Le Show; 2015-07-19

From deep inside your radio. From the end of America, from the home of the homeless, I'm Harry Shira welcoming you to this edition of the show. Especially, they're all special, but this one is incredibly special because this has been a week of two major agreements coming to pass. One of which has gotten a lot of attention in this country, that is to say the agreement pending between the P5 plus 1 group and Iran, an agreement that's gotten less attention in this country, because we can only pay attention to one thing at a time, is the agreement, shall I say, foisted upon Greece by the Eurozone group, to which Greece's parliament midweek gave its highly reluctant ascent, and you know if you've been following this program for any length of time that when I turn to economic or financial issues, I turn for guidance to the proprietress and editor-in-chief of a really informative blog called Naked Capitalism,

Eve Smith. She was first off the mark with coverage of the, details, the gory details of the mortgage crisis that fueled the 2008 economic implosion. Last year she was first off the mark with coverage of the gory details of private equity and how California's huge public employee pension system was entirely in the dark about the fees it was paying for less than stellar performance by the private equity funds that it was investing in, and she has been great on coverage of the Greek crisis going forward to this day. Eve is in New York, welcome back. Thank you so much, Harry, great to be here. Let's start with a glossary because there's so much inside baseball, terminology, being thrown around in the context of the Greek crisis. So first, the dramatist persona, the ECB, the Eurogroup, and the IMF, please.

Well, I'm glad that you're starting with them because they are the people with the money. So you always start with them. That's right. So in any event, so the ECB is the European Central Bank. So they are the counterpart to our Fed, but frankly, the way they've handled the financial crisis has made the Fed look stellar, which is sort of a testament to this whole, that's sort of almost the headline to this whole stock, the leadership that's been demonstrated on all sides has been appallingly poor. And the ECB, unlike our Fed, has only a price stability mandate, and that plays a significant part in why everything that's been done is so retrograde. The second big player is the International Monetary Fund, which is, even though it's headquartered in Washington, D.C., and historically, the U.S. was the most influential player. The U.S. now has about six of its board seats. The Europeans have about a third developing countries have half.

So the U.S. has a strong voice in what the IMF does. It's a bit simplistic to see it as a sort of U.S. stooge. And they have been lenders in all the past Greek bailouts. We're on bailout. We had bailout one and two. And this one that's being talked about going forward will be bailout three. The third player is all of the Eurozone countries, and that's also a distinction that needs to be made. Europe is not one thing. We have the European Union, which is 28 countries. And so if you can go to Europe, you can go freely on the same passport among them all. But the Eurozone is the 19 countries that use the Euro. And the Eurogroup is a regular meeting of the finance ministers of those countries. And that's basically the decision making nexus for financial commitments. They're going to be made by those countries. They're fought out at the Eurogroup.

So when you hear Eurogroup, you can almost think this is the check-writing capacity of all of these 19 members of the Eurozone. Okay. Some more terms that get thrown around that are highly technical. It seems to me, at least in their ability to obfuscate, reforms, restructuring, fiscal consolidation, and haircuts. Okay. Let's do the mid-order. Reforms are used in a very funny way in the sort of Eurozone speak, in the way these bailouts have been done. Reforms are also what they call structural reforms. And if you were presented with a headline, you'd say, gee, this is all really reasonable because they're supposed, these reforms are supposed to make these economies more efficient. But the notion they have of efficiency is a bit perverse. It's really basically boils down to reducing government spending and crushing labor. So if you had a healthy robust economy, you might say, gee, yes, let's think about cutting government spending in places that we really are inefficient, but there it's a much more

radical way of looking government spending. It's sort of a neoliberal frame. It's almost like Grover and Orquist. We want governments so small, we can surround it in the bathtub. I mean, it really is that version of thinking with a better technocratic veneer put on it. So you're saying it's an ideological approach rather than a technical approach? It's an ideological, in fact, one of the things, I'm not competent to do this, but I had some readers on my site. There was a series of structural reforms proposed for Greece. I have never been able to find the real copy, any version proposed by the Europeans, but there's a version proposed by the OECD and it's 300 pages. And I had somebody who was expert in the construction industry, look at the construction industry section. And he said, basically, this is ridiculous. There's a reason that the construction industry is local. Things like marble, which Greece has good marble and aggregates, the things you used to make concrete are heavy. Therefore, that part of the construction industry is almost always local. New York has a lot of limestone from the Hudson Valley for that reason.

And yet, the construction industry section assumes that somehow you'll get pan-European wide economies if you change how it's regulated. And so it's basically a prescription for looting the Greek marble and stone industry. I mean, so you've got stuff like that in there that somebody who doesn't understand anything about the microeconomics of a lot of these industries just puts on a simple minded hat. And basically says, well, deregulation has to be better, when a lot of times the regulations actually are there for good reasons. Restructuring. Okay, restructuring is a term which is applied in this context to the debt because Greece has more debt than it can possibly pay. Now, restructuring gets your second term haircuts, restructuring or later term haircuts, restructuring can basically, like when you have a mortgage, and let's say you've lost your job or you're between jobs, but you have a job offer and you won't get your new job. You won't actually show up at work for six weeks. In the old days, banks would restructure your mortgage, which basically meant they would

work out a deal where you would wind up paying less over time. You would not pay the original amount that was due on your mortgage. Now there are two, broadly speaking, there are two ways you can go about it. One is that you can actually give, and this is because of the term haircut, you can actually cut the amount. If your mortgage was originally $160,000, the bank says, okay, we'll call it 130, and then otherwise we'll just readjust all the terms with the lower face amount. Lower principal. Lower principal amount, lower total amount that's due, the principal is basically the amount you're expected to pay at the end. You've got the mortgage amount, and then you've got all the interest payments you make along the way based on that principal amount. The other way of doing it is to reduce the economic value of the debt without reducing the principal amount, and the way you do that, for example, if you had a mortgage, as you said, a 15-year mortgage, you'd make it a 30-year mortgage, and instead of having the interest

rate be, let's say you had an older mortgage, 5%, you'd make the interest rate 3%. You have, in fact, given the bar or relief in terms of how much they pay, but you have not reduced the principal amount. So that's what we were taught in the Heady Days before 2008 to call a refi. That's right. That's right. And fiscal consolidation. Fiscal consolidation is really such double-speak. Fiscal consolidation is lowering the amount of debt that a government carries. So for instance, Greece has a ginormous debt to GDP ratio right now. It's over. Again, if you use the headline amount of debt, it's roughly 170%. Fiscal consolidation is the process by which you get that number down. The problem is, again, with these oddball economic notions that are popular in the, particularly popular in the Eurozone, in fact, we should probably talk about order liberalism if we have to.

But is that the notion is it's sort of like you can starve your way to health, that if you're a government, you can run surpluses, and that way you can pay down the debt that way. I mean, it's sort of thinking that a government is a household. And the problem is, while you, when you as a household cut your spending, it's not going to affect the health of, you know, the state in which you live, you know, it's, whereas if when a government cuts its spending, its spending is everybody else's income. So if the US were subject to Eurozone type thinking, you know, somebody would walk in and say, you have a health care industry that's 16.8% of GDP. That's absolutely ridiculous. You have to get this down to 8% of GDP in three years. And you have to fire everybody in, you know, you have to cut Medicare and Medicaid spending drastically. You have to, you know, shut all the private insurers. You know, these are all sort of desirable things, right? If we look at our context, but you have these huge transition costs. You have what happens when all the people in the health insurance industry becomes employed, what happens when Medicare and Medicaid spending is cut radically because you're actually

making things more efficient. You know, that's a, that's actually hit to everyone's spending. And what are you going to do to compensate for it? Well this, the notion here is you don't compensate for that. You know, you have the, the greater, and I'm talking, and here I'm talking about a virtuous case where it actually makes sense, right? I mean, we do have too much health care spending, but you still have these transition costs. And they see that as a, as a feature, not a bug that, oh, you know, we want the spending cut and they don't, and they don't think that we cut the spending and that actually shrinks the effect is that it's a numerator, denominator problem, right? You cut the spending, but then you decide the panic winds up falling even faster. So it's like a dog chasing its tail, it just never catches up. You do cut the debt level, but the GDP shrinks more. And so the ratios never get better, they get worse. And that's, that's clearly been the case in Greece. And that's been the case in the other Eurozone countries until basically they sort of hit a bottom where they begin a week recovery, but they have a huge bottoming process where that happens.

Well, I want to get to the other Eurozone countries that went through something like this in a moment, but the other sort of doorstep that I want to cross here before we get into the, the weeds is, you hear sometimes American politicians, you hear sometimes British politicians say, we don't want to become another Greece. Is it possible for the United States or Britain to become another Greece, and if not why now? Oh, no, because they control their own currency. No, the US, the Greece is much more like a state or a city. Greece is much, if you want to talk about American comparisons, much more like Detroit. The US can never, or in Britain, can never go bankrupt. They can never not pay their obligations. I mean, Greece literally had a problem in 2000, has had a problem that it can't, like when it defaulted on the IMF on June 30, it couldn't, it couldn't get the money. The US can always make more dollars, the UK can always make more pounds. The risk we run is never, not going bankrupt. It's that we might create too much inflation. Okay, another kind of basic baseline question.

To whom does Greece owe its debt? Who are its creditors? That's very good, because that's another reason why people don't understand why this becomes such a train wreck. The main lenders now to Greece, the biggest are the other European countries, and that's why this has become so massively political. Over 60% of the debt now outstanding is among the Eurozone countries. So all those 19 countries, I mentioned at the outset, are lenders to Greece. They have lent over 60% of the debt. Then about 10% is the IMF. About 3% is the ECB, and the rest is to private bondholders, to private investors, and they were restructure. They used to have a lot more outstanding, and in one of the past bailouts, they took really huge write down. So they've taken really big write down to now they're about, you know, they're whatever the residual is.

It's less than 30%. One reads somewhere, I don't remember exactly where, that a great amount of the Greek debt at one point in time, at least, was owed through the French and German governments to French and German banks, is that a misapprehension? It's a little bit of a, it's correct, but it's a little bit of a simplification, because there is this, it is absolutely correct that the Greek bailouts and the bailouts of the other periphery countries, because the first time we had crises, all the periphery countries, and we're periphery. Again, that's another term, which is used periphery. They've been called different things. They've been called pigs. They've been called gypsies, based on the, based on the initials. But it's been, you know, Greece, Portugal, Spain, Ireland, and to a lesser degree, Italy. Italy has a huge savings rate. So they, they aren't, they've sometimes had high interest rates, but they aren't at the same level.

They're like a marginal, they're like borderline case. The other ones had much more clearance of their problems. But in any event, what happened is that the European banks went to risk-weighting rules, where sovereign debt was given a very favorable treatment. Wait as in, guess your weight, not waiting for your turn. That's right, waiting, yes, that's right, correct, waiting. That is correct, sorry, yes, to clear that up. So for instance, if you make a loan to, you know, a private individual, if you were to lend to me on a credit card, that would be weighted at 100%. If you, if you lend to a sovereign country, it's given a zero risk weight in terms of how much equity you have to hold. So that made it incredibly attractive. So the rating agencies didn't rate these countries properly. So they're partly at fault. I mean, therefore these countries loaded up on all of this periphery debt, periphery, you know, the country, the debt of these weaker countries, because it, you know, the way they were measured, it looked like a free lunch.

They got, they got a fairly high interest rate at what was counted as zero risk. So they were, they were incentivized by bad regulations to operate this way. So then what happened when the crisis hit is all of these countries budgets blew out. I mean, before the crisis did, this didn't look quite so nutty. But then when the crisis hit, what happened in all of these countries, you know, it's like sort of what Warren Buffett says, you know, when the, when the ocean, you know, when the ocean recedes, you know, the wave recedes, you see who's, who's not wearing a swimsuit, you know, these, in those countries, and it happened in the US too. But in every country, when the crisis hit, you saw tax receipts fall because economies went down and you saw social spending go up. That was the biggest reason that all of these countries suddenly had this big explosion in how much debt they had because that wound up being, being debt, you know, debt financed, you know, that's for unemployment insurance and all those other things. All the sort of food stamps, all the sort of automatic, you know, stabilizers, as they call them, that kick in. So in any event, so that happened in all the countries, and then what they also discovered

in Greece was that Greece had been faking its numbers for years. And that finally got exposed. Greece had been, Greece, the, in fact, that's a Euro stat, which does the numbers. They had been in regularly since 2004 because they knew Greece's numbers were phony. And Goldman Sachs played a role in fudging Greece's numbers too, and they did the same for Italy by doing currency swaps that enabled them to hide some of their debt. But you know, basically they were shown to have debt, basically a 16 point, 7% of GDP budget whole. And that was why they couldn't finance in the markets anymore, and that's why they suddenly had to have these bailouts. They couldn't, they couldn't sell bonds anymore. And they had these massive deficits they had to keep funding. They couldn't fund their government unless they got some kind of debt relief and debt restructuring. So that's sort of, that was sort of the genesis of how this all came about. We're recording this on Friday of this week, and as of today, the German parliament, again, with some hesitation, with some revolt by the conservative backbenchers in the governing

party, has agreed to this program. And some interesting quotes came out of this. One was Angela Merkel, the chancellor of Germany, saying of Greece, they have had five years of failing to meet reform promises. Is that an accurate description of Greece's behavior over the last five years? Well, it is, except no one has been subject to reform targets has met them either. So it's holding Greece, because a bunch of other countries have gone through IMF reforms and have exited them, Spain and Portugal and Ireland have all exited their programs, and they never implemented all of their reforms. Exited their programs mean that they got to the point where they paid the IMF back and could return to the private, return and finance their government by borrowing and didn't need support anymore. So in fact, with the other countries, they were able to design these programs which were extremely punitive, and you can definitely say were socially unfair and destructive.

And in kind of a, you know, they leached the patient and still didn't kill the patient, right? I mean, it still looked like it worked, even though you could basically say there are better ways, much better and less socially costly ways you could have gotten to the end point. With Greece, Greece actually implemented more of its reforms than any of the other Eurozone countries that participated in bailout programs. The point of, there's one point where the criticism is fair and we need to carve this out, which is that part of why the reform programs have been even more draconian in Greece than anywhere else, part of it is that they were in a much deeper hole than anyone else. And for them, there just no way this leaching program was ever going to work. I mean, even the IMF in 2010, their own staff said the numbers weren't going to work. So everybody knew these programs weren't going to work from the outset. But there is one set of reforms Greece should have implemented and didn't, which is fixing their tax system.

Greece has one of the narrowest tax bases in terms of income taxes in all of Europe. Only about, they have an enormous cash economy. Their shipping industry is a globally competitive industry, which is basically not tax, you know, and they don't even tax, now there are sort of reasons that the flags can be reshipped that makes it hard to tax. But even the wealthy Greek shipping magnates who live in Greece managed to escape taxes, which is absurd. I mean, you should at least be able to tax the people on their personal incomes. But basically, you have oligarchs who escape taxation. You have a class of almost all the small businesses substantially escape taxation. Doctors insist on being paid in cash and grossly under report what earn. So basically, the only people who are who are taxed properly virtually are civil servants. And Greece does have a rather large, I mean, that's another criticism. Greece still has an overly large civil service and sort of a few other categories, you know, companies that are big enough in multinationals where, you know, they report their people's income in a normal fashion.

And so, you know, they haven't succeeded in broadening the tax base. That was one of the things that the ECB, which we've mentioned before, one of the lenders, the International Monetary Fund and the European Commission. You know, they have insisted that Greece fix its taxes and they even basically installed somebody to fix the taxes. And he was only there a year and quit because he was getting so much opposition. So there's one set of reforms that you can fairly criticize Greece for not implementing. The other, on every other axis, the charges are really trumped up. I believe I've learned from your blog that they achieved a near impossible budget. So there's a budget surplus ahead of schedule. Let's talk about these other countries that took the medicine as the Eurogroup sees it, Ireland, Portugal and Spain. What's been their experience and have they come out of their experience feeling sympathetic to Greece or otherwise?

Well, that's rather, yes, that is a complicated story. You know, basically, they all swap, then I think again, we have to differentiate between the government's versus the people. You know, one of the most dramatic cases was Ireland, where Ireland had an over 20 percent decline in GDP in nominal terms. And one of the reasons it was basically able to finally show a quote recovery and quote was that they had significant depopulation that a lot of people left. So that you had the government budget reduce literally because they had fewer people that they needed to support. You know, I mean, they actually had the same experience in Latvia also, which is another one of the self-declared success stories. And the problem with those governments is that they feel having put their population through this level of punishment and having gotten themselves back in sort of lender good graces by this incredibly painful austerity medicine is that, is that letting Greece,

which is sort of an even bigger problem child, get waivers that their public didn't get would look very bad for them. So they've actually in these negotiations have become more, if anything more hard line against Greece and Germany. I mean, they've sort of allowed Germany, you know, in sort of the broader international media to be the more visible heavy. But they've been backing them 100% and in certain key points in the negotiations, for example, the Spanish government and the Latvian government have actually been more aggressively and Finland too has also been very aggressive even though they didn't have to take, you know, they did born to austerity program type. They're just sort of ideologically very hard line. They've been at various points even more, even more aggressive than the Germans. You're a quote that came out on Friday, Donald Tusk, the former Prime Minister, I guess, of Poland, is now the head of the European Commission.

There's so many European... Council. Council. Yeah. That's always very confusing. Yeah. He chairs the Euros of all the EU meetings, so the 28th group, not the 19th. So not the Eurozone, not the countries that use the Euro, but everybody in the European community. Union. Right. On Friday of the deal, it's on the table as of now, the emergency deal that was hammered together at the beginning of the week. There is no punishment for Greece and these are very soft conditions. It's hard for me not to burst out laughing. I mean, it's just, you know, this, what has happened to Greece has been compared, and this is not an exaggeration to the, actually, the problem is it's not exaggeration terms of the degree of punishment. It's not quite right in terms of the effect, but it's been compared to both the Versailles Treaty, which was imposed on Germany at the end of World War I and eventually sparked, you know, the rise of Hitler.

I mean, the whole sort of series of events it kicked off. And the Soviet Union's invasion of Czechoslovakia, and I think it's actually closer to the latter than the former. The Greek government is basically stripped of its sovereignty. It's on anything that's, that's fiscal. And what counts, you know, what got power does the government have, once you take it's freedom over, over, it's over the budget away. Any fiscal measures are basically subject to the approval, the second guessing of the creditors. It has been required to set aside 50 billion of government assets to be held in trust while the deal, and even though it's technically in, you know, the vehicle it's put in is technically in Athens, it's under the control of the creditors. So basically any government assets that are left, there was already one round of privatizations which didn't yield as much money as the creditors hoped. There's not 50 billion worth of assets left in terms of market value. This is just, this is just a punitive exercise in attempting to make the numbers look like

they work. The government assets, we're talking about airport. People have discussed whether it might even include stuff like the Parthenon, which I can't imagine that it would, that would just be too provocative. But you know, in Detroit, they were talking about taking the city, I gather, the city's art museums must have been owned by the city. They were talking about taking the city's art and the only reason that wasn't taken was that there's still enough people living in the wealthier parts of Detroit that they bought the art collection themselves to keep it in the city. Being rights to the Parthenon would fetch a pretty penny, though. The quick and loans Parthenon. Parthenon, yes. You made mention of this earlier. This is all about grease being in, in, in hawk to these creditors. And this week at a strange timing department, the IMF comes out with a statement from its staff report saying that grease's debt is unsustainable and under any program that's been proposed so far, grease can't pay its debt back.

And the only way to deal with this is to either haircut it or give it the other kinds of restructuring you mentioned earlier. Then Christine Lagarde, the head of that IMF, has been on a round of media interviews where she appears to sometimes some of the interviews walking back that statement and others supporting it. And then on Friday, the German finance minister who's been probably the hardest line person in terms of public statements on the whole affair throughout Wolfgang Schoibler said that grease's debt is not at a realistic level. So is everybody just putting around the basic issue and cobbling together solutions that don't address it? Yeah, and that's basically been the path that we've been on since, you know, since the crisis struck in this particular crisis, a 2010 periphery debt crisis. And it's driven in large part by the behavior of the leaders of the Eurozone at the time

it was, you know, at the time it was Merkel and Sarkozy and now it's Merkel and Hollande. Basically what Germany and France agreed to, everyone tends to follow and that's usually because, perversely, it's usually because Germany and France tend to have a sufficiently different points of view that everybody follows if the two of them have duked it out. And in fact, in fact, in the negotiations we have this week, it was the only reason we have a deal at all. And this is part of why the Germans are whining so much, is that Hollande pushed extremely hard for a deal. The only nations that were in favor of grease staying in the Eurozone were France, Italy, and Cyprus. So the consensus was in favor of kicking of, well, it formerly they can't be kicked out, but if they were not to get a new round of financing, they would have to de facto gregs it. They would have to, you know, do an emergency conversion to Drakma and somehow try to,

you know, patch together their banks and it would, you know, it would just be a complete train wreck. Something that Shauble of the German Finance Minister has floated at least twice in the last week as perhaps the more desirable course for Greece. Well, it's a more desirable course for Germany because then they don't extend any more loans and they sort of cut their losses. So let's not kid ourselves as to who would be the beneficiary of this program. And Germany would sort of win politically because Greece would become such a train wreck that it would, I mean, either way, the purpose of this is not economically rational. Germany is basically running the eurozone for its own interest and it is pursuing a set of incredibly incompatible objectives. It runs very large trade surpluses within the eurozone, but it exports a lot too. It exports a lot. That's right. It exports a lot. So it's a huge exporter, but it does not want to finance its trade partners and you can't do that.

If you run exports like look at how China, you know, has enormous, you know, holdings of US treasuries. If you are a massive exporter, you wind up being in some form, whether it's by holding treasuries as in case of China or by holding other types of investments. You wind up being an investor in your trade counterparties. So Germany doesn't want to do that. And it also doesn't want to do the one thing that might square the circle a little bit, which is to have the eurozone be more economically integrated and to have more what they call fiscal transfers, which basically means federal level spending as another way of sort of fixing the equation. For instance, you know, in the U.S., we don't think about the fact that the income of the average New Yorker is as much higher than the average, Mississippi, and as the income of the average German is relative to the average Greek. We don't, you know, we in New York, New Yorkers tend to think more about the fact that we pay high state taxes. We don't think about the fact that as higher average on higher income people, we pay more taxes. And therefore, the people in Mississippi, we basically net transfer money to Mississippi.

We don't think about that. In Europe, they think about that, and they resent it enormously. So that was in fact one of the, I'm generally not a fan of the now ex-Greek finance minister Janis Ferefakis. I think he played a terrible game in terms of how he handled the negotiations, but he did have a proposal that he called the modest proposal, which would have allowed the Europeans to sort of fix their problem without changing any of their rules, which is very difficult because they're treaty changes. And one of them was to use the European Investment Bank to make big infrastructure spending programs in places like Greece, and that will be funded by the European Central Bank. So that doesn't cause any, you know, that doesn't hit any national budgets. And that way, you could basically do the same thing that New York does to Mississippi. You could have fiscal transfers to places like Greece that would have their economies grow faster, so that they would become sort of, you know, healthier over time. And also, you'd have over time, you'd have less disparities between these economies,

so that they would be able to live a little more happily together. Why are you not a fan of Varafakis' approach? He approached this as an economist when these negotiations were always going to be highly political. So if you sort of look at what he was saying from sort of the purity of economics, he was absolutely correct in what his critique was. But he and the other members of Sariza, or the negotiating, and there were actually was more of a fight in the negotiating team. This is, some of this is now coming out publicly. He acted as if he could play a game of chicken with the Eurozone, that if he's basically threatened a default, that would be so terrifying to the Europeans that they would back down and give Greece what they wanted. Now in fact, if you look at the structure of the loans that the Eurozone has to Greece, they don't even, Greece doesn't even have to start making payments to them until 2020. And that is when if Greece were to default on the IMF, it's bad for the IMF.

But in terms of the other European countries, which are the biggest lenders and key parties in these negotiations, they don't face any losses where the political controversy would be. They don't even begin recognizing losses until 2020. And because of the past restructuring, those losses are spread out until 2024. So they would just recognize losses in little itty bit, I mean, they're still meaningful, but, you know, digestible chunks over time. So this was not the threat to them that he thought it was. I mean, he walked to the negotiating table, not even with the remotest understanding of what the other sides incentives were. And he somehow thought he could discipline them with a threat of default. And it was just, it was just crazy. And then he got more and more confrontational in the negotiations. And the Greeks also acted in what in negotiating terms is looks like bad faith. I mean, they spend a lot of time fighting over process, or what you call in negotiations,

fighting over the shape of the table. The Europeans had all said, look, you've got to propose your new set of reforms with the Troika, with the IMF, the ECB, and the European Commission. And then we at the Eurogroup will, you know, will look at them, but will really rubber stamps them if they've signed off on them. And Verifalkus kept trying to push the discussion to what he called the political level to the European ministers. You know, and that's like basically saying you're going to want to talk to the CEO when the CEO is never going to make a decision without having the staff do work. They were trying to skip over what they, you know, the IMF has basically been not only their lender, but they're basically serving in the role as the Eurogroup's expert. That they've got the one with the capacity to go in and kick the tires to do this budgetary work. Germany doesn't have the ability to do that independently. They're totally relying on the IMF for this. So this, this, we're going to skip over the IMF was a non-starter.

And yet they kept fighting, they kept fighting conditions that were never going to happen, which really alien, you know, and they were told repeatedly. I mean, there was a lot of the interactions, which amounted to what about no, don't you understand, you know, we aren't going to do it this way. They're a focus kept ignoring. And then there were also repeated instances where they finally started getting direct communications with Merkel and Cyprus and Hollande, you know, he was then more and more getting to talk directly to them, or he would come and have meetings with them and make public statements that look like they had reached some kind of agreement, at least, you know, on sort of general things. And then repeatedly he would go back and make a fiery speech, like within 24 hours, that would significantly or entirely walk back what he just said, you know, in front of the cameras in Brussels or Frankfurt. I mean, and people just threw up their hands and said, we can't negotiate with these people. How can we negotiate with these people where they don't even stick to commitments they've made or, you know, you know, verifacus and Greece had actually agreed to a process in writing.

They had agreed to, we're going to have the Troika check these, you know, check everything. And then the European Eurozone will, you know, presumably rubber stamp it. They had agreed to that at writing. And then they start, let's start fighting that, you know, so they made themselves impossible to negotiate with. This was distinct from the, the practice that you often see, for example, in the American, sorry, the P5 plus one and Iran negotiations of negotiators getting somewhere and then the two sides going back and spinning it for home consumption to make it sound slightly more victorious than it actually is. And so this is one of the things that, so I was, and I took a lot of heat for this. I was very critical of Ceresa very early because as much as the creditors are bad guys and there's no question that they have imposed very harsh and unfair terms on, you know, all of these, you know, small countries that don't have a lot of power that wound up in way

too much debt after the crisis, the flip side is that Ceresa conducted itself in a recklessly incompetent manner that, that you could see was going to lead to very bad outcomes that you could, I mean, I was saying even before this train wreck that they were going to set the European left back 10 years. I mean, in this outcome is even worse than I imagined. I mean, I figured Ceresa was going to wind up, you know, being stomped on, but I didn't think it would be done by wrecking their banking system. I thought, I thought it would go down a different path that would still wind up with Ceresa being very diminished or out, but not in this, you know, sort of very visible, very visible and thuggish manner. Ceresa is the name of the ruling party. Is the ruling party? Yeah. There was a number of their coalition, but it's really Ceresa. The other party is very small and now there have been those who have written on your site who have suggested that the European Central Bank was kind of stepping outside of its professional, technical job and acting politically when they decided to not expand the

funding mechanism, the non-expansion of which resulted immediately as could have been predicted by them in the closure of Greece's banks, which precipitated the new more dramatic chapter of this story. Is there any truth to that, or was the ECB acting professionally and appropriately? Oh, no. Now the ECB definitely acted politically, but it also, I hate to say it, been acting politically in supporting the Greek banks also. So, you know, it's sort of the flip side of the whole way they've operated. The Greek banks have been deeply insolvent for quite some time, and something should have been done about it. And instead the ECB declared them to be solvent and has been lending to them through this program which is called the ELA, which is emergency liquidity assistance, and the ELA is supposed to be a very short term for banks that are basically healthy. And so they have been bending their rules enormously to keep supporting the Greek banks through

this mechanism that was intended for different purposes. And so again, that meant that, you know, basically the Greek banks were existing via the indulgence of the ECB and any time the ECB decided it wasn't going to be so indulgent, it could cut off their air supply. Okay. Talking about bending the rules, we hear that the Greeks weren't in accord with Eurozone rules regarding deficit levels. And yet, one reads that the French and German in the early part of the 21st century, four or three years, each were in violation of those rules and nobody bitched about it. Is that accurate? Yeah. No, that is correct. I mean, they were not in violation of the same degree Greece was, not that that excuses it. But, you know, they got away with it in the background of a healthier economy and, you know, Germany and France are the biggest countries and therefore no one wants to admit that

the Eurozone, I mean, everybody knows it, but no one likes to talk about it publicly. The Eurozone is not an organization of equals. And this Greece affair has also exposed that in a really dramatic and ugly way, you know, that the smaller countries just can't get away with things that the bigger countries can. And one other of these sort of dichotomies I wanted to explore with you for a moment, early in the negotiating period over the last five months, Greek Prime Minister Cyprus raised the issue, well, double issues, one that Germany had received forbearance or forgiveness for its debt following World War II. And so with comparing that to what the Greeks said they needed to make their debt sustainable. But more provocatively, he brought up the issue of reparations that allegedly the Germans still owed the Greeks for damage to Greece during World War II.

That was raised, that had about a week's worth of oxygen and then it disappeared without a trace. The German hypocrisy about debt relief is absolutely correct. The reparations issue is a little more complicated. The war damages Greece doesn't have a very good claim to that because I believe it was Papandreus actually settled that. So that part of it is sort of gone, but there's one part of the claim which apparently wasn't satisfied in full. And legal scholars have looked at it and says Greece actually has a good claim where I believe it was the German seized funds out of the Greek central bank that were never returned. And with interest, it's a lot of money. I mean, I should know off the top of my head how much it is, but it's in the significant double or low triple billion numbers. Now Greece would almost certainly not get that much, but they could probably get a significant percentage of this. If they pursued, I mean legal scholars have said if they were to pursue this claim, that's a valid claim.

Why didn't Cyprus logic claim in the European Court of Justice for this? Why talk then no action? The problem is it would still take years, the problem is even if Greece were to succeed and get some settlement on it or get an award given to them, it would still be years down the road. It wouldn't help their immediate problem, but it would definitely still make a difference over time. Well, and also the very action of filing such an action might have been the two-by-four on the nose of the donkey that got to be here. That's right. Yeah, and that's what's been distressing is, again, this is back to the sort of political ineffectiveness of Ceresi. Similarly, when the ECB dropped the bomb of cutting off the emergency lending authority, which really has put the Greek economy, which is already in desperate shape, just in a completely new level of crisis, there were reports in some of the western reporters that are close to Greek government sources saying that, oh, we have this plan and we could

do this, we could do this, we could file a claim with the European Court of Justice saying that this cutting off the ELA isn't permitted under the ECB's rules. Why didn't you do that? Why? This was actually that would have been, again, to your point. That would have been a good move. What is this, you know, talk and no action? I mean, it's very, it's been just very disheartening to see the government, you know, basically posture and not follow through with actions on much of any of the ideas they've had, even when they're, you know, very good ideas, and, you know, I don't think would be hugely hard to do. You know, they've not been very good in listing allies from the left, but all you'd have to do is get some constitutional lawyers from other countries to do it. You wouldn't even have to have the Greek government do it. I'm sure you could get, they could have found with not too much work, you know, some sympathetic people to do it on a more or less pro bono basis, because it would be so high profile. And nothing like that happened.

Summing up, because this is this we could, we could go on for a very long time. Go on for a very long time. I find it, I find it, I find it, it's, you know, Donald Tusk, again, the head of the European Council, said on Friday, he sees seeds of something that he finds as just a disturbing trend in Europe that reminds him at a minimum of 1968. I thought he was going to say even more darkly propitious times, if something could be darkly propitious or darkly predictive, but that he sees right and left wing radicals coming together against what's going on right now. Correctly so, I think, but are what we, are what we're seeing is a drama that is basically a political drama dressed up in economic terms. I would actually sort of put it differently. It's now an economic problem that's, that's moved very far into the political sphere. The economics have now become, I mean, they actually, or earlier called, you know, in

the economics, earlier was called political economy, the two or more integrated, then, you know, economists who like to do models on blackboards would have you believe. To widen the frame more, the, in one sense, yes, the original flaws were in, in the bad structure of the, of the Eurozone, which we even haven't really, we even, again, because of the timeline, we really haven't talked about it, but when the Eurozone was formed, people said the structure is defective and it was repeatedly criticized by many, many academics and political experts, and the people who created the Eurozone structure knew that it would have periodic crises, and their belief was that the crises would lead to the fixing of the incomplete elements, and the leadership hasn't done that. Crisis would, would, would lead to more union, you know, more integration. You know, I mean, look, the US has had much more time to achieve political integration. We had a civil war, you know, a civil war was actually part of our economic, I hate to say it, it was part of our economic integration process.

You know, so we have, we've done this and we haven't had a very, a pretty story of doing this. But instead at, at the critical juncture, we had basically incrementalist leaders with no vision. You had, you know, more, and Merkel has been the biggest. Merkel is a very cautious politician, you know, and she thought in German terms, always in German terms, never in European terms, at the critical junctures. Speaking of German terms, you mentioned the term at the beginning, and I wanted to just give you a moment or two to talk about ordo liberalism. Oh, thank you for your turn for that. Yes, that's part of, that's part of why the deranged German behavior isn't recognized, as deranged as it is in Germany, and you know, because we, because I've talked about neoliberalism in critical terms in, you know, in the time we've, we've spent together. And ordo liberalism is basically an even more retrograde flavor of neoliberalism that is, that is taught in Germany and is widely believed in Germany. So they, you know, when you mentioned that the German Finance Minister Wolfgang Schweibelä, he really believes in austerity.

His nickname is, is, is Ayatola austerity. And you know, he just thinks that the Greeks haven't taken enough medicine. That's why it isn't working. They haven't dried hard enough. And then that's been worsened by the fact that for sort of politically convenient purposes, Merkel has really stoked Merkel and other politicians, but Merkel has been guilty of this, has been sort of stoking the sort of German hostility towards Greeks to begin with. You know, they, they've really played up the sort of, you know, lazy Greek, I mean, they talk in Germany about lazy Greeks, you know, their view is, you know, that the Greeks all live in, you know, a sunny climate and, you know, they can just eat olives and go fish in the ocean and they don't have to work that hard. They play up that, that view of the world. And yet the, oh, didn't the OECD come out with a, a chart recently that said that the people who worked the longest hours every week are Greeks. Yeah, that's right. Yeah, the Greeks, yeah, the Greeks worked the longest average hours, you know. I, as a matter of fact, I talked to a friend who just came back from Greece and he said that the only two things that, that struck him that, that made him aware that there was anything bad going on.

One, that his cab driver had an MA in physics and was driving a cab. And two, that the person who was working in his hotel at 11.30 at night was doing another job starting at seven in the next morning. Yeah, you know, the people who are working work and the problem is we have a huge number of people who aren't working in Greece. Yeah. In fact, they have the highest level of youth. I think it seems like the second or the highest level of youth unemployment in the world, 50%. I mean, it's just the numbers are just horrific. Eve, amazing, amazing job of taking something so complex and getting it relatable and comprehensible. Great work on getting the rest of the media, at least some of the rest of the media going on the private equity issue and keep going on that because it's amazing work. Well, thank you so much. Well, thanks for asking me such good questions. Well, that always makes a big difference. I appreciate it. Eve Smith, a proprietress, editor-in-chief of A Naked Capitalism. Thank you for being my guest here on the show.

Thank you so much. Well, ladies and gentlemen, what the frack? News about fracking. Hospitalizations for heart conditions, neurological illness and other conditions were higher among people who lived near fracking. Well, according to new research from the University of Pennsylvania and Columbia University, what do they know? Published this week in PLOS-1, over the past 10 years in the United States, hydraulic fracturing has experienced a meteoric increase. The potential for air and water pollution posing health threat has been a concern for nearby residents to address this issue researches from two environmental health settings core centers of the National Institute of Environmental Health Sciences examined the link between drilling

well-density and health care used by ZIPCODE from 2007 to 2011 in northeastern Pennsylvania. Using databases that can date over well nearly 200,000 hospitalizations, the team examined the top 25 specific medical categories for hospitalizations. They associated these categories with residents' proximities to active wells. Two of the counties saw a significant increase in drilling activity over this time period. The control county experienced no drilling activity due to a ban on drilling in that county. The study captured the collective response of residents to hydraulic fracturing in ZIPCODE within the counties with higher well-density, said the senior researchers. The author's caution, more study is needed, more study is always needed. But the senior author says we suspect residents were exposed to many toxicants, noise, and social stressors due to hydraulic fracturing near their homes.

This may add to the increased number of hospitalizations. The findings revealed that cardiology and neurologic inpatient prevalence rates were significantly higher in areas closer to active wells. It's correlation, it's not causation, but what the frack. Now news of the warm in 2014, the most essential indicators of Earth-changing climate continue to reflect trends of a warming planet. Several markers such as rising landed ocean temperature sea levels and greenhouse gases set new records. These key findings and others in the state of the climate in 2014 report released online by the American Meteorological Society. Let's ask Johnny Mountainwoody thinks. The report was compiled by NOAA's Center for Weather and Climate based on contributions from more than 400 scientists from more than 50 countries around the world, a detailed update on global climate indicators.

Among the findings, greenhouse gases continue to climb, carbon dioxide, methane, and nitrous oxide continue to rise during 2014, again reaching historic high values. Hey, values, that sounds like savings. Record temperatures observed near the Earth's surface, but not only that, tropical Pacific ocean moves towards El Nino. See, service temperatures were record high, global upper ocean heat content was record high, global sea level was record high, yes, it sounds like a broken record, except we don't have those. The Arctic continued to warm, sea ice extent remained low, the Antarctic showed a highly variable temperature patterns and sea ice extent reached record high, so the Antarctic wins. Tropical cyclones above average overall, that's news of the warm. In news of the Olympic Games, Japanese Prime Minister Shinzo Abe announced this week the

scrapping of the plans for controversial national stadium, the centerpiece of the Tokyo 2020 Olympics. After skyrocketing costs sparked public outrage, anger over the stadium, the estimated cost of which it climbed to more than 2 billion, almost twice its expected cost when the bid was made had become a liability for the Prime Minister, as he pushes unpopular measures through parliament. The new national stadium was also meant to have been the centerpiece of the 2019 Rugby World Cup, that's not happening. Referring to the furor over the cost, Abe said the Olympics are a party for our people. It's the people's party. Tokyo won the Olympics on a reputation for getting things done, immediately running into problems with costs and a rollback of some promises, such as keeping most sports venues within 5 miles of the Olympic village. The stadium has been criticized as expensive grandiose and unsuited to the site, where the stadium built for Tokyo's 1964 Olympic stood until it was recently demolished. Abe said new arrangements would have to be made as soon as possible, he made no mention

of costs. Officials had previously said changing the design would damage Tokyo's reputation. How's that reputation going? And a member of parliament in Britain and the Burnham suggested that Tony Blair, former Prime Minister, did not order a full inquiry into the Hillsboro disaster at a soccer match in 1989, in which nearly 100 people died, because he didn't want to offend Rupert Murdoch. This is nice news of Nice Corp. He was told not to pursue his demand for an official investigation with serving under Blair. As a result, he says, a major injustice, you remember him. He's Colonel of Truth subordinate, was allowed to remain in place for more than a decade. He says he's competing for the role of Labour Party leader. Burnham was a driving force behind the decision to set up the Hillsboro independent panel into the deaths of 96 Liverpool fans.

The panel subsequently found multiple failures by the police and other services had contributed to the death toll, prompting the Prime Minister to make an official apology in 2012. The Burnham said an official inquiry could have been set up earlier. The Blair government did not want to offend Murdoch's son newspaper, which caused lasting outrage after publishing a report following the tragedy, accusing drunken Liverpool fans of attacking rescue workers. Murdoch turned out, strangely enough, for news Corp not to be true. Ladies and gentlemen, that's going to conclude this week's edition of the Show the Program Returns next week at the same time, over the same stations over NPR worldwide, throughout

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