Best of the Week
Most Popular
1. Five Charts That Show We Are on the Brink of an Unthinkable Financial Crisis- John_Mauldin
2.Bitcoin Parabolic Mania - Zeal_LLC
3.Bitcoin Doesn’t Exist – 2 - Raul_I_Meijer
4.Best Time / Month of Year to BUY a USED Car is DECEMBER, UK Analysis - Nadeem_Walayat
5.Labour Sheffield City Council Election Panic Could Prompt Suspension of Tree Felling's Private Security - N_Walayat
6.War on Gold Intensifies: It Betrays the Elitists’ Panic and Augurs Their Coming Defeat Part2 - Stewart_Dougherty
7.How High Will Gold Go? - Harry_Dent
8.Bitcoin Doesn’t Exist – Forks and Mad Max - Raul_I_Meijer
9.UK Stagflation Risk As Inflation Hits 3.1% and House Prices Fall - GoldCore
10.New EU Rules For Cross-Border Cash, Gold Bullion Movements - GoldCore
Last 7 days
Jim Rickards: Next Financial Panic Will Be the Biggest of All, with Only One Place to Turn… - 20th Jan 18
Macro Trend Changes for Gold in 2018 and Beyond - Empire Club of Canada - 20th Jan 18
Top 5 Trader Information Sources for Timely, Successful Investing - 20th Jan 18
Bond Market Bear Creating Gold Bull Market - 19th Jan 18
Gold Stocks GDX $25 Breakout on Earnings - 19th Jan 18
SPX is Higher But No Breakout - 19th Jan 18
Game Changer for Bitcoin - 19th Jan 18
Upside Risk for Gold in 2018 - 19th Jan 18
Money Minute - A 60-second snapshot of the UK Economy - 19th Jan 18
Discovery Sport Real MPG Fuel Economy Vs Land Rover 53.3 MPG Sales Pitch - 19th Jan 18
For Americans Buying Gold and Silver: Still a Big U.S. Pricing Advantage - 19th Jan 18
5 Maps And Charts That Predict Geopolitical Trends In 2018 - 19th Jan 18
North Korean Quagmire: Part 2. Bombing, Nuclear Threats, and Resolution - 19th Jan 18
Complete Guide On Forex Trading Market - 19th Jan 18
Bitcoin Crash Sees Flight To Physical Gold Coins and Bars - 18th Jan 18
The Interest Rates Are What Matter In This Market - 18th Jan 18
Crude Oil Sweat, Blood and Tears - 18th Jan 18
Land Rover Discovery Sport - Week 3 HSE Black Test Review - 18th Jan 18
The North Korea Quagmire: Part 1, A Contest of Colonialism and Communism - 18th Jan 18
Understand Currency Trade and Make Plenty of Money - 18th Jan 18
Bitcoin Price Crash Below $10,000. What's Next? We have answers… - 18th Jan 18
How to Trade Gold During Second Half of January, Daily Cycle Prediction - 18th Jan 18
More U.S. States Are Knocking Down Gold & Silver Barriers - 18th Jan 18
5 Economic Predictions for 2018 - 18th Jan 18
Land Rover Discovery Sport - What You Need to Know Before Buying - Owning Week 2 - 17th Jan 18
Bitcoin and Stock Prices, Both Symptoms of Speculative Extremes! - 17th Jan 18
So That’s What Stock Market Volatility Looks Like - 17th Jan 18
Tips On Choosing the Right Forex Dealer - 17th Jan 18
Crude Oil is Starting 2018 Strong but there's Undeniable Risk to the Downside - 16th Jan 18
SPX, NDX, INDU and RUT Stock Indices all at Resistance Levels - 16th Jan 18
Silver Prices To Surge – JP Morgan Has Acquired A “Massive Quantity of Physical Silver” - 16th Jan 18
Carillion Bankruptcy and the PFI Sector Spiraling Costs Crisis, Amey, G4S, Balfour Beatty, Serco.... - 16th Jan 18
Artificial Intelligence - Extermination of Humanity - 16th Jan 18
Carillion Goes Bust, as Government Refuses to Bailout PFI Contractors Debt and Pensions Liabilities - 15th Jan 18
What Really Happens in Iran?  - 15th Jan 18
Stock Market Near an Intermediate Top? - 15th Jan 18
The Key Economic Indicator You Should Watch in 2018 - 15th Jan 18
London Property Market Crash Looms As Prices Drop To 2 1/2 Year Low - 15th Jan 18
Some Fascinating Stock Market Fibonacci Relationships... - 15th Jan 18
How to Know If This Stock Market Rally Will Continue for Two More Months? - 14th Jan 18
Everything SMIGGLE from Pencil Cases to Water Bottles, Pens and Springs! - 14th Jan 18
Land Rover Discovery Sport Very Bad MPG Fuel Economy! Real Owner's Review - 14th Jan 18
Gold Miners’ Status Updated - 13th Jan 18
Gold And Silver – Review of Annual, Qrtly, Monthly, Weekly Charts. Reality v Sentiment - 13th Jan 18
Gold GLD ETF Update.. Bear Market Reversal Watch - 13th Jan 18
Stock Market Leadership In 2018 To Come From Oil & Gas - 13th Jan 18
Stock Market Primed for a Reversal - 13th Jan 18
Live Trading Webinar: Discover 3 High-Confidence Trade Set-Ups - 13th Jan 18
Optimum Entry Point for Gold and Silver Stocks - 12th Jan 18
Stock Selloffs Great for Gold - 12th Jan 18
These 3 Facts Show Gold Is Set to Surge in 2018 - 12th Jan 18
How China is Locking Up Critical Resources in the US’s Own Backyard - 12th Jan 18
Stock futures are struggling. May reverse Today - 12th Jan 18
Three Surprising Places You See Cryptocurrency - 12th Jan 18
Semi Seconductor Stocks Canary Still Chirping, But He’s Gonna Croak in 2018 - 12th Jan 18
Land Rover Discovery Sport Panoramic Sunroof Questions Answered - 12th Jan 18
Information About Trading With Alpari And Its Advantages - 12th Jan 18

Market Oracle FREE Newsletter

6 Critical Money Making Rules

Greece- What Happens When Economists Talk Politics

Economics / Eurozone Debt Crisis Jul 29, 2015 - 10:51 AM GMT

By: Raul_I_Meijer

Economics

As the “Varoufakis Files” provide everyone interested in the Greek tragi-comedy with an additional million pages of intriguing fodder -we all really needed that added layer of murky conspiracy, re: the Watergate tapes-, a different question has been playing in my head. Again. That is: Why are economists discussing politics? 

Why are the now 6 month long Greece vs Troika discussions being conducted by the people who conduct them? All parties involved are apparently free to send to the table whoever they want, and while that seems nice and democratic, it doesn’t necessarily make it the best possible idea. To, in our view, put it mildly.


For perspective, please allow me to go back to something I wrote 3,5 months ago, May 12 2015:

Greece Is Now Just A Political Issue 

[..] the EU/troika anno 2010 decided to bail out German and French and Wall Street banks (I know there’s an overlap) – instead of restructuring the debts they incurred with insane bets on Greece and its EU membership- and put the costs squarely on the shoulders of the Greek population.

This, as I said many times before, was not an economic decision; it was always entirely political. It’s also, by the way, therefore a decision the ECB should have fiercely protested, since it’s independent and a-political and it can’t afford to be dragged into such situations. But the ECB didn’t protest. [..]

The troika wants the Syriza government to execute things that run counter to their election promises. No matter how many people point out the failures of austerity measures as they are currently being implemented in various countries, the troika insists on more austerity. Even as they know full well Syriza can’t give them that because of its mandate. Let alone its morals.

It’s a power game. It’s a political game. It always was. But still it has invariably been presented by both the –international- press and the troika as an economic problem. Which has us wondering why this statement by ECB member and Austrian central bank head Ewald Nowotny yesterday, hasn’t invited more attention and scrutiny:

ECB’s Nowotny: Greece’s Problem Isn’t Economic 

The Greek problem is more a political question than an economic one, a member of the European Central Bank said Monday. Discussions with political parties such as Greece’s left-wing Syriza and Spain’s Podemos may be refreshing by bringing in new ideas, “but at the end of the day, they must [end in] results,” ECB member Ewald Nowotny said, adding discussions are “not about playing games.” 

The central banker declined to speculate on how to solve Greece’s financial problem saying the issue “is much more a political question than an economic question.” Mr. Nowotny also doesn’t see the ECB’s role as creating a federalized financial government inside the euro zone. “We cannot substitute the political sphere,” he said. 

That seems, from where we’re located, to change the discussion quite a bit. Starting with the role of the ECB itself. Because, for one thing, and this doesn’t seem to be clear yet, if the Greek problem is all politics, as the central bank member himself says, there is no role for a central bank in the discussions. If Greece is a political question, the ECB should take its hands off the whole Greek issue, because as a central bank, it’s independent and that means it’s a-political.

The ECB should provide money for Greece when it asks for it, since there is no other central bank to provide the lender of last resort function for the country. Until perhaps Brussels calls a stop to this, but that in itself is problematic because it would be a political decision forced on an independent central bank once again. It would be better if the ‘union’, i.e. the other members, would make available what Greece needs, but they -seem to- think they’re just not that much of a union.

In their view, they’re a union only when times are good. And/or when all major banks have been bailed out; the people can then fight over the leftover scraps.

The IMF has stated they don’t want to be part of a third Greek bailout. Hardly anyone seems to notice anymore, but that makes the IMF a party to political decisions too. Lagarde et al claim they can’t loan to countries that don’t take the ‘right’ measures, but who decides which measures are the right ones? [..] Moreover, if we take Mr. Nowotny on his word, why are there still finance ministers and economists involved in the Greek issue negotiations? Doesn’t that only simply lead to confusion and delay?

It seemed crystal clear to me then, and does even more so today, but nothing has really changed, other than Greece having replaced one economist with another as finance minister. Which never really could help discussions in the eurogroup alone, because, as Ian Parker writes in his long must read “V” (for Vendetta) portrait, the rest of them are still not economists, and therefore have no appetite for discussing matters from that angle:

The Greek Warrior

At the level of the Eurogroup, Varoufakis told me, the conversation was “all about the rules.” It was not a forum in which to discuss debt unsustainability, or the rarity of economic growth under austerity conditions. Varoufakis told me that he was “accused of talking about economics.” Once, Varoufakis was asked what Greece’s target surplus should be, if not 4.5% of GDP. He “had to give a lecture” about the variables that made the question unanswerable in that form. “They’re not economists,” Varoufakis said. “Most of them are lawyers.”

At a certain point, it’s hard to escape the idea that it’s all like if you have a politically volatile discussion about building an airport, or ‘just’ a runway (commonplace issues), and the entire discussion is controlled by architects, or builders, instead of politicians. It makes no sense, and it can only possibly lead to undesirable outcomes. Because you got the wrong people in the wrong venue.

Moreover, unlike architecture, economics has huge credibility issues to begin with. Which is why politicians need to provide very specific instructions to their economists, or the entire exercise risks being watered down in no time to a battle between one economic stream of faith vs another. Keynes vs Mises, that kind of thing.

If we can agree with Nowotny (and I very much do) that this is a political issue, it’s the politicians who should make the decisions, on political grounds, and the economists should fill in the specifics after the fact. 

Economists, and eventually lawyers, should fill in the details, but lawyers and economists posing as finance ministers should not be left in charge of the political decisions.

And no, here’s looking at Athens, naming an economist as finance minister does not make him a politician. Nor should it. An economist has his/her own place in the proceedings. But then, that’s where we hit upon the major conundrum: what makes a body a politician? 

Turns out, that’s a hard one to answer. Because anyone can pretend to be a politician, and many do pretend just that. But how then, when we can agree that a certain issue is a political rather than an economical one, do we select the proper people to make decisions on the issue?

The simplest bit of deduction teaches us that putting economist Yanis Varoufakis on opposite ends of the same table with eurogroup finance ministers who are lawyers and don’t know diddly-squat about economics, doesn’t work. All a lawyer knows how to do is point to pre-conceived rules and regulations. It’s what lawyers do, it’s what enabled them to get their law degree.

But you might as well put a Chinese farmer and a West Virginia gun dealer together. They don’t speak the same language. Other then perhaps possibly that of compassion, but that’s the one quality lawyers are sure to lack once they get to be finance ministers.

Still, once you acknowledge that something is a political issue, you must make sure that only political arguments drive the talks, not economic ones, not even legal ones. And that’s what seems to be the little big 800-pound thingy, doesn’t it? They all just choose to pretend they speak the same language even if they know they don’t.

So all the eurogroup only possibly can do is to vent as little flexibility as possible. If they veer even an inch off the prescribed path, they would be instantly lost. Lawyers…

But that also, and very much so, means we need to wonder why Syriza insisted on prolonging the eurogroup talks all this time. The eurogroup, whatever it may be, and whatever we may think of it, is not a political forum. It’s evidently not an economic one, either, but that’s another story altogether. 

Why did Varoufakis go back into that forum time after time, even after Nowotny said what he did? He must have known from that moment, and long before, that as an economist he had nothing to gain there. He might as well have sent his cleaning lady. And she might have come up with a better result to boot.

Why did Syriza never insist that the people involved be changed, and the venue, to be limited to Merkel and Hollande and Tsipras? 

The question that lingers is why these talks are set up the way they are, where failure is all but certain. Is that intentional, as in where the lawyers are sent in because they are supposed to halt all sensible discussion no matter what? 

Or, arguably more interesting, is it that when it comes to purely political issues, nobody really knows who to put forward? Who can really discuss exclusively political issues other than actual political leaders?

Well, we know it’s not economists, and we can count out cleaning ladies (though we could get lucky). We also know we shouldn’t let lawyers do the trick. They’re too narrow in their range. So who? I would almost say there’s no-one, but that automatically leads to the only possible option: the highest political ‘functionaries’. 

Which in the case of the Troika vs Greece means Merkel, Hollande, perhaps Renzi, and Tsipras. The people who’ve been elected (or quasi) to be their nations’ top-notch political leaders. No Dijsselbloem, or Schäuble, or any of those guys. No Varoufakis either.

The ECB is both a participant in the talks and a creditor, a stakeholder. That pushes it painfully close to being a political participant, something a central bank should never ever be. 

But the breaching of red lines and grey areas has become so ubiquitous in the whole ‘discussion’ that nobody seems to notice anymore, or wants to notice, for that matter.

The same goes for the role of the IMF. What do they think they’re doing? The Fund should stay far away from any political discussion, or it loses its credibility.

Both the ECB and the IMF try to keep up the illusion that their decisions are a-political and within their respective mandates, but that idea can only be maintained if and when the Greece issue were an economical one. We’ve already seen it’s not.

We end up concluding that the entire process has been a disaster, unless one’s aim from the get-go was to gut the Greek economy even more, and the outcome is -therefore- a disaster too. 

But it’s still economists who keep holding the talks. The “technical experts” from the Troika that re-enter Athens as we speak may be a bit more knowledgeable when it comes to economics that the EU finance ministers, but still, they are loaded with their own issues.

If I were Tsipras I’d refuse to have any of my people talk to any Troika ‘negotiators’ from here on in, and insist on direct talks with Merkel and Hollande only (I’d have done that a long time ago, too). See what the real intentions are amongst those that have real power, and only after that, have staff, like economists and lawyers, discuss specifics and fill in details. 

Things have been moving the 180º other way around now, and it could never even possibly have led to a positive result. You can’t start with the details.

Here’s still wondering why they all insist on doing things that way. Isn’t it obvious? Or has the whole thing simply been intentional all along?

Oh, and before I forget, most commentaries on the Greek issue in the media also come from economists. Some of those are palatable, even smart. But at the same time, they haven’t yet gotten the message either: it’s all about politics. If it were just economics, Greece would be solved in 2 seconds flat.

But it’s not. And there’s a reason for that which lies way beyond economics.

By Raul Ilargi Meijer

Website: http://theautomaticearth.com (provides unique analysis of economics, finance, politics and social dynamics in the context of Complexity Theory)

© 2015 Copyright Raul I Meijer - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Raul Ilargi Meijer Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules