Tuesday, 14 July 2015

Grexit or Brexit?

photo from Greek Reporter

What's bad about difficult compromises? The fact that too much is invested in them to just let them go.

Two news announced today are changing the situation around the third Greek bailout.
Firstly, IMF announced that Greece will need much financial help “ona scale that would need to go well beyond what has been underconsideration to date”

Secondly, trying to find a legal way to provide Greece with money for the period while it approves the reform package, EU officials came up with the idea to use EFSM, or in other words tap into the pockets of the EU countries not belonging to eurozone.

The problem with the both ideas is that they are extending the compromise far out of its original intentions. The agreement was to give Greece a specific sum for specific reforms to save it from Grexit. Both sides had to make hard concessions to reach it. Now it seems that Germany and its allies will have much more to give in exchange for the very same reform package. What's worse, they now want concessions from the side that didn't plan to be part of the agreement in the first place.

Huge efforts invested in achieving the agreement with Greeks are actually sunk costs. That's how economists call the costs already paid. Economic thought teaches that sunk costs shouldn't be a factor in making decisions. For instance, you bought a restaurant and it doesn't bring you any profit even after 3 years. When deciding what to do with it now, you shouldn't take into account the money you've spent on it. What matters is if it has a chance to start being profitable or not. If not, it is better to sell it now to recover at least some money instead of keep loosing it.

Unfortunately, it's not like it works in the real world. Common sense tells us that we should recover the money we've spent. If someone invested a lot of money, time of labor in a project, they would keep supporting it just because they did, even if it's clear that to let it be was a much better strategy. That's how it may turn out with Greece. Even if EU officials understand that new bailout plan won't help, they may choose to turn away from the facts, because they've spent so much time and neuron cells to make Greeks behave. It may incur very high costs on Europe as a whole. Attempts to use non-eurozone money to keep Greece in euro would be particularly dangerous. UK's already infuriated by the idea – which is understandable because the British have been explicitly promised that the fund won't be used for such purposes. If the majority of the EU will ignore British objections, it may well become a decisive factor in the upcoming British referendum. Trying too hard not to lose Greece, EU may lose Britain. And if Britain is out – probably joining EFTA – it can start chain reaction. One seemingly small decision may have very big consequences.

Let's see if reason prevails.

Saturday, 11 July 2015

China on the Brink of a Banking Crisis?

It seems that everybody now is aware that China's stock market is in a downfall. It lost 32% in only 3 weeks. The government took drastic measures to stop it, including suspension on trade of shares of 1300 companies. For the time being it helps, but nobody's certain that the downward trend is really reversed, not just temporally frozen.

It all seem bad enough already, but the situation may be much worse.

Marignal Revolution cites an article claiming that the recent suspension of trading in Shanghai and Shenzhen stock exchanges may due to the fact that Chines banks are using shares as collateral. Which may lead to collapse of banking system similar to the one that happened in Iceland.

Read it here.

5 Ways Tsipras Has Already Changed Europe

Guy Verhofstadt is the first start of European politics. He owes it to Tsipras. In private, of course. Collage from Flanders News.BE


The 6-year drama of the Greek bailouts may soon be over. The Grexit might start as soon as the next Monday. On the other hand, it's still possible the Greeks and the EU may find an unlikely compromise, and the drama series will enter into its 7th season. Both experts and bookmakers say that the chances are 50/50.

But however the negotiations will end, the recent crisis with the referendum and the final Greek-German standoff has already changed the EU in several major ways:

1. European politics is the new cool.
This week, Europeans became interested in European politics, perhaps for the very first time. Usually, everything coming from Brussels is considered bureaucratic and boring. But not this time. Guy Verhofstadt's speech in European parliament – the very same European parliament nobody cared about for the last 20 years – has had more more than 7,5 million views. The unprecedented attention of the Europeans to the matters that concern not only their own countries demonstrates that the European Union is starting to become what it aspires to be – a political unity. As paradoxical as it may sound, the mass disdain provoked by Tsipras may be interpreted as a sign of European solidarity and European values: solidarity in the notion that prosperity should be achieved by diligent work, not by unholy union of blackmail and panhandling.

2. No more enlargement.
Looking at the current Greek mess, it's very hard to envisage any EU enlargement in any near future. Turkey has just lost whatever slim chances it had to join the EU. Ukraine should better forget about its EU aspirations for the next 8-10 years. But even the candidates such as Albania, Macedonia, Montenegro and Serbia will be lucky if they manage to open concrete negotiations in the next several years, and when they do, the negotiations will be long, meticulous and painful. 

3. Two-speed Europe is here.
The over-closer union is unofficially over. After the Greeks' fiasco, nobody will be improvidently pulled or even admitted into the eurozone. On the other hand, the existing eurozone countries will be forced to submit themselves to ever tougher control and unification of their fiscal policies in order to prevent future flops.

4. Radicalized left.
The surge of the left to power is over as well. Sorry, Podemos, but no more Sirizas in Southern Europe. Tsipras has demonstrated that radical left in power will either destroy the country or betray voters. Or, most likely, do both. It means that any leftist who really want see things done will vote for someone close to center. At the same time, younger and angrier left voters will feel that Tsipras has been betrayed. It may cause a big protest vote for radical left parties across the entire continent. Syriza-like parties will be present in many European parliament, but they will be marginalized. Hence, we may see more street protests, ranging from relatively peaceful Occupy-style actions to windows-breaking and fire-throwing violence.

5. Stronger EU.
It's often said, that the current crisis is making the European Union weaker. The opposite is true. Each of the possible two resolutions – Greece leaving the eurozone or Greece agreeing to European terms and conditions – will prove that the Union can manage a major crisis and either get read of its unruly members or make them behave.

All that said, the changes we're witnessing now are rather modest compared to the ones we may see in 2016 or 2017, when EU will be facing the choice between possible Brexit and the Lisbon Treaty reform.

Sunday, 3 May 2015

Chinese Economic Wú

Wú (in Chinese, Mu in Japanese and Korean) is a key Buddhist concept. It means  nothingness, nonexistence, and delivers the message that emptiness is the true nature of all things.
It's hard to say if all things are empty or not, but the Chinese economic miracle has a great deal of emptiness to it. The best illustration is Chinese empty towns. There are ghost towns in every country, but the ones in China are not left by people - they have never been settled by them. They were built according to CCP plans and with money loaned from state banks, but life had other plans than the party.

Thursday, 12 February 2015

Do the Russians Want War?

There was a popular Soviet song with that title. The message that Russians don't want war was supported by the story of huge Russian losses in WWII. Well, judging by this animation, the losses are forgotten. The anchor boasts that Russian tanks can take Berlin in 24 hours.

If you're wondering if it is a counterpart of The Colbert Report or Onion News Network, it is not. It's an original Russian news program. .

Saturday, 31 May 2014

Thirty Years' War of the Levant?

Here's a very interesting article: Syria, Iraq and Lebanon Merging Into a Single Sectarian War.

There's an opinion that it was the 30 years' war that laid ground for the following European world domination. Europeans, the theory claims, were the first to learn that it's cheaper to find compromise than to wage war on each other. It unleashed political, humanitarian, scientific and technical progress.

The Levant or even the entire Arabian Middle East might be going through a similar process at the moment. Or rather through the first part of it, an unceasing war where everyone fights everyone else for many years without any success. Will it lead to a realization that peace and tolerance is better than war and domination?

Saturday, 24 May 2014

Vader for mayor

Dark force of today's Odessa local election. Darth Vader, "the candidate with a human face", as the billboard claims.