solution suggested for the Greek crisis is the formation of a committee for the analysis of the debt in a similar way that Ecuador did. If the analysis proves all or part of the debt to be odious the people should not have to pay for it and therefore it should be erased.

What is Odious debt? From the wiki on Odious debt

In international law, odious debt is a legal theory that holds that the national debt incurred by a regime for purposes that do not serve the best interests of the nation, should not be enforceable. Such debts are, thus, considered by this doctrine to be personal debts of the regime that incurred them and not debts of the state. In some respects, the concept is analogous to the invalidity of contracts signed under coercion.

In other words, the regime should be solely accountable for its mismanagement of the finances of the country and not the people who should not be made to pay for the debt by austerity enforced by the regime.

As they never will be able to pay back such a huge amount, many banks with Greek debts will fall, or must be saved by their Governments. The crisis will get deeper.

 Signature 

GdB

“The light is on, but there is nobody at home”

Profile
 
 
Posted: 05 October 2011 11:22 PM   [ Ignore ]   [ # 5 ]
Sr. Member
RankRankRankRankRankRankRankRankRankRank
Total Posts:  1906
Joined  2007-10-28
Occam. - 05 October 2011 06:04 PM

Possibly, but the Greek citizens’ feeling that cheating on their taxes was acceptable certainly helped.  Very few of them paid anywhere near the amount they should have been assessed.  Agreed that the wealthy were probably the most egregious scofflaws, and the government and financial institutions were a main cause.  It’s pretty bad when a society that came up with some of the earliest works on ethics is falling because of its widespread loss of ethics.

Yes, it is really tragic that Greece, the cradle of western democracy, moral values, philosophy, mathematics, science and culture has deteriorated to a culture of corruption….. the most corrupt state in the Eurozone.

However, there is a case for debtocracy and odious debt.

The creditors, by insisting on austerity without growth is actually punishing the people with a cure that is worse than the disease. The government does not suffer at all for their previous actions. This is outrageous.

 Signature 

I am, therefore I think.

Profile
 
 
Posted: 05 October 2011 11:48 PM   [ Ignore ]   [ # 6 ]
Sr. Member
RankRankRankRankRankRankRankRankRankRank
Total Posts:  1906
Joined  2007-10-28
GdB - 05 October 2011 11:17 PM

As they never will be able to pay back such a huge amount, many banks with Greek debts will fall, or must be saved by their Governments. The crisis will get deeper.

The Greek Debt in simple mathematics HERE

A controlled default is an option.

From the wiki HERE

Some economists have argued that, in the case of acute insolvency crises, it can be advisable for regulators and multilateral lenders to preemptively engineer the orderly restructuring of a nation’s public debt- also called “orderly default” or “controlled default”. In the case of Greece, these experts generally believe that a delay in organising an orderly default would wind up hurting the rest of Europe even more.

 Signature 

I am, therefore I think.

Profile
 
 
Posted: 06 October 2011 05:12 AM   [ Ignore ]   [ # 7 ]
Sr. Member
Avatar
RankRankRankRankRankRankRankRankRankRank
Total Posts:  4538
Joined  2007-08-31
kkwan - 05 October 2011 11:48 PM
GdB - 05 October 2011 11:17 PM

As they never will be able to pay back such a huge amount, many banks with Greek debts will fall, or must be saved by their Governments. The crisis will get deeper.

The Greek Debt in simple mathematics HERE

What has that to do with my point? I know how grave the situation is, and such an ‘orderly default’ is the only solution. Well, ‘solution’... Minimising the damage, its is.

By the way, why don’t you take the USA as example of a ‘debtocracy’? The USA is just exporting its problems because it has its own currency.

Public debt $14.72 trillion (Sep 2011)[8] 98% of GDP
Revenues   $2.162 trillion (2010)
Expenses   $3.456 trillion (2010)

By the way I am living in Switzerland!

Public debt 38.3% of GDP 2010
Revenues   $190.3 billion (2008 est.)
Expenses   $185.1 billion (2008 est.)

 Signature 

GdB

“The light is on, but there is nobody at home”

Profile
 
 
Posted: 06 October 2011 08:09 AM   [ Ignore ]   [ # 8 ]
Sr. Member
Avatar
RankRankRankRankRankRankRankRankRankRank
Total Posts:  1995
Joined  2008-09-18

I reject the application of odious debt to the Greek case. The government was democratic enough that the people had a viable option to elect governments capable of stamping out corruption. They did not do so. That was their decision, and this is the consequence of that decision.

Remember, we cannot think in unipolar terms about this: we have to consider all parties. That includes the banks that lent money to the Greek government. Now, had the Greek government been run by a military junta as it had been during the 1970s, then a bank lending money to that despotism would have to accept some responsibility for its actions. But the Greek government was a member of the Euro zone in good standing; banks had every reason to trust that government. It now turns out that the Greek government was engaging in some serious deception regarding its finances. The blame for this falls squarely on the Greek government, not the banks, and since Greece is a democracy, the Greek people must accept that responsibility.

There is also the matter of moral hazard. If the Germans bail out the Greeks, that establishes a precedent that only encourages more bad behavior.

Ultimately, however, this matter will be decided on the basis of politics. The northern Europeans—well, mostly the Germans—have already given the Greeks a lot of money to bail them out. They have reached their limit and I doubt that they will hand over any more money without the Greek people suffering some serious pain. If the Greeks don’t like the terms of the deal they’re offered, they can default or drop out of the Euro zone. It’s their choice. Either way, it’s going to cost them. I think that the rest of Europe should treat Greece as an opportunity to drive home to their own publics the dangers of “me first economics”. A Greek economic collapse now might well stave off much larger economic collapses in the future.

Profile
 
 
Posted: 06 October 2011 09:11 AM   [ Ignore ]   [ # 9 ]
Sr. Member
RankRankRankRankRankRankRankRankRankRank
Total Posts:  1906
Joined  2007-10-28
GdB - 06 October 2011 05:12 AM

What has that to do with my point? I know how grave the situation is, and such an ‘orderly default’ is the only solution. Well, ‘solution’... Minimising the damage, its is.

There is a more radical “solution”. Form the wiki on the European sovereign debt crisis

Two-currency speculation:

Bloomberg has suggested that, if the Greek and Irish bailouts should fail, an alternative is for Germany to leave the eurozone in order to save the currency through depreciation instead of austerity. The Wall Street Journal conjectures that Germany could return to the Deutsche Mark, or create another currency union with the Netherlands, Austria, Finland, and other European countries that have a positive current account balance, such as Denmark, Norway, Sweden, and the Baltics. A monetary union of these seven or more current account surplus countries would create the world’s largest creditor bloc that is bigger than China or Japan.

Reducing the dollar’s Triffin dilemma wrt international usage of the euro:

In order to reduce the dollar’s Triffin dilemma and become a more influential currency union, the eurozone must do the following. First, let the German-led bloc exit the eurozone orderly. Second, give up the stability mandate copied from the Bundesbank, in order to purchase government debts of Greece, Italy, and the other indebted countries. Third, import more goods and export more of the currency overseas. And fourth, build economic governance and fiscal union in the leftover eurozone. The German-led bloc will be less inflationary than the euro, but it will not be as widely used internationally as the euro. This two-currency system can benefit all of Europe, dependent on the political or economic goals of each EU member state, that is stability versus international usage.

This more radical “solution” will be less painful to Greece and others than just austerity.

By the way, why don’t you take the USA as example of a ‘debtocracy’? The USA is just exporting its problems because it has its own currency.

Public debt $14.72 trillion (Sep 2011)[8] 98% of GDP
Revenues   $2.162 trillion (2010)
Expenses   $3.456 trillion (2010)

By the way I am living in Switzerland!

Public debt 38.3% of GDP 2010
Revenues   $190.3 billion (2008 est.)
Expenses   $185.1 billion (2008 est.)

The US is also a debtocracy with its sub-prime loans disaster and spending at least $1.2 trillion in two wars, in Afghanistan and Iraq. However the US is not on the brink of default and neither is it bankrupt because it is “the best horse in the glue factory”.  smile

From this article HERE

Why? According to a friend of mine, the US is “the best horse in the glue factory.” This is mostly due to the size of the treasury market. Large investors, for example China, have very few other options because they need to invest hundreds of billions of dollars. Even for smaller investors it is often easier to buy a US treasury than, say, a Finnish government bond because the treasury market is so much more liquid.

In other words, if one has trillions to invest, the US is still the best place to invest.

The high indebtedness of the US and what it can do:

The US can always print more dollars. As long as Washington is willing, there is no real risk of default in the sense of not making payments. The default will occur slowly via devaluing the dollar and internal inflation. Both of these are bad for long-term bond holders.

Not only is the dollar the US national currency, it is also the international reserve currency as well. So, if and when another QE is necessary to create more money it further devalues the dollar, which is good for export. Also, it amounts to inflating away its debt. The Triffin dilemma works in its favor.  grin

What is the Triffin dilemma? From the wiki HERE

The Triffin dilemma (or the Triffin paradox) is a theory that when a national currency also serves as an international reserve currency, there could be conflicts of interest between short-term domestic and long-term international economic objectives.

No other country, (including Switzerland with its prudent financial and debt management) can do that. That’s the way the cookie crumbles, from Bretton Woods to the Nixon shock.  LOL

 Signature 

I am, therefore I think.

Profile
 
 
Posted: 06 October 2011 09:44 AM   [ Ignore ]   [ # 10 ]
Sr. Member
RankRankRankRankRankRankRankRankRankRank
Total Posts:  1906
Joined  2007-10-28
Chris Crawford - 06 October 2011 08:09 AM

I reject the application of odious debt to the Greek case. The government was democratic enough that the people had a viable option to elect governments capable of stamping out corruption. They did not do so. That was their decision, and this is the consequence of that decision.

This is the chicken or the egg first conundrum. In order to stamp out corruption, there must be incorruptible politicians and institutions. If all the politicians and institutions are corrupt, how can any corruption be stamped out at all?

Remember, we cannot think in unipolar terms about this: we have to consider all parties. That includes the banks that lent money to the Greek government. Now, had the Greek government been run by a military junta as it had been during the 1970s, then a bank lending money to that despotism would have to accept some responsibility for its actions. But the Greek government was a member of the Euro zone in good standing; banks had every reason to trust that government. It now turns out that the Greek government was engaging in some serious deception regarding its finances. The blame for this falls squarely on the Greek government, not the banks, and since Greece is a democracy, the Greek people must accept that responsibility.

Firstly, we must consider that Greece is a corrupt democracy and as such the corrupt government did not act in the best interest of the people. Therefore, the people cannot be held responsible if the government is to be blamed for their deception and over spending.

There is also the matter of moral hazard. If the Germans bail out the Greeks, that establishes a precedent that only encourages more bad behavior.

Ultimately, however, this matter will be decided on the basis of politics. The northern Europeans—well, mostly the Germans—have already given the Greeks a lot of money to bail them out. They have reached their limit and I doubt that they will hand over any more money without the Greek people suffering some serious pain. If the Greeks don’t like the terms of the deal they’re offered, they can default or drop out of the Euro zone. It’s their choice. Either way, it’s going to cost them. I think that the rest of Europe should treat Greece as an opportunity to drive home to their own publics the dangers of “me first economics”. A Greek economic collapse now might well stave off much larger economic collapses in the future.

The alternative is for Germany to leave the Eurozone instead if they insist on austerity without hope of any recovery for Greece.

 Signature 

I am, therefore I think.

Profile
 
 
Posted: 06 October 2011 09:58 AM   [ Ignore ]   [ # 11 ]
Sr. Member
Avatar
RankRankRankRankRankRankRankRankRankRank
Total Posts:  1995
Joined  2008-09-18

This is the chicken or the egg first conundrum. In order to stamp out corruption, there must be incorruptible politicians and institutions. If all the politicians and institutions are corrupt, how can any corruption be stamped out at all?

Compare with your statement:

Firstly, we must consider that Greece is a corrupt democracy

How did you know that Greece is a corrupt democracy? Through the news, right? I knew that Greece is a corrupt democracy; the whole world knew that Greece is a corrupt democracy. Ergo, the Greeks knew that Greece is a corrupt democracy. Either there wasn’t a single person in all of Greece who was willing to run for office on an anti-corruption platform, or few such candidates were elected. In either case, the responsibility for the corruption still falls squarely on the shoulders of the Greek people.

Compare with American responsibility for the invasion of Iraq. Can Americans evade responsibility for the hundreds of thousands of Iraqis who died because of the invasion? I don’t think so. I voted against Mr. Bush in both elections, yet I cannot deny the small amount of blood on my hands. Would you excuse the American people because Mr. Bush was evil?

The alternative is for Germany to leave the Eurozone instead if they insist on austerity without hope of any recovery for Greece.

Not quite: they insist on austerity as part of a deal in which they give billions of dollars of Germans’ money to Greeks. If the Greeks don’t want the money, they can reject the deal and collapse.

Profile
 
 
Posted: 06 October 2011 07:27 PM   [ Ignore ]   [ # 12 ]
Sr. Member
RankRankRankRankRankRankRankRankRankRank
Total Posts:  1906
Joined  2007-10-28
Chris Crawford - 06 October 2011 09:58 AM

How did you know that Greece is a corrupt democracy? Through the news, right? I knew that Greece is a corrupt democracy; the whole world knew that Greece is a corrupt democracy. Ergo, the Greeks knew that Greece is a corrupt democracy. Either there wasn’t a single person in all of Greece who was willing to run for office on an anti-corruption platform, or few such candidates were elected. In either case, the responsibility for the corruption still falls squarely on the shoulders of the Greek people.

In a country with such high corruption, an honest candidate would either not get enough votes and even if she did (as one rose among the thorns), she can do virtually nothing to change the status quo.  It does not follow that the burden of responsibility must fall ultimately on the people if the prevailing corrupt culture makes them powerless. The government is the key to initiate change, but it did not or will not choose to do so because it is corrupt.

Compare with American responsibility for the invasion of Iraq. Can Americans evade responsibility for the hundreds of thousands of Iraqis who died because of the invasion? I don’t think so. I voted against Mr. Bush in both elections, yet I cannot deny the small amount of blood on my hands. Would you excuse the American people because Mr. Bush was evil?

Just because the US administration chose to invade Iraq when Bush was president does not mean every American had a hand in killing Iraqis. It is a fact that many Americans, like you, did not agree but they were overruled. It does not make sense that collectively, all Americans are therefore responsible for the killing of Iraqis. Clearly, if x is evil and kills, y cannot be held responsible for the actions of x.

Not quite: they insist on austerity as part of a deal in which they give billions of dollars of Germans’ money to Greeks. If the Greeks don’t want the money, they can reject the deal and collapse.

If Greece go into uncontrolled default now, many banks will collapse, Spain and Italy might also default and all of Europe, including Germany, will be seriously affected as well.

Incidentally, from this article at the NYT

The European Central Bank increased aid to cash-strapped financial institutions Thursday, but disappointed those expecting more drastic measures to combat slowing growth and address a deepening bank emergency.

OTOH, the Bank of England was more forceful with another round of QE:

The E.C.B.’s restraint came in contrast to the action of the Bank of England, which announced another round of bond buying to support the slowing British economy. The pound fell against all major currencies after the announcement; the euro rose against the dollar

.

 Signature 

I am, therefore I think.

Profile
 
 
Posted: 06 October 2011 09:27 PM   [ Ignore ]   [ # 13 ]
Sr. Member
Avatar
RankRankRankRankRankRankRankRankRankRank
Total Posts:  1995
Joined  2008-09-18

Well, kkwan, I think we’ve reached an impasse on the question of the responsibilities of the citizenry. You think that governments deserve the blame for their actions, I think that the people deserve the blame for the actions of a democratically elected government. We can quibble about how close to perfection any democracy can be, but I’m sure that we can both agree that the Greek government was democratically elected. In any case, any moralizing that you and I can do is irrelevant to what will actually happen. I agree that the German government is facing a nasty dilemma. As you point out, if they cut Greece loose, there will be a lot of serious economic consequences for Germany. On the other hand, if they bail Greece out yet again, they might just end up bailing out everybody. The Germans are asking themselves whether they’d be better off forming their own currency union with the fiscally responsible governments of northern Europe. The Deutschmark was a solid currency before the euro; a new Deutschmark would probably be every bit as solid. It’s a question of short-term pain versus long-term gain, and I do not envy the position in which the German people find themselves. I myself would not know what to do in their place. My uninformed opinion is that, in their place, I’d pretty much do what they’re doing: offer the Greeks a bailout with very tough terms requiring genuine, fundamental reform and economic restructuring. If the Greeks turned down the offer, I’d let them collapse and prepare to depart the euro zone.

Profile
 
 
Posted: 06 October 2011 11:23 PM   [ Ignore ]   [ # 14 ]
Sr. Member
Avatar
RankRankRankRankRankRankRankRankRankRank
Total Posts:  4538
Joined  2007-08-31

kkwan,

Just think about the consequences of one country (Greece or Germany, for opposite reasons) leaving the Eurozone. This cannot be done in a day! There are no Greek or German Euros with a one to one exchange value, that can be changed. They are all the same euros. Think about what people/companies/banks would do… You are, so think about it…

 Signature 

GdB

“The light is on, but there is nobody at home”

Profile
 
 
Posted: 07 October 2011 08:23 AM   [ Ignore ]   [ # 15 ]
Sr. Member
RankRankRankRankRankRankRankRankRankRank
Total Posts:  1397
Joined  2010-04-22
kkwan - 05 October 2011 11:22 PM

The creditors, by insisting on austerity without growth is actually punishing the people with a cure that is worse than the disease. The government does not suffer at all for their previous actions. This is outrageous.

I agree with Chris, that odious debt can’t apply to Greece. There isn’t actually a regime change, for one thing, so the difference between Greece and a regime is inconsequential. Also, how do you punish the regime? If it’s out of power, you can’t because it presumably doesn’t exist any more. If it is still in power, the punishment can only be to overthrow it . . . are you suggesting that western Europe militarily invade Greece and install a different government?

 Signature 

“All musicians are subconsciously mathematicians.”

- Thelonious Monk

Profile
 
 
   
1 of 4
1