If the current Greek proposal is actually the one being published just about everywhere, they might as well sign it in the replica of Marshal Foch's carriage in Compiègne. It's even worse than the one they had their referendum on.

As if that wasn't bad enough, Jamie Galbraith substantiated AEP's claim that the referendum was horseshit to begin with.

They screwed the pooch, even I'd agree to that if they were to accept this unconditional surrender. The anti-austerity movement on the left would be compromised to such a degree, leaving only the anti-EU forces of the right credible in their opposition to austerity. The recession cult will have their permanent austerity -- and the bigots will have their revival of nationalism.

First of all, Flassbeck is the only(!) prominent economist in Germany arguing strictly against the madness of austerity. But he's living in the border region between France and Switzerland, so he's a European more than a German.

Among all the economic think tanks in Germany, only the union-sponsored IMK makes a credible case against this madness. Everyone else is more or less in line with the neoclassic perspective. Not a Keynesian in sight, much less a post-Keynesian group.

But now to the meat of the issue. There will be no major political shift in Germany in the near future. As Flassbeck stated, only a single party opposes the financial inquisition commonly known as the Troika. Unfortunatly, it's the socialists, and despite overwhelmingly popular policies, they are still an absolute no-go for large swaths of the demos thanks to the authoritarian regime in East Germany. Sucks, but it is what it is.

So it's up to the French people once again to save the continent from itself. Noone else has the balls or the influence to put an end to this misguided union. How likely is it for the French government to openly challenge German hegemony soon? I wouldn't bet on it. Which means the Greeks are fuuuucked².

In any case, what would it take for Greece to stabilise? And by stabilise I'm talking about a return to a manageable level of unemployment, a working healthcare system and social safety net. A conservative guesstimate would be a public deficit of ~10% of GDP for at least 5 straight years. Alternatively, the EIB would have to prop up Greece with €50b a year for the same number of years. To get a working bureaucracy, to undo four decades of nepotism, Greece would basically need a generation to reestablish itself as a state – and it would require appropriate financing.

Now remember which of Syriza's demands is painted as most controversial right now: debt restructuring. Debt restructuring, while neccessary at some point, is entirely pointless as long as the fiscal policy remains contractionary. Greece needs austerity to stop, right the fuck now. Greece needs to provide income-generating jobs for its people. All the talk about debt is utterly pointless, because at 25% unemployment, we're looking at permanent damage in every way imaginable. The social toll alone should be completely unacceptable within Europe if we truly gave two shits about human dignity.

So, even if Syriza get their way tomorrow, Greece would still be flushed down the shitter. Syriza's proposal is contractionary. Any primary surplus in this situation is contractionary.

Greece is done within the Euro. The use of a foreign currency makes it impossible to use appropriate fiscal policy on their own. Unfortunatly, but also intentionally, the currency issuer, the ECB, is placed outside the democratic control of the European Parliament, or any national parliament for that matter. Fiscal policy within the EZ was taken out of the control of our elected representatives to ensure that the neoclassic/neoliberal approach was irrevocably built into the system. We can thank Germany for that, by the way.

There is a shortage of spending in Greece. There is a shortage of spending in Spain. There is a shortage of spending in Portugal, Ireland, Italy, France. There is a shortage of spending in Germany, for fuck's sake. Put the ECB under control of the EP, add full employment (2-3% unemployment) to its mandate, and have them finance the appropriate programs at the national level. The output gap in Europe is so massive, the un(der)employment so vast, they could spend a trillion Euros and inflation would still not reach the agreed upon target value of 2%.

All it would take to change the rules is consent from every national parliament in the union. Might as well go skinny-dipping instead.

Haven't seen this one in circulation yet:

Dear Chancellor Merkel,

The never-ending austerity that Europe is force-feeding the Greek people is simply not working. Now Greece has loudly said no more.

As most of the world knew it would, austerity has crushed the Greek economy, led to mass unemployment, a collapse of the banking system, made the external debt crisis far worse, with the debt problem escalating to an unpayable 175% of GDP. The economy now lies broken with tax receipts nose-diving, output and employment depressed, and businesses starved of capital.

The humanitarian impact has been colossal – 40% of children now live in poverty, infant mortality is sky-rocketing and youth unemployment is close to 50%. Corruption, tax evasion and bad accounting by previous Greek governments helped create the debt problem. But the series of so-called adjustment programs has served only to make a Great Depression the likes of which have been unseen in Europe since 1929-1933. The medicine prescribed by the German Finance Ministry and Brussels has bled the patient, not cured the disease.

Together we urge you to lead Europe to a course correction before it is too late for Greece and for the Eurozone. Right now, the Greek government is being asked to put a gun to its head and pull the trigger. Sadly, the bullet will not only kill off Greece’s future in Europe. The collateral damage will kill the Eurozone as a beacon of hope, prosperity, and democracy, and could lead to far-reaching economic consequences across the world.

In the 1950s Europe was founded on the forgiveness of past debts, notably Germany’s, which generated a massive contribution to post-war economic growth, peace, and democracy. Today we need to restructure and reduce Greek debt, give the economy breathing room to recover, and allow Greece to pay off a reduced burden of debt over a long period of time. Now is the time for a humane rethink of the punitive and failed programme of austerity of recent years and to agree to a major reduction of Greece’s debts in conjunction with much needed reforms in Greece.

We urge you to take this vital action of leadership for Greece and Germany, and also for the world. History will remember you for your actions this week. We expect and count on you to provide the bold and generous steps towards Greece that will serve Europe for generations to come.

Yours sincerely,

Heiner Flassbeck, former State Secretary in the German Federal Ministry of Finance;

Thomas Piketty, Professor of Economics at the Paris School of Economics;

Jeffrey D. Sachs, Professor of Sustainable Development, Professor of Health Policy and Management, and Director of the Earth Institute at Columbia University;

Dani Rodrik, Albert O. Hirschman Professor of Social Sciences at the Institute for Advanced Study in Princeton;

Simon Wren-Lewis, Professor of economics, Blavatnik School of Government, Oxford University

Tbh, it pains me that a result like this happened AFTER a referendum on voting reform. If more people had realised that voting for the 3rd/4th/5th party was going to result in a majority Tory government with only a 1/3 of the votes maybe less people would have listened to Labour/Conservatives propaganda.

It's pretty funny how maybe a decade ago this narrow of a win would have been reported as vote of no-confidence for any party. This time around it seemed people were so relieved to not have a hung parliament that they seem to have let the blues off the hook completely while they enact their bonkers plans for austerity without a real mandate from the people.

ps. I totally predicted the election result and I'd just like to tell all those political pundits that I am ready to accept their resignation and yes I told ya so.

There are depressingly few journalists who call Osbourne out on his permanent-surplus horseshit....

While we're on the subject, the rhetoric from the left flank of Syriza against austerity seems to be shifting from failed policy to tool of class warfare. Or maybe it's just getting reported more prominently.

The IMF, and Lagarde especially, is also receiving more heat by the day for letting themselves get dragged into this troika business by Strauss-Kahn.

Yet in all this, there still isn't anyone willing to pull the trigger.

They all try to appease the mighty gods of the economy, with austerity chosen as their way of showing penance.

The next announcement should be that any downturn in the economy is the fault of Labour, and that the solution is more austerity!

Last week Tsipras put out a rather dejected sounding press release that I thought meant they were ready to raise the white flag, but just after that thing returned to normal

I think there are two factors at play over the primary surplus, firstly the creditors are in no mood to lend more money to help Greece's recovery, and secondly the primary surplus promised by Greece is, at least to start with, so small that any possible contraction would be more of a rounding error.

I was a little bemused to read this http://gu.com/p/49h6n/stw article on the UK's voluntary austerity. If you look at where they're spending money (tax cuts for the rich, who don't spend money) and where they're saving it (taking from the poor, who do) you have almost guaranteed an economic slowdown.

That leads to the thought that, as not all government expenditure is equal, surely a Greek government with more than usual amount of economic nous could surely come up with something.

Or, alternatively, agree to kick the can down the road for another 9 months.

I'd really like to think that the former is possible, no matter how unlikely.

Varoufakis is on stage at an IMK gig in Berlin right now. It was ~40 minutes of old news, really, at least if you've been following the developments over the last couple of months.

The interesting bit is that he's still making a clear commitment to a permanent primary surplus. For a country as devastated as Greece, that's austerity. Some argue that a 5% deficit over 5-10 years would be required to get Greece back on track, Bill Mitchell and Jamie Galbraith even make the case for running a 10% deficit to get some traction.

Since Varoufakis has to be aware that a primary surplus of any size is still contractionary, I wonder what funky accounting voodoo he has in mind to circumvent this contradiction. Just surplus recycling via the EIB? Who knows...

Edit: the ongoing panel discussion is interesting though.

Edit #2: the recording is now up again:
http://www.boeckler.de/veranstaltung_54282.htm (Varoufakis' talk begins at 12:30)

Edit #3: SPON has a piece on it this morning and one of the first comments correctly calls them out on it.

Yeah, sounds like implementing the Croatian system would take more organisation than the Greeks have. Even the promised loan of tax department officials from Germany probably wouldn't be quite enough (and I'm not sure why Tsipras hasn't quietly taken up the offer, except that it does suit him to keep his cards close to his chest for now).

My confusion stems from every single article reading as if there is some compromise actually underway or imminent, but they never provide enough hints to work out what it might be... and anything I can think of is immediately proven false in the next update.

For instance, if Syriza had announced the €2B as an end to the suffering from austerity, and now the measures will only affect Government and the Oligarchs, then it would have made perfect sense... but instead both sides just keep giving out the same messages they have since the start.

I think it's possible they'll muddle through in the end, but at this point it's not at all clear how.

If I remember correctly, the Croatians put everything else on hold when they introduced their system and had their entire staff out in the field for 6 months to enforce it. After that, the system was widely accepted and controls could be tuned down to a normal level.

Greece cannot go down the same route if most of what little bureacracy they have is still in cahoots with the previous nepotic governments. Maybe some third party can provide personnel for a few months...

The €2B come straight from our Tax Avoider in Chief, Juncker. Some say he's more of a federalist, more willing to compromise to keep the EZ together. Doesn't really matter though, Greece is too far down the rabbit hole.

As for Syriza: your guess is as good as mine. If they don't start praying to our Lord Austerity soon, the Troika won't hesitate to let them drown. And if they do get on their knees, Syriza will split and everything's back to square one.

@radx

As I mentioned in our previous conversations, my expectation is that once significant structural reform goes through, all the things I talked about before - much of the debt will be forgiven to speed up recovery for Greece and the rest of Europe. If that's not the case, then I agree that the policy was misguided. But it's the whole issue of trust again. Debt forgiveness certainly won't come before the fact, especially when a country like Germany is the main decision maker.

Putting that in perspective, I still think Merkel is broadly making the politically realistic best of a bad situation. I mean Merkel herself, from what I have read, is facing not insignificant opposition from a euro-skeptic right. Suppose she were more bold in funding Greece, was thrown out of office, and the policy abruptly reversed, what would that accomplish?

I can't speak to the specifics, but all those examples you mention of corruption and/or bad policy throughout the austerity process do not sound good. I have no doubt there were instances of malpractice or favoritism, and I hope if they are credible, they are investigated. I can only really argue on the merits of the broad intentions of the policy.

I would agree that the general attitude towards the Greeks being lazy and reaping what they sowed is unjustified. As an example, public sector workers did enjoy unjustified job security and there was a generously low retirement age compared to the rest of Europe. But much of the population didn't benefit from that early retirement or work in the public sector. From memory, actually measures like hours worked per capita were roughly in line or higher than the rest of Europe.

But unfortunately the brunt of the repercussions are borne by the populace who at best are responsible for not demanding more from their politicians because like mentioned before, the beneficiaries have emigrated and squirreled their ill gotten money away.

Part of me feels like there is an increasingly thin veneer over all of these discussions about what this or that group says will or can happen. People are getting pissed off in my own country about how things are being run, so i can't begin to imagine what that must be like in Greece.

The Greeks have basically been told for a long time that their country is in trouble and they need to work hard to fix it. They get help and told they need to work hard to repay it. The average Greek adult goes out every day and puts in a hard shift. They see no reason why all the effort they're putting in at work and all the tax they pay is falling into a big hole and not making the hole any smaller, whilst austerity measures are making every other aspect of their life more difficult too.

The people have said what they want, how far can you push them exactly, from behind a desk? Austerity has hurt them and made them worse off, completely missed its aims. Now they're being asked to take more of it. If they can't let the Greek people see any light at the end of the tunnel, they're gonna end up with an angry mob on their hands.

Depends on what their goal is.

If they aim, as some suggested, to change the Zeitgeist before they even attempt to change the politics, a stone mason's approach might be the only option they have: working the cleavage between pro- and anti-austerity players. Getting Schäuble and Dieselboom to play hardball, publicly, puts those two at odds with significant elements within France.

Then again, might as well be a combination of inexperience and a shitty hand. Time will tell...

The Latin American countries have some other qualities in common with Greece, I agree they are a good example.

The thing is though that the humanitarian crisis caused by The Austerity has been either almost as bad, or as bad as these disorderly collapses.

Apart from that one point, I largely agree with you here.

As much as I would love to see Syriza pull off a miracle, even with the will of the people to end the culture of patronage I wonder how on earth they would manage it.

I don't actually think Tsipras or Varoufakis really understood how difficult Schäuble or Dijsselbloem would be to deal with, but based on their party platform they were quite compelled to act as they did, so I vote politics.