Friday, February 27, 2015

Krugman on Greece's interim deal with Germany

Paul Krugman is more a New Keynesian economist while Jamie Galbraith is more a Keynesian-institutionalist. The way things have gone recently, we may see a "Varoufakisian" economic school named after the current rock-star Greek Finance Minister. But Krugman and Galbraith are agreed that Greece has come out ahead on the interim deal they made last week with the Eurogroup Angela Merkel.

Jan Böhmermann has done an awesome video of the impression Varoufakis made in his first weeks in office, V for Varoufakis | NEO MAGAZIN ROYALE mit Jan Böhmermann - ZDFneo 25.02.2015:

Jens-Christian Rabe reports on it in Böhmermann-Video über Varoufakis: Halb Gott, halb Fleischspießchen Süddeutsche Zeitung 27.02.2015

Galbraith writes in Reading The Greek Deal Correctly Social Europe 02/23/2015, "in the end, Chancellor Merkel preferred not to be the leader responsible for the fragmentation of Europe." He talks about the possible political reverberations of the success so far of the new Greek government in standing up to Angela Merkel:

Alexis Tsipras stated it correctly. Greece won a battle – perhaps a skirmish – and the war continues. But the political sea-change that SYRIZA’s victory has sparked goes on. From a psychological standpoint, Greece has already changed; there is a spirit and dignity in Athens that was not there six months ago. Soon enough, new fronts will open in Spain, then perhaps Ireland, and later Portugal, all of which have elections coming. It is not likely that the government in Greece will collapse, or yield, in the talks ahead, and over time the scope of maneuver gained in this first skirmish will become more clear. In a year the political landscape of Europe may be quite different from what it appears to be today.
Krugman argues in What Greece Won 02/27/2015:

To make sense of what happened, you need to understand that the main issue of contention involves just one number: the size of the Greek primary surplus, the difference between government revenues and government expenditures not counting interest on the debt. The primary surplus measures the resources that Greece is actually transferring to its creditors. Everything else, including the notional size of the debt — which is a more or less arbitrary number at this point, with little bearing on the amount anyone expects Greece to pay — matters only to the extent that it affects the primary surplus Greece is forced to run.

For Greece to run any surplus at all — given the depression-level slump that it’s in and the effect of that depression on revenues — is a remarkable achievement, the result of incredible sacrifices. Nonetheless, Syriza has always been clear that it intends to keep running a modest primary surplus. If you are angry that the negotiations didn’t make room for a full reversal of austerity, a turn toward Keynesian fiscal stimulus, you weren’t paying attention. ...

So did the current Greek government back down and agree to aim for those economy-busting surpluses? No, it didn’t. In fact, Greece won new flexibility for this year, and the language about future surpluses was obscure. It could mean anything or nothing.

And the creditors did not pull the plug. Instead, they made financing available to carry Greece through the next few months. That is, if you like, putting Greece on a short leash, and it means that the big fight over the future is yet to come. But the Greek government didn’t succumb to the bum’s rush, and that in itself is a kind of victory. ...

Meanwhile, the first real debtor revolt against austerity is off to a decent start, even if nobody believes it. What’s the Greek for “Keep calm and carry on”? [my emphasis]

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