On being smart and capable, but no character

greeks telegraph dot co dot uk

Socrates, wherefore art thou? [Photo credit: telebraph.co.uk]

by Andrew Lim

Browsing online through the day’s news, two seemingly unconnected articles caught my eye: Greece , already on serious economic lifeline five years ago seems headed for default on its massive loans from the EU and IMF (“Greece debt talks collapse; default dangerously closer“)  and the other one is a  column by Rigoberto Tiglao for the Manila Times, on “Grace is a Disease of our Politics”,  a lament on “ . . .  our electorate’s incapacity to choose leaders based on their qualifications and track record to rule our country.”  Not a few remember Tiglao as Gloria Arroyo’s press secretary and her former ambassador to Greece, but that is not the only connection. The serious omission in his essay fits perfectly with the terrible situation in Greece.

But first, let’s take up the Greece issue:  It is staring into the abyss. Its debt of $279 billion is equivalent to 180 percent of GDP, nearly twice what it can produce economically. The consequences of a default are the stuff of nightmares (at least for Greeks) :  an exit from the monetary union of the EU, a “switching off” from the European Central Bank’s liquidity supply. Going back to its original currency, the drachma seems a painful recourse, since it will mean a drastic devaluation, making imports a lot more expensive. And the debt will still have to be paid in euros. You think there is still a Greek who has not thought of withdrawing all their Euros from local banks?

There is a plethora of financial writing available to understand the failing macroeconomics of Greece. But the best  I find that is accessible and insightful comes from Michael Lewis, a former Goldman Sachs executive and financial writer for Vanity Fair who wrote “Beware of Greeks Bearing Bonds”.  If you have Greek friends reading this alongside with you, brace yourself: It all boils down to character, or the extreme lack of it. Lewis characterizes the cheap credit in the period 2002-2007 as “offering entire societies the chance to reveal aspects of their characters they could not normally afford to indulge.” “Entire countries were told: the lights are out, you can do whatever you want to do and no one will ever know.” Lewis says Americans wanted to own homes far larger than they could afford, Icelanders stopped fishing and became megalomaniac investment bankers. Germans wanted to be more German (conservative and big savers) and the Irish wanted to stop being Irish (poor and left behind).

Lewis outlines the grievous sins: Dishonest government accounting. This makes it impossible to know the extent of the crisis. The public sector deficit keeps on growing, specially when a new party takes over government and discovers clever tricks. Want to show lower inflation?  Remove high priced tomatoes from the consumer price index and replace it with cheaper produce.

A public sector that overpays its employees (three times the average private sector job). Bankrupt public utilities like the railroad system which pays 65 thousand euros a year on the average and the low ranked public school system which employs four times as many teachers than others ranked much higher in Europe. And the public pension system which is so broken that even hairdressers can get themselves classified as having “arduous” jobs that they can retire as early as 50 and get generous pensions.

Here’s another biggie: Nobody pays the correct taxes. Sounds familiar?  “The first thing a government does in an election year is to pull the tax collectors off the streets.” Lewis talked with two demoted tax collectors who detailed the situation: “The Greek people never learned to pay their taxes…because no one is punished. It’s a cavalier offense – like a gentleman not opening a door for a lady.”  Two thirds of Greek doctors reported a non-taxable income of below 12,000 euros a year. “The problem wasn’t the law, . . . but its enforcement.“ Greek courts take up to 15 years to resolve cases, and tax cheats just go to court. Sounds familiar again?

Do you now see the value of Kim Henares’ work?

Lewis then turns sociological in perhaps the most revealing part of his essay which I quote in its entirety, as it captures so much of our misgivings on the Filipino character, and perhaps realize it is a human frailty, not just Filipinos’:

The Greek state was not just corrupt but also corrupting. Once you saw how it worked you could understand a phenomenon which otherwise made no sense at all: the difficulty Greek people have saying a kind word about one another. Individual Greeks are delightful: funny, warm, smart, and good company. I left two dozen interviews saying to myself, “What great people!” They do not share the sentiment about one another: the hardest thing to do in Greece is to get one Greek to compliment another behind his back. No success of any kind is regarded without suspicion. Everyone is pretty sure everyone is cheating on his taxes, or bribing politicians, or taking bribes, or lying about the value of his real estate. And this total absence of faith in one another is self-reinforcing. The epidemic of lying and cheating and stealing makes any sort of civic life impossible; the collapse of civic life only encourages more lying, cheating, and stealing. Lacking faith in one another, they fall back on themselves and their families.

Take a step back, breathe deeply and remember what the Greeks accomplished for mankind centuries ago, many even before Christ: mathematics, philosophy, scientific discovery, government and the notion of democracy and representation. The Olympics. Theater and architecture. Mythology.

And now they are on the brink of disaster with no clear path in sight. The very measures the government will impose to cut costs and raise revenues will likely drive away the remaining productive parts of its economy.  How in the world can a race so smart and accomplished get to this point?

Now let’s go to the Tiglao article and connect the Greek drama. Tiglao comes up with very cogent arguments on this “malady” of choosing leaders on the basis of  name recall, celebrity, or genetics. He focuses on performance, ability and track record, but Tiglao fails to consider the prerequisite, the requirement before we even consider the arguably second-stage issues which he discusses. This requirement is character or integrity, which we have demonstrated in the Greek case to be the lost element which caused their decline despite their immense past achievements.

Nowhere does Tiglao discuss or consider it, and perhaps it is not that hard to understand this oversight, considering the depths to which his former boss has sunk. Otherwise, how in the world can a President like Gloria Arroyo – so smart and accomplished and of  distinguished lineage get to this point?

We do not know yet how this will play out. Riots in Greece due to the cancellation of critical government services has not recurred. There have been half- serious recommendations for the Greeks to sell their monuments/ruins or islands to raise cash. If you haven’t visited the Parthenon or the Temple of Athena, this may be the last time you can go before riots engulf the country. Or you can wait it out till the cost of tourism becomes so low, we can all go to Athens on a shoestring budget.  And reflect on what ailed the Greeks and Gloria Arroyo, and why character comes first.

 

Comments
71 Responses to “On being smart and capable, but no character”
  1. Greeks and Filipinos. I happen to live in a very Greek part of Munich and know how many vices and virtues they have in common with us. They are a maritime people like we are, they are friendly, sociable and warmhearted but can also be treacherous and vindictive, they act like machos but there are a lot of bakla among them as well (probably has to do with seafaring), they are very often gamblers and spendthrifts, and they like to find all kinds of “workarounds” for stuff.

    The Moodys credit rating for the Philippines is somewhere in the Bs though, Greece in the low Cs. Perhaps it would be better to throw Greece out of the Euro and include the Philippines instead?

    Character is truly more important than intelligence – very recent personal experiences confirm it.

    • andrewlim8 says:

      Even if it were at all possible, I do not think it would be a good idea to join the EU. By the way, Michael Lewis also wrote a good piece in this series about Germany, and its cultural traits which enabled it to survive the financial crisis of others.

  2. dsaints says:

    indeed! well said. taking the line from your previous blog “Character magnifies the man”..

    • Joe America says:

      Right, dsaints. I ran Andrew’s blog right away because it fits so well with the point of the “magnifies” blog. His Greek example points out the dangers in going away from good character.

  3. hackguhaseo says:

    It is as it always is. I’m surprised few people actually realize that this is the problem, in the Philippines especially. I’d take a fool with a good heart and an honest soul over smart, conniving thieves any day. Unfortunately, there is a shortage of the former and an overflow of the latter.

    Good piece Joe…

    • Joe America says:

      Kudos to Andrew. His last line is a literary exclamation point.

    • andrewlim8 says:

      There will always be men of poor character in any country at any given time. But what wins the day for progressive countries is for the ones with character outnumber and overwhelm the bad ones, and institutionalize the advances made.

      How to create those conditions continuously is the challenge.

  4. karl garcia says:

    They say beware of Greeks bearing gifts, now beware of Greeks bearing bonds. Should we beware of Grace because Grace sounds like Greece?
    Another one who is intelligent,but I wish will never run will be Miriam. She is quite a character,but not in a good sense.
    The Malasakit and tapang of Tiglao remains to be seen,The others were described perfectly by Joe in his previous blogs.

  5. chempo says:

    I wish Tiglao can read this blog. Each time I read Tiglao’s articles, my morning was spoilt.

  6. NHerrera says:

    Andrew Lim,

    I thought for a while you or your sources are story telling about a country called Greece. My goodness, how can a country and a people that we admire so much in our youth, sink so low. You wrote the operative word — Character. Reading it makes one feel we are still in relative heaven.

    Which gives us incentive to redouble whatever efforts we can to continue the positive turn in the trajectory — away from country character-related disaster — that President Aquino started.

    The connection with Grace is interesting. We have yet to see the full evolution of her character; we hope for the best from now on.

    About Tiglao, I have nothing to say. It will just upset the remaining parts of my day.

    Great piece. Thanks.

  7. josephivo says:

    It always take two to tango. Somebody to bribe and somebody to accept the bribe. Somebody to spend more than he owns and somebody to lent him money. Of all European subsidies, 1/3 went straight back to lending banks, 1/3 was invested immediately outside Greece by (rich) Greeks, 1/3 reached its destination. If Greece collapses the rich will have all their belongings abroad and they will not feel anything, to the contrary their local consumption will get cheaper. The banks will not feel too much, but e.g. every Belgian will have to pay +/- 30,000 peso or 120,000 peso for a family of 4.

    A “Greek” does not exist, there are Greeks and Greeks. The average Greek works 30% more hours than the average German. The less efficiency is not due to lazy workers, but to “lazy” bosses, they are responsible for the investments and the processes used.

    The great split between the oligarchs and the ordinary people is very similar with the Philippines. The hard, underpaid work of taxi drivers or OFWs is only upholding the privileges of the few, not benefiting those working double shifts. Not in Greece, not in the Philippines.

    The lesson is that even if the majority of the Greeks elect new leaders, they are powerless in the hands of oligarchs, financial markets, IMF or the World Bank.

    • josephivo says:

      Or economic growth today is for us, the well off, trickle down benefits tomorrow only if we can borrow money from someone else. In Greece, being in the Euro-group they could borrow a lot.

  8. jameboy says:

    Let me share what I posted in Mr. Tiglao’s article.

    Mr. Tiglao, you should be the last person to talk about “disease” because you served under a president who was a cancer, a menace to this country. I’m no fan of Sen. Grace Poe but to invent a story to make it appear she’s a creation of something bad is just pure evil.

    You talk of the “symptoms” of the disease starting when Erap Estrada won the vice presidency. Mr. Tiglao, didn’t the Filipinos, before Estrada, elect year after year the most qualified person in office? Didn’t we always voted for the cream of the crop of Philippine politics the last of which was Marcos?

    And where did we end up to? After putting highly educated people in office, after selecting people based on their education, experience and social status, the creme de la creme of society and politics, what happened to us? We ended up the sickest man of Asia.

    After Estrada, we tried to go back with the formula by putting in office Gloria Arroyo, the opposite of Estrada. Highly educated former senator from a decent family whose father was a former president. Again, we got burned because she’s proven that corruption and cunning knows no gender.

    The disease Mr. Tiglao is not popular people getting elected, it’s the people with high education and perfect background who raid the government coffers and enrich themselves while holding office. People just get tired of putting perfect people in office only to get screwed and hoodwinked every time.

    Back to the disease.

    PNoy will relinquish next year an office he inherited (in tatters, tarnish and soiled because of the undoing of an administration which, you, Mr. Tiglao was a part of) and will pass along to the next leader an office with renewed vigor, improved image and an institution that got back the respect and trust it fully deserved.

    Not bad for an alleged former underachieving legislator and a disease like Grace.

    I say, let’s have the disease of the present to prevent the cancer of the past from coming back. 👷

  9. Mariano Renato Pacifico says:

    “… how in the world can a President like Gloria Arroyo – so smart and accomplished and of distinguished lineage get to this point?” – ANDREW LIM

    This goes back to Joeam’s article “The Office Magnifies the Man”, The Office “makes the man”. Inherently Filipinos gets drunk with power and temptation of wealth in the shortest time. EXCEPTION: Benigno Aquino and lamentably, Cory Aquino.

    Well, these duo have pedigree to protect that goes back all the way to Lima Hong to China. Maybe Chinese blood makes the man. This is a New Think for Philippines lack stats on demographics and its effects. We most cling to our faulty observations that begets faulty perceptions.

    I say Filipinos are not smart and capable. I have surrendered to that notion. Even in corruption it is more in your face thievery. One point among millions, Napoles approached Ruby Tuason who she met in house hunting and “courageously” ignorantly in very Filipino style if “Ruby can introduce Napoles to Jinggoy because she got kickback for him”. THE GALL OF FILIPINO!!! Ruby with her maximum intelligence became the bagman of Janet. Wheeew !!!!

    If I were corrupt, I WOULDN’T APPROACH AND TAP SERVICES FROM A PERSON I MET AT EDSA. I am too smart for that. I thank America for making me smarter than typical Filipino. Grace Poe’s hurting over Binay Camp questioning her citizenship and residency which Grace Poe happily voluntarily filled, without being hurt, those information in her Application for President. I just wonder what was the diff. My suki fish vendor has more right than I do to ask for Grace’s qualification. It is our constitutional right. She should be smart enough not to be hurt.

    (DISCLAIMER: This is what I read from Inquirer she was “hurt” and Nancy and Grace are not talking)

    I DO NOT REALLY CARE IF GRACE POE HAS NOT MET RESIDENCY AND CITIZENSHIP REQUIREMENT. DO NOT REALLY CARE AT ALL. She’s smart. She’s capable. She got friendly face. She gave up good life in the U.S. to become a Senator (Maybe it pays more on the side, I do not know) Most of all I AM LOBBYING TO OUTSOURCE THE PHILIPPINE GOVERNMENT TO SOME BPO IN INDIA with 24/7 Government Support services.

    Benigno ran with name recognition and character. Benigno came from political dynasty which was outlawed in 1987. Benigno was not smart and capable. BUT LIKE WHAT JOE SAID, “THE OFFICE MADE HIM A MAN” !!! He is now capable and smart.

    Which comes first? The Office or the Man? Let’s get rid of the chicken and the egg that is old think. Comes New Think: Office or the Man?

    • Joe America says:

      Ah, some good original thinking this morning, I see. It is true, Grace Poe is easily offended and hurt. That’s why she went after Purisima after he failed to show up at her hearing. So it gets translated into vengeance. She may be more Filipino than you give her credit for, as that is the style of local politics here. Beware, Nancy. Beware, old man Binay.

      Now the question is, who will her vengeance favor if she were President? Us or her friends and backers? I don’t know, but I do know that a green President will make mistakes, will get criticized, and will get even. She needs more time to grow a civic shell, I think, to separate her emotions from the irrational deeds and sayings of others.

  10. bauwow says:

    @ Andrew, thank you for an excellent, well written article.

    If we read this article to Binay, stressing the importance of character and integrity in the development of a nation, he would surely reply that it all sounds Greek to him.

  11. manuelbuencamino says:

    Tiglao’s mother would have thrown him away and raised the afterbirth in his place if she could have foreseen what he would become. His father probably wishes that the sperm that became Tiglao had gone into a towel instead of his wife’s uterus. 🙂

    • Joe America says:

      Let me just confirm . . . you don’t like the guy, eh?

      • henry david says:

        such subtle humor mr buencamino has, eh, mr joe?

        even tiglao’s parents must have found him cute when he was a toddler….

        why even my high school classmates had a crush on gloria when she was in assumption college….

        seriously, how mr tiglao got to be that way, modeling himself after the insufferable kit tadtad,who equates his speculations to facts is mystifying. alas, poor robbie, i used to like him, a fellow of good sense …until he turned apologist for gloria and heaped scorn on a president doing his best to get our country on the right track…

        the initial trajectory of a person’s life can make surprising turns…

  12. Nagimasen says:

    All of the industrialized world have high level of debt. The culprit is the welfare/health system.

    • hackguhaseo says:

      Finland, Sweden and Denmark will prove how wrong you are.

    • Joe America says:

      What would you do about the poor?

      • Nagimasen says:

        Im just stating a fact that the reason for high level of debts is due to these liabilities

        Regarding social safety nets, in theory, you dont need it as long as you are working but there are no more jobs ( for those in between low skilled and highly skilled )

        The only recourse is TAX the rich. How to do that, in an era of globalization, i dont know

        • Joe America says:

          Yes, income re-distribution is an enormous problem in democratic states that has not been solved. The only solution seems to be bring down the state, and that causes incredible short term pain. I agree that social programs mainly suck the middle class dry and the rich keep on getting richer. The problem is, like the oligarchs in the Philippines, they fund the politicians. The political action groups have enormous commercial backing in the US, too.

  13. Mariano Renato Pacifico says:

    OUT-OF-TOPIC

    “The expansion of the plant in Lipa, which today has 12,500 employees, is expected to cost 12.3 billion yen or about P4.6 billion.” – JOE’s MUST READ

    That is twice the cost of Binay Parking, whereas, EPSON’s 4.6 Billion will employ 20,000 employees at discounted pay.

    I suggest that Binay Parking be converted to a factory to recover the cost.

    • karl garcia says:

      my off topic must read would be the chicken dinosour.We will run out of chicken feeds, everything will be difficult for they are no longer chicken feed.

  14. John Dyte says:

    Nice article Joe! It made me ask myself what motivates me to pay taxes and why it might differ in other countries. I dont think it has anything to do with character. I think it has more to do with the way the taxes are implemented and of course the amount and nature of the taxes. We cannot avoid basic sales taxes on commodity items. But some taxes such as the sale of a second hand car between private parties in California with a tax rate of around 8% tend to be circumvented by mutual agreement to lower the paper price of the car. Do you think this will change much based on the ethnicity or national character? Or if it where implemented in other countries? The nature of each countries source of government revenue may also dictate the motivation to pay basic income tax. In the U.S., the government is not allowed to do business. It sometimes does but by law it should not while other governments tend to own railways and of course derives revenue from that. In my opinion, when the governments sole source of income is taxes, it will create an infrastructure to ensure collection while governments with other sources will be less aggressive.

    • Joe America says:

      Andrew Lim wrote it, and I agree, it causes one to think about the ways in which our government systems are a part of the problem instead of the solution. Your comment is most interesting. I’ve always wondered about customs fees, which seem to be a source of great corruption and punitive to trade. I’d imagine they are counter-productive taxes.

  15. methersgate says:

    A Filipina friend who works in Greece described it as decidedly more corrupt than the Philippines – and she cherishes few illusions about her own country.

  16. Micha says:

    andrew,

    The Vanity Fair article was dated 2010. A whole new calculus is going on now. Let the Greeks figure and work it out for themselves. They are unique people with unique problems – the solution of which does not lie from the diktats of European bankers and EU policy makers.

    Reclaiming their monetary sovereignty is the right step forward. The sky won’t fall for both the Greeks and its creditors after the default.

    The Euro project had been a nightmare overall especially for the peripheral nations :

    http://ei.marketwatch.com//Multimedia/2015/06/16/Photos/ZH/MW-DO175_euro_c_20150616121435_ZH.jpg?uuid=21332c82-1443-11e5-b565-2257ba3ca026

    The international bankers who enabled the credit bubble have as much to answer for the tragedy.

    • Nagimasen says:

      Whether they default, exit from the euro, they still need to raise their revenue to pay bills. And there is no scaping their old debts. Just ask Argentina

  17. edgar lores says:

    *******
    1. In Greek mythology, the hero Odysseus encounters a tribe of lotus eaters on his journey home. The tribe dedicate their lives to eating lotus leaves which brings blissful forgetfulness. The modern Greeks have succumbed to this temptation.

    2. A lotus-eater is “a person who spends their time indulging in pleasure and luxury rather than dealing with practical concerns.”

    3. Many Filipinos, too, are lotus eaters or hedonists. We spend our lives in pursuit of pleasure and luxury and, in order to attain these, the extent of our practical concerns is to earn a fast buck.

    4. Even our priests are hedonists although they are supposed to lead ascetic lives.

    5. The unmentionable columnist who does not see character as a prerequisite to public office is, of course, pushing for the aspirant who has a revolting character.

    5.1. There seems to be a host of unmentionable columnists supporting this aspirant. These columnists bring to mind the one-eyed creatures called Cyclops. The one named Polyphemus was blinded by the hero Odysseus who drove a wooden stake, hardened by fire, into the monster’s eye.

    5.2. It is interesting that Odysseus gave his name to Polyphemus as “Outis” which means “Nobody”. When the brothers of Polyphemus came to his rescue after hearing his shouts for help, Polyphemus in answer to their question as to who hurt him said “Nobody”.

    5.3. Nobody! Hah!

    5.4. In the news and social media, we the Nobodies are driving the stake of truth and integrity into these cyclopean columnists.
    *****

    • karl garcia says:

      I thought lotus eaters are a rock band who sung “German Girl”. 🙂 We nobodies will drive integrity.btw I could not find jameboy’s comment in the Tiglao article’s comments section,they usually delete comments and that make them sound like a choir.Good thing jameboy shared it to us.

      • Joe America says:

        Damn. They did that, eh. I’m going to run jameboy’s comment as a blog. Headline that baby. Maybe Saturday.

      • jameboy says:

        You were right, my post was removed. What was left was the ‘correction’ I made in the last paragraph.

        I’ll try to post it again because I think there was nothing bad or against policy in what I said. 🙂

    • andrewlim8 says:

      @edgar

      Re number 2, you may have hit on the reason why the Greeks, smart as they are, fell behind much of the world after leading it in the BC era.

  18. Bing Garcia says:

    Grace Poe for President!

  19. Nagimasen says:

    The pinoy will pay tax and follow the law if they know they could not get away with it

    Until now im still wondering why Singson is not being hailed to court for tax evasion?

  20. Agree with Nagimasen. Filipinos cannot become Germans and suddenly adopt “character”, anymore than German can suddenly become Filipino. Instead, you change the system: make tax laws simple and fair, incorporate IT and automation so that chances for abuse and non-payment loopholes are closed, and go after tax cheats. If you did that, you would find even the Greeks will pay taxes.

    • DAgimas says:

      I think the reason why we have a very low tax collection to gdp ratio is that LGUs are not collecting property tax properly. Considering that home values are already in the millions in the cities yet we pay more prop tax here in the US even though home values are only in the 400k

      • Joe America says:

        Yep. Locals don’t raise the property taxes because the landed won’t support their re-election. I heard that directly from a city tax guy back in 2006.

  21. Going back to an old discussion on this blog (Attention: MICHA) : this Greek tragedy proves that monetary sovereignty or not, countries (like people) do have to live within their means.

    • Micha says:

      You can do better than that charles. It does not prove anything because the Greeks surrendered their monetary sovereignty to the troika.

  22. Micha says:

    The coming into power of the Syriza party has re-calibrated the view of the Greeks on their economic suffering. While it is true that they may have been profligate in their ways prior to the 2008 global economic crisis triggered by housing bubble, their profligacy was not, in and of itself, the real cause of their malaise. Most of the irresponsible behavior was imposed from outside, notably the undemocratic prescription in response to the global contagion coming from the troika of IMF, ECB, and the European Commission.

    If Alex Tsipras and his party could handle the default and the consequent return to the drachma rightly, that would confirm that they are not only proud people with a long history but also, as you said, smart.

  23. DAgimas says:

    And Pinoys are not corrupt until they are in a position to do so…. And if they know that they can get away with it . Dont know if this is a manifestation of weak character or just a case of opportunity?

  24. Micha says:

    Greece should look at Iceland’s formula for success :

    http://www.commondreams.org/views/2015/06/12/iceland-jailed-bankers-and-rejected-austerity-and-its-been-success

    “Instead of imposing devastating austerity measures and bailing out its banks, Iceland let its banks go bust and focused on social welfare policies. In March, the International Monetary Fund announced that the country had achieved economic recovery “without compromising its welfare model” of universal health care and education.

    Iceland allowed those responsible for the crisis—its bankers—to be prosecuted as criminals. Again, a sharp contrast to the United States and elsewhere in Europe, where CEOs escaped punishment.”

    • DAgimas says:

      Iceland has a population of what? 60K? with that population how could have they incurred such debt in the first place? fishing rights alone or excess electricity sold would give them enough revenue

      • Micha says:

        It’s an independent republic operating a free market economy. After the privatization of its banking sector, it moved from agriculture based economy to banking and financial services and was one of those OECD countries severely affected by the global financial crisis.

        Iceland’s relatively small population notwithstanding (320,000 actually), it’s a living experiment on how to operate a liberalized economy after a severe recession.

  25. Micha says:

    On the other hand, Merkel and company will do everything they can to avert a default and an exit because they have more to lose in the event than the Greeks.

    In which case, Finance Minister Varoufakis might just as well confirm the fingergate wasn’t a deliberate hoax afterall.

  26. Micha says:

    The formation of the European Union (EU) paved the way for a unified, multicountry financial system under a single currency—the euro. While most EU member nations agreed to adopt the euro, a few, like the United Kingdom, Denmark, and Sweden (among others), have decided to stick with their own legacy currencies.

    There are currently 28 nations in the European Union and of these, nine countries are not in the eurozone—the unified monetary system using the euro. Two of these countries, the United Kingdom and Denmark, are legally exempt from ever adopting the euro. All other EU countries must enter the eurozone after meeting certain criteria. Countries, however, do have the right to put off meeting the eurozone criteria and thereby postpone their adoption of the euro.

    EU nations are diverse in culture, climate, population, and economy. Nations have different financial needs and challenges to address. The common currency imposes a system of central monetary policy applied uniformly. What’s good for the economy of one eurozone nation may be terrible for another. Most EU nations that have avoided the eurozone do so to maintain economic independence. Here are a few reasons why many EU nations don’t use the euro.

    1. Independence in Drafting Monetary Policies: Since the European Central Bank (ECB) sets the economic and monetary policies for all eurozone nations, there is no independence for an individual state to craft policies tailored for its own conditions. The UK, a non-euro county, may have managed to recover from the 2007-2008 financial crisis by quickly cutting domestic interest rates in October of 2008 and initiating a quantitative easing program in March of 2009. In contrast, the European Central Bank waited until 2015 to start its quantitative easing program (creating money to buy government bonds in order to spur the economy).

    2. Independence in Handling Country-Specific Challenges: Every economy has its own challenges. Greece, for example, has high sensitivity to interest rate changes, as most of its mortgages are on variable interest rate rather than fixed. However, being bound by European Central Bank regulations, Greece does not have independence to manage interest rates to most benefit its people and economy. Meanwhile, the UK economy is also very sensitive to interest rate changes. But as a non-eurozone country, it was able to keep interest rates low through its central bank, the Bank of England.

    3. Independent Lender of Last Resort: A country’s economy is highly sensitive to the Treasury bond yields. Again, non-euro countries have the advantage here. They have their own independent central banks which are able to act as the lender of last resort for the country’s debt. In case of rising bond yields, these central banks start buying the bonds and in that way increase liquidity in the markets. Eurozone countries have the ECB as their central bank, but the ECB does not buy member-nation specific bonds in such situations. The result is that countries like Italy have faced major challenges due to increased bond yields.

    4. Independence in Inflation-Controlling Measures: When inflation rises in an economy, an effective response is to increase interest rates. Non-euro countries can do this through the monetary policy of their independent regulators. Eurozone countries don’t always have that option. For example, following the economic crisis, the European Central Bank raised interest rates fearing high inflation in Germany. The move helped Germany, but other eurozone nations like Italy and Portugal suffered under the high interest rates.

    5. Independence for Currency Devaluation: Nations can face economic challenges due to periodic cycles of high inflation, high wages, reduced exports, or reduced industrial production. Such situations can be efficiently handled by devaluing the nation’s currency, which makes exports cheaper and more competitive and encourages foreign investments. Non-euro countries can devalue their respective currencies as needed. However, eurozone cannot independently change euro valuation—it affects 19 other countries and is controlled by the European Central Bank.

    http://www.investopedia.com/articles/investing/050515/why-these-european-countries-dont-use-euro.asp

  27. Micha says:

    Tsipras made a brilliant move by calling for a referendum…throws the despotic German bankers/technocrats/politicians off guard. It likewise affirms the exercise of direct democracy in the land where it was born.

    Now it’s Wolfgang Schaeuble who’s offering a fig leaf because he knows the troika miscalculated big time.

    http://www.bloomberg.com/news/articles/2015-06-30/schaeuble-said-to-see-greece-staying-in-euro-even-if-no-vote-ibjaov8p

  28. Micha says:

    It’s now clear that Germany and Europe’s powers that be don’t just want the Greek government to bend the knee. They want regime change. Not by military force, of course – this operation is being directed from Berlin and Brussels, rather than Washington.

    But that the German chancellor Angela Merkel and the troika of Greece’s European and International Monetary Fund creditors are out to remove the elected government in Athens now seems beyond serious doubt. Everything they have done in recent weeks in relation to the leftist Syriza administraton, elected to turn the tide of austerity, appears designed to divide or discredit Alexis Tsipras’s government.

    They were at it again today, when Tsipras offered what looked like almost complete acceptance of the austerity package he had called a referendum on this Sunday. There could be no talks, Merkel responded, until the ballot had taken place.

    There’s no suggestion of genuine compromise. The aim is apparently to humiliate Tsipras and his government in preparation for its early replacement with a more pliable administration. We know from the IMF documents prepared for last week’s “final proposals” and reported in the Guardian that the creditors were fully aware they meant unsustainable levels of debt and self-defeating austerity for Greece until at least 2030, even on the most fancifully optimistic scenario.

    That’s because, just as the earlier bailouts went to the banks not the country, and troika-imposed austerity has brought penury and a debt explosion, these demands are really about power, not money. If they are successful in forcing Tsipras out of office, a slightly less destructive package could then be offered to a more house-trained Greek leader who replaced him.

    Hence the European Central Bank’s decision to switch off emergency funding of Greece’s banks after Tsipras called the referendum on an austerity scheme he had described as blackmail. That was what triggered the bank closures and capital controls, which have taken Greece’s crisis to a new level this week as it became the first developed country to default on an IMF loan.

    The EU authorities have a deep aversion to referendums, and countries are routinely persuaded to hold them again if they give the wrong answer. The vote planned in Greece is no exception. A barrage of threats and scaremongering was unleashed as soon as it was called.

    One European leader after another warned Greeks to ignore their government and vote yes – or be forced out of the eurozone, with dire consequences. Already the class nature of the divide between the wealthier yes and more working-class no camps is stark. The troika’s hope seems to be that if Tsipras is defeated by fear of chaos, Syriza will split or be forced from office in short order. The euro elite insists it is representing the interests of Portuguese or Irish taxpayers who have to pick up the bill for bailing out the feckless Greeks – or will be enraged by any debt forgiveness when they have been forced to swallow similar medicine. The reality is the other way round.

    Not only has no German or any other EU taxpayer taken any loss bailing out Greece. The real fear in Brussels and Berlin is not that people in countries such as Spain and Portugal who have taken the brunt of eurozone austerity will oppose relief for ravaged Greece – but that they’ll want an end to austerity and their own debts written off as well.

    That’s what they call “moral hazard”. But it has nothing to do with morality and everything to do with a dysfunctional currency union, a destructive neoliberal economic model enforced by treaty and an austerity regime maintained to ensure a return to profitability on corporate terms.

    That’s why Merkel and the ECB mandarins want Greece’s surrender. Upstart democratic governments that challenge austerity must be crushed: the real risk of contagion is as much political as financial. This is, after all, a system where unelected institutions and other states have the power to override elected governments – in fact to impose not only policies but effectively governments too, as we may be about to see in Greece. Anti-democratic firewalls are built into Europe’s institutions.

    The achilles heel of Syriza has been its simultaneous commitment to ending disastrous austerity and remaining in the euro. That has reflected Greek public opinion. But there was never going to be an honourable compromise with the creditors, or much mileage in trying to persuade the authorities they were good Europeans. For the euro elite, the dangers of Grexit are outweighed by the risk that larger states could follow a successful Greek stand against austerity.

    Tsipras and Syriza’s determination to stay in the eurozone come what may has seriously weakened Greece’s hand. The economic dislocation of jumping off the euro train would doubtless be severe in the short term, though the costs of permanent austerity would almost certainly be greater thereafter.

    But Syriza insiders say there is little preparation for what anyway may be forced on them. The relentless pressure of the EU bureaucracy demands a strong and clear-headed response. Right now, for example, that means the Athens government immediately taking control of its banks, currently shutting down all transactions.

    http://www.theguardian.com/commentisfree/2015/jul/01/syriza-cave-in-elites-regime-change

    • edgar lores says:

      *******
      Thanks, Micha, for the update.
      *****

      • The Greek situation is horrible on the ground. A Greek woman told me that every four hours, somebody in Greece commits suicide due to personal bankruptcy. OK Spain isn’t doing well either, I have heard stories of people begging for food in parts of Madrid.

        The problem with harsh economic measures is forcing them on areas not prepared for it – German reunification quickly destroyed ex-Communist firms in the East which were the best in the Eastern bloc, but not ready for West German competition. Same with the EU – market freedom means that weaker, less efficient economies like Spain or Greece are at the mercy of stronger, more efficient economies like Germany which is the “US” in Europe. Eastern Europe went through enormous pain as well, countries like Poland and Czech Republic are more out of it than Hungary and much more than Romania and Bulgaria, OK Western Europe has gotten its karma for that with criminals from the East everywhere.

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