Tuesday, October 29, 2019




The Politics of Brexit

Professor Glyn Morgan



SU Abroad—London Program

May-June 2020








Draft Syllabus



The aim of the class is to understand the cultural, historical, socio-economic, and political factors that led Britain to vote to leave the European Union. We will look at the causes, consequences, and the process of Brexit. What do these tell us about British politics and society? How will Britain survive outside of the EU? Will Britain become more dependent on the USA? What does Brexit mean for Scotland, Wales, and Ireland (both Ulster and the Republic? What effect will Brexit have on Britain’s racial and ethnic minorities—including current and future immigrants.

This course will be taught in Faraday House, London. We will have a number of visiting speakers from the political, commercial, and national security worlds. We will also make four short visits within Central London to locations (whether a museum, park, building or market) that symbolize European Britain, Commercial Britain, Imperial Britain, and Post-Imperial Britain.





Class Assignments



Short Quiz based on the reading                                                                                 25% of Grade

A 750 word Blog Post on one of the themes of the class                                            35% of Grade

A 15 Minute self-filmed “documentary” or a 10 page essay on an issue related to Brexit       40%          





There are no required texts to purchase.



There is NO final exam.




TOPICS and READINGS



1.      Britain, Europe, and the EU



The EU (as we now know it) was formed in 1957. Why did it take the UK until 1972 until it joined? When and Why did Britain turn Eurosceptic? When did Eurosceptics become Leavers? Why did David Cameron call a referendum in 2016?



Book:


 


Kevin O’Rourke, A Short History of Brexit (selections)




Hugo Young, This Blessed Plot: Britain and Europe from Churchill to Blair (selections)




Articles/Blogs:



Mathew d'Ancona, “Brexit: How a Fringe Idea Took Hold of the Tory Party,” Guardian June 15 2016.

John Lanchester, ‘Brexit Blues,’ LRB, 38: 15 (2016).



Movies/Documentaries:



•      “How Britain Lost Europe” (FT, December 2016) https://www.youtube.com/watch?v=oqT1lneQ28Q

•      Them or US (Part One)


•      Them Or Us (Part Two)


•      The Poisoned Chalice (in Four Parts)
2. Austerity, the Left-behind, and Neo-Liberalism



Some people argue that Brexit was a direct consequence of one or more of the following: (i) “neo-liberal policies” in the period 1997-2008; (ii) The Great Financial Crisis of 2008-2010; and (iii) the Austerity Policies of the Tory Governments 2010-2016. These explanations all emphasize economic causes of Brexit. Are they right to do so? Or is Brexit better explained with reference to cultural factors?



Book

Ian Fraser, Shredded: Inside the Bank that Broke Britain

Simon Wren-Lewis, The Lies We Were Told: Politics, Economics, Austerity, and Brexit (Selections)

Lisa Mackenzie, Getting By (selections)





Articles/Blogs

                       

                        Pippa Norris, Trump, Brexit, and the Rise of Populism



                        William Davies, Populism and the Limits of Neoliberalism



                        Simon-Wren Lewis, What Brexit and Austerity tell us about Economics, Policy and the Media






Movies/Documentaries
3.       Cultural Change, Immigration, and Integration



Rather than explaining Brexit with reference to economic factors, other scholars argue that Brexit can only be explained by cultural factors, such as immigration.



Book:

Roger Eatwell and Matthew Goodwin, National Populism, (Selections)

David Goodhart, The Road to Somewhere (Selections)



Articles and Blogs


Francis Fuyuyama (1990), “The End of History”*

Francis Fukuyama (2018), “Against Identity Politics,” Foreign Affairs, Aug 2018*

Glyn Morgan, “Immigration, European Integration, and Liberal Political Incorporation,”*



Documentary

“The Truth About Immigration in the UK in 2014,” BBC






4.      Imperial Britain, Post-Imperial Britain and Europe



Some people argue that Brexit can best be explained in terms of a nostalgic longing for empire. This thesis has been best put by the Irish write Fintan O’Toole. Many English writers consider O’Toole’s thesis to be absurd. We look at the debate sparked by hos 2018 book.



            Books

Fintan O Toole, Heroic Failure: Brexit and the Politics of Pain (selections)



Articles/Blogs





David Goodhart, “Looking for the Soul of England”

Bella Caledonia, Independence day Postponed






The Windrush Generation




5.       The Break-Up of Britain?



The Brexit vote has thrown into question the continuing viability of the Union between England, Ireland, Scotland, and Wales. We look at the factors holding together the Union and focus in particular on Northern Ireland’s borders both North and South and East and West.



BOOK:

Tony Connelly, Brexit and Ireland (selections)






Articles/Blog









Roger Iwan Scully, “Brexit and Wales”

           

Tariq Modood, Multiculturalism














Roger Iwan Scully, “Brexit and Wales”








6.      Political Parties, Parliament, and the Law



Brexit has already had major political implications for the UK party system and for the relationship between government, Parliament, and the Courts. We look at these changes and speculate about their future likely consequence.

BOOK:

Kevin O’Rourke, A Short History of Brexit (selections)




Articles and Blog


Andrew Gamble, “Taking Back Control: The Political Implications of Brexit,” Journal of European Public Policy 2019

Andrew Gamble, “The Realignment of British Politics in the Wake of Brexit,” Political Quarterly 2019

Glyn Morgan, “Is the EU a Crap 1950s Idea?” in B. Martill and U. Steiger eds.  Brexit and Beyond (2018)  (A discussion of Dominic Cummings Branching Histories Blog )

Richard Tuck, (2016), “The Left Case for Brexit,” Dissent Magazine, June 6


Peter Oborne, “I was a Strong Brexiteer” Open Democracy





7.      Post-Brexit Britain—Trade and Security



Once the UK has finally left the EU (if it ever does), the UK will have to create new trade and security arrangements. Some fear that the UK will become dependent on the USA. What is the likely future of the UK post Brexit? And what does Brexit mean for the future of the EU?



Articles and Blogs





Glyn Morgan, “Europe’s Commercial Order and the Limits of Nationalism”







Documentaries



•      “Out and Proud”==Faisal Islam—seen through the lens of Sunderland

https://www.youtube.com/watch?v=KG5jvQyF5bA
















 [GM1]
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Saturday, January 19, 2019


The Politics of Brexit

Glyn Morgan

dgmorgan@syr.edu

Syllabus

The aim of this class is to use the lens of Brexit to explore (i) the nature of British society and its politics; and (ii) the place of a post-Brexit UK in Europe and the World.  Among the questions we will examine: (i) Is Brexit a unique phenomenon or part of a global turn towards populist nationalism? (ii) What does Brexit tell us about the social and political cleavages in the UK? (iii) What does Brexit tell us about the strengths and weaknesses of the EU? (iv) Is a post-Brexit UK likely to move closer to the United States or will it remain in the European trade regime?

Required Texts:

            Ben Martill and Ulrike Steiger eds.  Brexit and Beyond (2018) 

The other readings can be accessed either directly from the links on the Syllabus or via Blackboard

Class Assignments

There are three class assignments, each worth 33.3% of the grade

1.      “Blog Post” Writing Assignment Select one of the topics covered in this class and write a blog post. The blog should be around 750 words and designed for a general audience (think in terms of your parents or your roommate) –for guidance take a look at VOX, the LSE blog, or the Monkey Cage. The blog can either be “an explain piece” (here is a common error that I will clarify)  or “an opinion-piece” (here is what I think on this topic and these are the reasons why any reasonable person should agree with me). Your blog should contain hyperlinks that support controversial claims, evidentiary support, and links to further useful literature.  Ideally, your blog will have a headline, an introductory photo, and even a couple of tables or graphs.

2.      Video Presentation/Webcast with Ten Slide Powerpoint.

You must deliver a 5 minute talk that includes a 5 slide Powerpoint on one of the topics covered in the class.  Unlike the Blog, this should be a talk for an informed audience (your fellow classmates, for example). Make the talk interesting. Tell them something they didn’t know or might not have thought about.  Submit the slides and a video file of your talk. You can film yourself using a cellphone or your computer (using Skype or something similar). You will be graded on content, presentation, and the accessibility of the video you deliver. (You can work on this assignment either as an individual or in groups of up to three students. All students in the group will receive the same grade.)

3.       Five Page Report

Your client, a US multinational, is thinking of making a large investment in the UK. They commission a report on the political stability of the UK and Europe over the next 10 years. They want to know (i) what is the single biggest threat to their investment; and (ii) what is the biggest upside to a UK investment.  Your report should have a one page Executive Summary containing at least five but no more than ten bulletin points.  The CEO of the company is known to like graphs, graphics, and numbers.)



 READINGS

1.     BREXIT: Introduction

Glyn Morgan, “The Forever Brexit,”

John Lanchester, ‘Brexit Blues,’ LRB, 38: 15 (2016).

Mathew d'Ancona, (2016) “Brexit: How a Fringe Idea Took Hold of the Tory Party,” Guardian June 15 2016.





2.      Who Voted for Brexit and Why?



Documentaries:

“Out and Proud: Where Brexit Leaves Us Now,” (Sky News) July 2016

Brexit—The Battle for Britain (BBC News) July 2016



3.       Brexit and Populism in Comparative Perspective



Roger Eatwell and Matthew Goodwin, National Populism: The Revolt Against Liberal Democracy



4.      Britain’s Uneasy Relationship with Europe and the United States

5.      Derek Leebaert, Grand Improvisation: America Confronts the British Superpower, 1945-1957*

Hugo Young, This Blessed Plot: Britain and Europe from Churchill to Blair*

Glyn Morgan, “Is the EU a Crap 1950s Idea?” in B. Martill and U. Steiger eds.  Brexit and Beyond (2018) 

Documentaries:

“The Poisoned Chalice”

“Them or Us”

6.      Britain’s Longing for Empire and Nostalgia for the War

Catherine Hall, ‘Introduction: thinking the postcolonial, thinking the empire,’ in Catherine Hall (ed), Cultures of Empire (2000).

Antoinette Burton, ‘Who Needs the Nation: interrogating ‘British’ history,’ in Catherine Hall (ed), Cultures of Empire (2000).

Seumas Milne, ‘Britain: imperial nostalgia,’ Le Monde Diplomatique, May, 2005, http://mondediplo.com/2005/05/02empire

            Anthony Barnett, The Lure of Greatness

Sonya Rose, “Sex, citizenship, and the nation in World War II Britain,” American Historical Review, 103 (1998)

Movie: My Beautiful Laundrette (Director: Stephen Frears)

7.      Did Austerity Cause Brexit?

Mark Blyth, Austerity: The History of a Dangerous Idea*

Paul Krugman, “Can the Euro be Saved?” New York Times 2011

Martin Feldstein, “EMU and International Conflict” (1997)

Nicholas Crafts, “Brexit: Blame it on the banking Crisis” . 

Martin Sandbu, Europe’s Orphan*

Adam Tooze, Crashed*

  [* = selections]

8.      Did Immigration Cause Brexit?

Der Spiegel (online), “Asylum and Migration” http://www.spiegel.de/international/topic/asylum_and_migration/

Eric Kaufman, “Good Fences make Good Neighbours”*

David Goodhardt, The Road to Somewhere Chapters, 4, 5, and 9.*



Dustmann C and T Frattini (2014), “The fiscal effects of immigration to the UK”, Economic Journal 124 (580)

9.      The Disunited Kingdom and the Multicultural Nation

Tom Nairn, The Break-Up of Britain

Newsweek, “Has Multiculturalism Failed,”

Tariq Modood, Multiculturalism


Roger Iwan Scully, “Brexit and Wales”

10.  The UK’s Post-Brexit Future

Glyn Morgan, “Brexit, Trump and the Future of Europe”

Jeff Goldberg, “We’re America, Bitch” The Atlantic (June 2018)      

            Jed Purdy, “The Anti-Democratic Worldview of Steve Bannon and Peter Thiel”




Ivan Rogers, (2018), “The Real Post-Brexit Options”
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Wednesday, November 7, 2018

The Eurozone Crisis -- 2008-2018 : Four Lectures: November 2018

The Eurozone Crisis: Notes and an Annotated Bibliography 

Lecture One: November 5--

The Creation of the European Monetary Union 

For a simple background to the creation of the European Monetary Union, see this. The Timeline to the creation is here. For a celebratory documentary on the Euro’s Ten Year Birthday, see this.
The Werner Report 1970 (initially discussed at the Hague 1969) represented the first proposal to set up a Monetary Union between the then 6 member states.  A contemporaneous article notices the federalist implications of the plan:
The Werner Committee's plan for economic and monetary union in the Common Market covers 31 pages. Its fundamental objective is "that the principal economic decisions affecting the EEC will be taken at community level, and that the necessary powers will be transferred to the community [i.e. will be transferred to the supranational level of government]."
The report envisages that by 1980 the Community would formulate budgets, tax policies, and monetary policies; and that there would be a uniform tax system throughout the Community.
It recognises that the transfer of these responsibilities to the Community has "a fundamental political significance and implies the progressive development of political union. The economic and monetary union, therefore, has to be seen as a generator for the development of a political union."
The document says that those must understand its objectives who subscribe to the project, and accept them without equivocation: "Political and monetary unification is an irreversible process and it is essential to go into it with a firm will to achieve it and to accept all its political as well as economic implications."


The Werner Report was shelved, mainly because of a series of global economic crises of the 1970s, including:

--the monetary crisis in 1971 (non-convertibility of the US dollar);
-- the first oil crisis in 1973;
-- the iron and steel crisis in 1974;
 --the economic crisis in 1975;
 --and the second oil crisis in 1979.

1979-1991 European Monetary System (EMS)

"The European Monetary System (EMS) was built on the concept of stable but adjustable exchange rates defined in relation to the newly created European Currency Unit (ECU) – a basket currency based on a weighted average of EMS currencies . Within the EMS, currency fluctuations were controlled through the exchange rate mechanism (ERM) and kept within ±2 .25% of the central rates, with the exception of the lira, which was allowed to fluctuate by ±6% ."
A new plan took shape in 1988 and was published as the Delors Report in 1989.
The idea of a European Monetary Union faced intellectual and political obstacles.
The intellectual obstacles came from economists, who in the 1960s and 1970s had formulated a theory of an Optimum Currency Area (OCA). For a useful summary of this theory, read pages 1-6 of Francesco Paolo Mongelli, “European Economic and Monetary Integration, and the Optimum Currency Area Theory.’’
Crudely stated, OCA—the work of economists like Robert Mundel, Peter Kenen, Ronald Mackinnon and others—sought to identify the conditions necessary for an economic area to share a common currency. Conditions include:
--price and wage flexibility
--mobility of factors of production (capital and labour)
 –product diversification
--openness
--financial integration
--fiscal transfers
--similarity of preferences concerning savings, debt, and life/work balance
--solidarity: are we a community of destiny? do we share your costs?

Why would a group of sovereign states want to set up a monetary union with a common currency?

ADVANTAGES:

1. Eliminate Transaction Costs--check out the currency exchange rates in an airport
2. Eliminate Currency Risk
3. Increases Global/Regional Power--Seniorage
4. Strengthens the Independence of the Central bank
5. Speeds up Economic Integration
6. Speeds up Political Integration (Ever Closer Union)

DISADVANTAGES

1. Countries give up the flexibility of exchange rate depreciation.
2. Absent currency depreciation; countries must rely upon wage deflation.
3. Very difficult to leave a Monetary Union--the Hotel California Problem (see Barry Eichengreen, The Euro: Love It or Leave It; and for a more detailed version, here)




Many economists pointed out in the 1990s that the EU lacked these conditions and a common currency wouldn’t work.

One can go through the 6 conditions of an OCA and argue that some or all are absent.

Source: Baldwin and Wiplosz (2011)


Among the most prescient critics:
Bernard Connolly, The Rotten Heart of Europe (1995)—(this guy was ignored for 15 years, a paraiah in EU circles, until the Greek crisis proved him right)  see interviews and profiles  here and here and here and here
Martin Feldstein, “EMU and International Conflict” (1997)

____  "The Political Economy of the EMU,” Journal of Economic Perspectives, Fall 1997*

These economic objections were dismissed by pro-EU scholars, including this one published—with sad irony—in November 2009 just as the wheels were coming off. (Lars Jonung and Eoin Drea, It can't Happen, It's a Bad Idea, It Won't last: US economists on the Euro 1989-2002)

Watch the celebratory documentary; and then read: Mongelli pages 1-6, Feldstein, the Jonung and Drea, and the Eichengreen articles.

 

Lecture Two--November 7

 The Eurozone Crisis: An Annotated Bibliography:

INTRODUCTION:

One of the great puzzles in explaining the Eurozone Crisis (EZC) is to know where to begin. Is it part of the Great or Global Financial Crisis (GFC) (2008) or a separate crisis?

Let’s leave that historical puzzle aside, at least for a moment, and focus instead on an ostensibly easier question:

What is the Eurozone Crisis?

Der Spiegel defines it this way:

“First Greece—then Ireland, Italy, Spain, and Portugal: The European Common Currency has come under pressure from large national debts and the effects of the great financial crisis, ultimately requiring a rescue package close to a trillion euros.”

On this view, the EZC is a sovereign debt crisis.  What is sovereign debt? And why should debt lead to a crisis?  The country with the largest government debt --Japan--is not in crisis; its economy is relatively robust; and its currency remains strong.

[Der Spiegel gives a backwards running commentary –i.e. from most recent newsworthy events to most distant. 

It is well worth scrolling back through these. Start at the beginning.

We are talking about hundreds of stories here.

Interestingly, the first article included in their EZC archive is this—dated December 2009: note the focus is still on the financial crisis of 2008—otherwise known as the Great Financial Crisis (GFC) or Lehman Crisis, but fears are brewing:  

“Practically unnoticed by the public, an issue has returned to the forefront in recent weeks -- one that was a cause for great concern at the height of the financial crisis but then, as optimism about the economy began to grow, was eventually forgotten: the fear of a national bankruptcy in the euro zone. And the question as to whether such a bankruptcy, should it come about, could destroy the common European currency. Greece was always at the very top of the list of countries at risk. But now the danger appears to be more acute than ever.”]

Wikipedia defines it this way:

“The European debt crisis (often also referred to as the Eurozone crisis or the European sovereign debt crisis) is a multi-year debt crisis that has been taking place in the European Union since the end of 2009.”



Let’s assume then, at least for the moment, that the EZC is a sovereign debt crisis. 


Immediately, this requires us to say something about debt. What is sovereign debt? And when does it become a crisis?

Sovereign Debt (as defined by the Financial Times)::

This is debt that is issued by a national government. It is theoretically considered to be risk-free, as the government can employ different measures to guarantee repayment, e.g. increase taxes or print money.
In practice, there have been multiple cases in which governments could not serve their debt obligations and had to default. As a consequence, investors ask for different yields across countries. The more a country's repayment ability is in question and the riskier sovereign debt becomes, the higher is its yield


Very simply--the more risky a country is; the more it must pay in interest to borrow money. Risky countries thus have high-yield bonds.

Sovereign debt (also known as public debt, national debt, or the national debt) must be distinguished from private debt--which is the debt run up by individual households (credit card debt, mortgages etc) and private corporations (including banks).

It is important to distinguish between sovereign and private debt, because different countries have different levels of each.

First some figures/Tables (as of 2010 when the EZC became a big problem).








ICELAND AND IRELAND

Perhaps not surprisingly, the first country to blow-up financially was Iceland (not a member of the EU or the Eurozone) in 2008. Its problem was private debt—the debts run up by its banking sector.

Iceland is an important case, because it suggests that the Euro is not the source of all problems in Europe.

Ireland was to run into very similar problems.

For the Iceland story, see this short documentary and these articles: here and here and here and here; and for a comparison of the Iceland and Ireland situations, see here.

For a short documentary introducing the problems of Ireland (from 2011), see here and here

So was the EZC a crisis of public debt (too much government spending) or a crisis of private debt (too much debt –or leverage—from the banking sector)? Clearly, a different story is needed for different countries.

Which Eurozone Countries had what problems?


Greece...Budget Deficit?...Sovereign Debt?....Private Debt?...BoP Deficit?....Low Growth?

Italy....Budget Deficit?...Sovereign Debt?....Private Debt?...BoP Deficit?........Low Growth?

Ireland....Budget Deficit?...Sovereign Debt?...Private Debt?...BoP Deficit?....Low Growth?

Portugal...Budget Deficit?...Sovereign Debt?....Private Debt?...BoP Deficit?....Low Growth?

Spain......Budget Deficit?...Sovereign Debt?....Private Debt?...BoP Deficit?....Low Growth?

UK....Budget Deficit?...Sovereign Debt?....Private Debt?...BoP Deficit?....Low Growth?

Japan...Budget Deficit?...Sovereign Debt?....Private Debt?...BoP Deficit?....Low Growth?.

USA...Budget Deficit?...Sovereign Debt?....Private Debt?...BoP Deficit?....Low Growth?.

When do these debt, deficit and growth problems become "a crisis?"  



The best sources of economic data:

Eurostat

Trading Economics

OECDEU Commission, General Government Data




EXPLANATIONS OF THE EZC

For some scholars, the EZC is neither a public or a private debt problem but a balance of payments crisis.  This is the view of Martin Wolf and Paul Krugman, see here. 

As Krugman puts it:

What we’re basically looking at, then, is a balance of payments problem, in which capital flooded south after the creation of the euro, leading to overvaluation in southern Europe. It’s not a perfect fit — Italy managed to have relatively high inflation without large trade deficits. But it’s the main way you should think about where we are.

If Krugman is right, the EZC can be boiled to the problem that Northern European countries (Germany in particular) was much more competitive and exported more than Southern European Countries (Greece in particular but also Portugal, Italy and Spain). The surplus from the Northern European countries was recycled into loans to Southern European Countries, which overloaded the banking system and led to a debt crisis.

In countries with their own currencies, a balance of trade imbalance typically leads to currency adjustments—appreciation in one country; depreciation in the other.  In the Eurozone, currency adjustments are not possible. 

Broadly stated, it is possible to distinguish 7 schools of thought on the causes of the EZC (these explanations are not mutually exclusive):

1.    Those who view the EZC as part of the GFC (or Lehman Crisis). Let's call this the One Long Financial Crisis explanation. This points us to theories of the GFC. (See the Lo article below).

The most impressive work by a scholar along these lines is the work of Adam Tooze, whose book Crashed (2018) is probably the best book both on the GFC and on the EZC. (I say "probably" because one of my friends thinks that Ashoka Mody's book Eurotragedy is better. Ask me after Thanksgiving, when I get a chance to read it.) 


For discussions and reviews of Adam Tooze, 
here (Martin Wolf in the FT)
here (Duncan Weldon in Prospect)




2.  Those who see the EZC and the GFC as a function of the inevitable and incurable faults of capitalism.  (This Marxist explanation informs, for example, the view of John McDonnell, current British Shadow Chancellor: ‘We’ve got to demand systemic change. Look, I’m straight, I’m honest with people: I’m a Marxist....This is a classic crisis of the economy – a classic capitalist crisis. I’ve been waiting for this for a generation!...For Christ’s sake don’t waste it, you know; let’s use this to explain to people this system based on greed and profit does not work.’) Others in this tradition, include Wolfgang Streeck. 

3.  Those who pin the blame primarily on the faults of the Eurozone—the Euro, they argue, was a mad idea from the get go and should never have been invented. (US economists like Martin Feldstein and Joseph Stiglitz and Paul Krugman hold this position.)

4.    Those who pin the blame on the faults of the European Central Bank, (and more generally the so-called Troika (IMF, ECB, and EU), whose austerity-focused policies have turned a minor financial crisis into an existential crisis for the EU (Many European economists hold this view, including Mark Blyth and Barry Eichengreen and Charles Wiplosz and Martin Sandbu.)

5.    Those who pin the blame on the Germans, partly because they support 3. and partly because their economic and trade policies are mercantilist and lead to a beggar-thy-neighbour dynamic (Simon Wren Lewis holds this view; as does Adam Posen)

6.    Those who blame the Greeks (and other Southern European countries) for social, economic, and political practices that led--and continue to lead to--an uncompetitive economy (Stathis Kalyvas, for example, holds this view with respect to Greece; as do many German economists, including the German Finance Minister Schauble; and the Head of the Bundesbank Jens Weidman);

7.    Those who think that the Northern and Southern economies are structurally incompatible. This amounts to a version of position 2. But focuses on internal structural features of the different economies rather than the European Monetary Union itself.  (Peter Hall and the so-called Varieties of Capitalism literature holds this view; this view also informs some of Wolfgang Streeck's writings, including his critique of Sandbu here)

More recently, a number of economists have tried to come up with a multi-causal explanation, which they hope can form the basis of a consensus narrative. See Richard Baldwin et al here.


Clearly there is a lot of material to get through. So what should I read first:

1. Paul Krugman, Can the Euro Be Saved?

2. The Economist, The Origins of the Great Financial Crisis

      3.  Andrew Lo, Reading About the Financial Crisis: A 21 Book Review (Skim)


Lecture Three: November 12

How the Eurozone Crisis played Out in Greece: Causes and Consequences.

GREECE












Image result for greece flag


INTRODUCTION


The Eurozone Crisis began on October 18 2009--more or less 9 years ago exactly. That was the day that the newly elected Greek Prime Minister George Papandreou announced that the previous Conservative Government of Costas Karamanlis had been cooking the books and Greece was much more indebted than anyone realized. EU officials expressed shock and concern

As the FT of Oct 20 2009 reported:

George Papaconstantinou, finance minister in Greece’s new socialist government, disclosed that the nation’s deficit would soar this year to almost 12.5 per cent of gross domestic product, far higher than estimates provided by the former conservative government.
The news, delivered at a meeting of European Union finance ministers, came as an unpleasant but not entirely unexpected surprise to Greece’s 15 eurozone partners. They already suspected that the global financial crisis and recession would have a much more serious impact on Greece’s deficit and public debt than had been admitted in Athens.
Germany and other countries that emphasise fiscal rigour are determined that the eurozone’s stability, watched more closely than ever by markets since the eruption of the crisis, should not be jeopardised by the inability or reluctance of Greece and other less disciplined states to keep their finances in order.
Jean-Claude Juncker, chairman of the so-called Eurogroup of countries, declared: “The game is over. We need serious statistics.”
The extent of Greece’s troubles was underlined on Tuesday by the national central bank, which said Greece’s public debt had soared to 111.5 per cent of GDP in June from 99.2 per cent at the end of last year.
Some private sector economists predict that Greece’s debt will climb to as high as 150 per cent by 2016, a figure unmatched in any European country since the euro’s launch in 1999 and far above the 60 per cent level set for new eurozone entrants.
The uproar over the size of Greece’s deficit recalled an incident at the start of the decade, when Greece under-reported its deficit in order to qualify as the 12th member of the eurozone in 2001.
NB: These figures were to be further revised upwards in coming years. And the worst-case predictions in 2009 were actually quite optimistic--Greek Debt in 2016 reached 320 billion euros or 180% GDP. 

Everyone knew that the Greek economy was not doing well. But no one knew things were this bad. Papandreou had fought and won the election on the promise of boosting public expenditure (As a contemporaneous article observed:

 "The main challenge for PASOK [Papandreou's Socialist party] will be to deliver on its promises of wage increases, infrastructure investments, and sustainable development at a time when the economy is predicted to slide into recession.")

 For some useful background documentaries: see:

 Greece and the Euro Crisis(2012)  BBC Documentary on the Greek Crisis (Michael Portillo) 

 Greece Debt Crisis and the Future of Europe (I don't know the producer/writer--a socialist of some stripe which balances Portillo's conservative take). 

 https://fieldofvision.org/episode-one-angela-suck-our-balls (a very pro-Syriza documentary by Paul Mason --a good balance to my very anti-Syriza position)

It is difficult to think through wat happened to Greece without engaging with the brilliant provocative work of Varoufaxis--especially his Adults in the Room.

For a good entry, see Tooze's Review.

Greece is important, at least in part because of the way that the perception that the Greeks were mistreated by the Troika fed later Euroscepticism--not least in the UK.

I

The Eurozone Crisis--GREECE--Annnotated Bibliography (PART THREE)

The Eurozone Crisis--GREECE--Annotated Bibliography (PART THREE)

Watch the documentaries mentioned earlier.

Timelines of the Greek Crisis can be found here and here and here.

Background:

The Requirements of the European Monetary Union Growth and Stability Pact:

1. Government deficit  less than 3% of GDP
2. Sovereign debt less than 60% of GDP
3.  If more than 60% it should decline each subsequent year at a satisfactory pace.

Greece's Difficulty in Meeting these Requirements

The Greek story can be summed up by following the story presented in graphs; see here:

The key event, mentioned earlier, was the announcement by the incoming Greek PM Papandreou in October 2009 that Greece's deficits were much higher than earlier announced.

Greece Deficit 1995-2018


Greece Government Budget






Greek Debt:


Greece Government Debt to GDP





The German and Greek 10 Year Bonds 1993-2015 (remember Greece entered the EU 1986):

Image result for Greece 10 Year Bonds


Unit Labour Costs:



Broadly stated, there are five different (non-mutually exclusive) positions on the Greek chapter of the EZ Crisis:

1. The EMU is structurally flawed. (De Grauwe; Krugman)--it prevents countries that experience an asymmetrical shock from devaluing.

2.  The Troika (EU/ECB/IMF) mismanaged the crisis--they chose to bailout Northern European Banks in 2010 rather than let Greece Default. (Sandbu--who thinks that there is nothing structurally wrong with EMU; and Eichengreen, Krugman, and Stiglitz--who thinks that there is).

3.  It's all the fault of the Germans (Simon Wren Lewis and John Weeks and Adam Posen and Peter Bofinger--for a more developed discussion of this topic, see Servaas Storm, "German Wage Moderation and the Eurozone Crisis: A Critical Analysis");

4.  It's substantially the fault of Greek politicians and policy-makers (German economists who hold this view include Jens Weidmann [Head of the Bundesbank], Hans Werner Sinn, and in a more nuanced version, the Greek Political Scientist Stathis Kalyvas);

Storm (a critic) summarizes this view as follows:

 In this narrative, rising unit labor costs are due to fiscal profligacy and “rigid” “over-regulated” labor markets, powerful unions, and strong employment protection. Rising relative unit labor costs supposedly killed Southern Europe’s export growth, raised current account deficits, created unsustainable external debts and reduced fiscal policy space, and hence, when the crisis broke, these countries lacked the resilience to absorb the shock. It follows in this story that the only escape from recession is for the Southern European countries rebuild their cost competitiveness—cutting wage costs (because Eurozone members cannot devalue their currency) by as much as 30% (as proposed by Sinn 2014), which requires in turn that their labor markets be thoroughly deregulated.

5.  It's a consequence of Greece's unfortunate history, but in no way the fault of contemporary Greeks.

6. It's a consequence of globalization and Europeanization--it forced Greece to compete with China and East Europe--they couldn't.

My view, for what it is worth, is some combination of 1. and 4. and 5 and 6.

There is an enormous amount of debate about especially the 2010 Bailout but also the 2012 Bailout.

Many critics of the Troika argue that the Bailout was in effect a Bailout of Northern European (esp French and German banks) at the expense of Greece. Those who hold this view argue that Greece should have been allowed to default in 2010--even at the expense of bankruptcy for all its domestic banks.
The 2010 Greek Bailout

Greece Accepts Bailout Package
From CNN May 2 2010

 Greece has accepted a bailout deal including tough austerity measures, Finance Minister George Papaconstantinou announced Sunday.
The international aid package, negotiated with the European Central Bank, European Commission and the International Monetary Fund, will be worth 110 billion euros (US $146 billion) over three years, Eurogroup President Jean-Claude Juncker said in announcing the agreement Sunday evening from Brussels, Belgium.
Of the overall amount, 80 billion euros will be made available through euro-area members, with up to 30 billion available in the first year, Juncker said.
The first disbursement of bailout money will be made before May 19, Juncker said.
The program will "help restore confidence and safeguard financial stability in the Euro area," Juncker said in praising the deal.
The package includes a promise by Greece to cut its budget deficit to 3 percent of gross domestic product, as required by European Union rules, by 2014, according to Papaconstantinou.
Greece had a choice between "destruction" and saving the country, and "we have chosen of course to save the country," Papaconstantinou said.
Olli Rehn, the commissioner of Eurogroup, said that "the steps being taken, while difficult, are necessary to restore confidence in the Greek economy and to secure a better future for the Greek people."
The head of the European Commission Sunday praised the Greek government for committing to "a difficult but necessary reform process."
The program "constitutes a solid and credible package," Commission President Jose Manuel Barroso said in a statement.
The planned austerity measures are unpopular among Greeks. Protesters clashed with police Saturday during May Day demonstrations, and strikes have been announced for later this week.
Papaconstantinou confirmed Sunday that the government would tighten its belt significantly, despite the protests.
"The expenses of the public sector will go down very considerably," he said.
The program includes cuts in the salaries of public-sector workers, including lawmakers, higher taxes on cigarettes, fuel, gambling and luxuries, an increase in the value-added tax consumers pay on purchases, and an increase in the retirement age for women in the public sector, Papaconstantinou said.
Prime Minister George Papandreou earlier Sunday tried to rally the country behind the government.
"I know that our compatriots are being asked to make big sacrifices, but the alternative way would be disastrous and painful for us," he said in a televised Cabinet meeting.
"It's not a pleasant decision for me, for any of us, but we are here to make the right decisions for our country," he insisted.
He spoke a day after Greek protesters clashed with police who fired tear gas during the annual May Day rally in Athens.
Waving red flags, the crowd at times surged toward the line of police, who wore helmets and carried riot shields. The police pushed them back each time.
Protesters threw objects toward police, and scattered fires were burning on the streets.
Seven police officers were injured, police said. Nine people were arrested -- three for attacks on police and six for theft from stores.
Twenty-seven people were questioned in connection with violence. A van belonging to state broadcaster ERT was set on fire.
About 12,000 people were protesting in Athens, and rallies were also taking place in the northern city of Thessaloniki, a police spokesman said.
Protesters there smashed two ATMs, the glass frontage of a bank, and a car, but no one was arrested or being questioned, the spokesman said.
The Greek government is facing a large deficit and massive debt, ultimately threatening the stability of the euro. The currency is used by 16 countries across Europe, including Greece.
Greece's national debt of 300 billion euros ($394 billion) is bigger than the country's economy, and some estimates predict it will reach 120 percent of gross domestic product in 2010.
Options available to EU in 2010:
1. Bailout Greece and Impose Austerity and require Structural Reform (the policy adopted). [Note much of the money loaned to Greece was used by Greece to pay off its debts to Northern European banks and other Eurozone Countries).

Thus even Karl Otto Pohl, a Conservative German economist, who was one of the initial (albeit reluctant) architects of the Euro had this to say:

Pöhl: It was about protecting German banks, but especially the French banks, from debt write offs. On the day that the rescue package was agreed on, shares of French banks rose by up to 24 percent. Looking at that, you can see what this was really about -- namely, rescuing the banks and the rich Greeks.
SPIEGEL: In the current crisis situation, and with all the turbulence in the markets, has there really been any opportunity to share the costs of the rescue plan with creditors?
Pöhl: I believe so. They could have slashed the debts by one-third. The banks would then have had to write off a third of their securities.
SPIEGEL: There was fear that investors would not have touched Greek government bonds for years, nor would they have touched the bonds of any other southern European countries.
Pöhl: I believe the opposite would have happened. Investors would quickly have seen that Greece could get a handle on its debt problems. And for that reason, trust would quickly have been restored. But that moment has passed. Now we have this mess.
SPIEGEL: How is it possible that the foundation of the euro was abandoned, essentially overnight?
Pöhl: It did indeed happen with the stroke of a pen -- in the German parliament as well. Everyone was busy complaining about speculators and all of a sudden, anything seems possible.

For a skeptical view of this, see Dan Davies "2010 and All That: Relitigating the 2010 Bailout." 
2. Bailout out as above but with much less austerity. (see my essay "Greece and the Limits of European Solidarity")
3.  Let Greece default within the EMU and use the money to bailout Northern European and Greek banks.
4, Encourage or force Greece out of the EMU-- use the money to bailout Northern European and Greek banks.

The bailout of 2010 did not work and further bailouts in 2012 (130 billion euros) and 2015 (86 billion euros) were necessary. It is likely that another bailout will be needed in a few years.

greek debt crisis

Greece Unemployment Rate

The 2012 Greek Crisis

Key Events:

November 11 Papandreou Resigns

Interim Govt. Nov 11-May 2012 under Loukas Papademou (MIT educated economist)

Feb 2012 Restructuring of Greek Debt (206Bn Sovereign debt)--haircuts to private sector

Feb 2012 Second Greek Bailout (185 Billion Loan package)

May Election --Coalition Govt. New Democracy/PASOK--Syriza wins seats.

Default fears arise in Southern Europe

July 2012--Mario Draghi (Head of ECB) "We will do whatever it takes."

--Mario Draghi introduces Outright Monetary Transaction (OMT) program that agrees to buy sovereign bonds on the secondary market. For assessments, see here and here.

"OMT is the program put in place by the ECB following Mario Draghi’s vow in the summer of 2012 that the ECB was “ready to do whatever it takes to preserve the euro.”  Under this program, the ECB can buy government bonds of a euro area member state in the secondary market, keeping the primary market for these bonds open and driving down the bond yields (Whelan)."

OMT presupposes signing up to European Stability Mechanism (ESM)--i.e. conditionality.

ESM--a bailout set up Sept 2012--all EMU countries to contribute.


GREECE IN COMPARATIVE PERSPECTIVE

Margarita Katsimi and Gylfi Zoega, Greece and Ireland IMF Programmes Compared VOX



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