Greece: the bad apple of the bunch?

Image by Vicky Brock


The present debate about the Greek financial situation tends often  to pit Greece against the rest of the Eurozone. As an example, Joergen Oerstrom Moeller writes that:

Since 2010 the Eurozone economy has turned around from contraction to growth - the growth forecast for 2015 is 1.5 percent, work to set up a banking union is well under way, and measures constituting bulwarks have been put in place. The little stroke can fell great oakes was a proverb that ominously sounded in the corridors 4-5 year ago; not any longer.

and

Unless Greece is willing to restructure its economy implementing policy objectives and instruments used by the majority of the EU member countries why should the Eurozone bail it out? What is the virtue of having a member that consistently and continually refuse to bring its economy into a shape similar to the one that the rest of the club is running. Ireland, Portugal, Spain, and Italy have all gone through painful reforms and been rewarded with a much improved economic situation and a promising outlook for the future. What are the arguments for not asking Greece to do the same?

Unfortunately, the data tell a different story. Greece is not alone in having economic problems and all the Southern European countries tend to show similar trends. For instance, in terms of GdP per capita, the Greek decline is sharper than that of the others, but not qualitatively different. (image from Google public data) 





If this were not enough, take a look at the industrial production data (from Bilbo Economic Outlook). Greece is sinking, yes, but so are Italy and Spain, and France is hardly doing better.

There are other data showing similar trends: in short, Greece is not the bad apple of the bunch, but simply the weakest member of a group of countries that could never recover after the 2008 crisis. 


As I wrote in an earlier post about Greece, financial factors may be simply a reflection of a much deeper trouble. And this trouble was already identified long ago in the study titled "The Limits to Growth", published in its first version in 1972. Note how the results of the "Limits" model (below taken from the 2004 version of the study) are similar to the decline observed in the GdP and the industrial production index of the southern European countries.

If the "Limits" model describes the present situation, then the Greek decline is not a direct consequence of problems with the Euro or with wrong policies of the Greek government. Rather, the causes at the root of the decline can be identified as the gradual increase of the costs of production of natural resources - and of energy in particular - coupled with the increasing costs of fighting pollution.

These factors affect the weaker economies first, and there is no doubt that Greece is one. Weaker than others, but not different in its structure. So, the problem cannot be solved by purely financial measures: we need to go to the root of it. We have to free the world's economy from its dependency on fossil fuels and transform it into a "circular" economy, not any more dependent on badly depleted mineral resources. It can be done (it is described, for instance, in this recent report by the Ellen McArthur foundation). But we should have started much earlier;  now it may be too late for Greece to avoid major damage (and, most likely, also for the rest of the world).







h/t Graeme Maxton and Anders Wijkman

The Limits to Growth and Greece: systemic or financial collapse?

The results of the "standard run" (or "base case") scenario of "The Limits to Growth" 1972 study. Could it be that the ongoing Greek collapse is a symptom of the more general collapse that the model generates for the first two decades of the 21st century?

So, we have arrived to an interesting point, to be intended in the Chinese sense of a curse. It is the point where the people of Greece are being asked to choose between starvation and slavery and this is supposed to be a triumph of democracy.

As the tragedy unfolds, people take sides, aiming their impotent rage at this or that target; the Euro, the bureaucrats of Brussels, the Greek government, Mr. Tsipras, some international conspiracy, and even Mr. Putin, the usual bugaboo of everything.

But, could it be that all the financial circus that we are seeing dancing in and around Greece be just the effect of much deeper causes? The effect of something that gnaws at the very foundations not only of Greece, but of the whole Western World?

Let's take a step back, and take a look at the 1972 study titled "The Limits to Growth" (LTG). Look at the "base case" scenario, the one which used as input the data that seemed to be the most reliable at the time. Here it is, in the 2004 version of the study, with updated data in input.

Despite all the criticism that the LTG study received over the years, its basic soundness was repeatedly demonstrated, for instance in "The Limits to Growth Revisited." The LTG calculations were based on a number of assumptions, the main one was that the increasing costs resulting from the gradual depletion of the world's natural resources would bring an increasing burden on the industrial system, forcing it to slow down its growth and, eventually, to start an irreversible decline.

In general, models are most reliable when they are very general (or "aggregated"). So, for instance, it is an accepted challenge that of predicting the Earth's climate in a hundred years from now, but only because the models make no attempt to predict the weather patterns of specific days and specific places. When you are hit by a hurricane, you can say that it is the result of the changing climate, but you also know that it is impossible to predict when and where the next hurricane will strike.

The same is true for the collapse generated by the LTG models. It is very aggregated: it can predict a general collapse, but it cannot predict where and when exactly local collapses will occur. But it is likely that local collapses would start in the weakest economies of the world; regions with low industrial production capabilities and little or no mineral resources of their own. Greece, indeed.

That doesn't mean that financial factors may not have accelerated the Greek collapse or made it worse. But, if the reason of the Greek disaster is systemic, then no financial trick will cure a disease which is not financial at its core.

If the LTG study is right and the crisis is generated by the gradually increasing costs of production of natural resources, (and there is plenty of evidence that these costs are increasing worldwide, see also here) then, collapse cannot be avoided, at best it can be mitigated by acting at the system level. By means of such measures as renewable energy, efficiency, and recycling, the system can be helped to cope with a reduced resource availability. But the economic contraction of the system is unavoidable. It is a contraction that we call financial collapse, but that is simply the result of the system adapting to lower quality (i.e. more expensive) resources.

And, if the reasons for the collapse are systemic and not financial, then it must be a progressing phenomenon that is going to affect all the vulnerable countries, starting with the Mediterranean European countries: Spain, Italy, and Portugal, which might well be the next in line.  

Is the collapse going to stop, ever? Yes, it will stop when the size of the world's economy will have become compatible with the quality of the energy supporting it (that we can measure in terms of the energy return on energy invested, EROEI). So, we may face a very long and deep descent, indeed, unless we manage to resupply the economy with new sources of renewable energy of comparable energy quality.

It is not impossible, but not cheap either, and most people say that it is too expensive. So, our future will be what our greed will cause it to be. At least, we'll have what we deserve.

Waiting for the big wave

Guest post by Antonio Turiel

Cassandra's legacy publishes this post by Antonio Turiel that appeared first on Nov 18, 2011 on "The Oil Crash" blog (in Spanish). Here, Turiel examines the Spanish situation, seen a few days before the recent elections that saw the victory of the right wing "Partido Popular". In this lucid analysis, Turiel compares the present situation of Spain - and of the other states in trouble in Europe - to the apparent calm that arrives just before the great tsunami hits. (translation from Spanish by Ugo Bardi)

By Antonio Turiel, 18 Nov, 2011

"People willing to trade their freedom for temporary security deserve neither". Benjamín Franklin.


Dear readers

among the most interesting phenomena that are part of the fields of oceanography and geology, there are tsunamis. A sudden vertical displacement of a fault at the bottom of the sea, by the enormous energy it releases, can displace all the mass of water above it for a not too big height, maybe 50 centimeters, maybe one meter. The problem is that the displacement affects the whole water column, which may be four or more kilometers of height. The wave generated simply by gravity propagates at speeds of hundreds of kilometers per hour; in some cases - if the earthquake takes place in very deep waters - it may arrive to supersonic speeds. When the wave gets close to the coast, the slope of the sea floor creates an effect known as shoaling. 

The solitonic wave breaks up and decomposes in several packets which propagate at much lower speeds (some km/h) but, because of the accumulation of water, their height grows and grows. Because of this, it is much safer to wait for the tsunami at sea, where the wave, of some centimeters, will pass without generating major damage; but its height on the coast will arrive to several meters; in some case as much as 15 (there are documented historical cases of monster tsunamis of almost 50 meters of height) and able to penetrate inland for several kilometers, razing to the ground everything with their enormous power and pressure. Just before the first wave of a tsunami arrives to the coast, the sea retires rapidly of several kilometers; revealing a rocky seafloor of unreal aspect. Some people are fascinated by the phenomenon and find themselves looking at it, captivated, without understanding that, if in that moment they had started running inland, perhaps they will be able to get far enough, or reach a ground sufficiently high, to survive. It is a question of a few crucial minutes; those few vital minutes before the arrival of the first wave. Another fact that people often ignore is that the first wave is almost never the largest one; and sometimes it happens, as in the case of the  tsunami in Hawaii of April 1st 1946 (day of the innocents),  that people go to the beach to see what had happened during the half hour that separates the first and the second wave, horribly increasing human losses when the second wave, usually is larger, unleashes all of its violence over the unfortunates.

Yesterday, the spread of the Spanish treasure bonds with respect to the German ones arrived, according to what we are told, to about 500 basic points. That means that the yield given to these debt issues is about 5% larger than that of equivalent German titles. As the information given by the media is always brutally incomplete and antiquated, I never know for sure to what it is referred to: whether we are speaking of one year bonds, or five or ten, or all together. I understand, anyway, that this spread with respect to German titles is being observed in the secondary market - that means, the individuals who possess Spanish debt are selling it to other individuals with a certain discount (because, obviously, they couldn't renegotiate the conditions expressed on the bond issue). That, if you think about it a little, is even more serious than if it were Spain to sell its debt with a larger kind of interest (which happens, because the debt issue usually follows the secondary market: Spain cannot obtain cheaper money than what the market perceives). It is more serious because, in summary, those people who keep Spanish money and are selling it are accepting a certain percentage of loss (perhaps no real losses, but surely on their expectations of gain) and that means in the end that the credibility of Spain as a trustworthy debtor state is falling.

But, in the end, this is not a blog dedicated to the economy and there is no need to spend time on these questions. The interesting part of what we observe is that the Spanish debt is arriving to levels that have motivated the "rescue" of Greece and which forced a "change of government" in Italy, last week. Here in Spain, we are just two days before the general elections which all polls indicate will be won by the conservative Partido Popular with a large majority. The party's leader, Mariano Rajoy, has already anticipated that they will take appropriate measures to try to heal the Spanish accounts, hinting that we'll see more reduction in the social services and salaries than anything that was seen in the past year. In addition we could say, as a matter of coherency, that for being an amateur in applying these measures, the Italian prime minister, Silvio Berlusconi, was shot down by the entity that the media sometimes call the "European Troika."

We are facing, then, general elections which will radically change the orientation of the governing party, from socialist to conservative, in a country were the perception is that the right is a better manager and that, as a consequence, will be able to ride out better the difficult economic situation. In reality, the result will be the same, because after having seen what has happened to the fatuously democratic European union during the past few week, with Greece and Italy, it is clear that decisions are not taken in single countries and much less reside with the people: our new leaders will do what they are told to do - full stop. This situation will lead to a growing disillusion of the Spanish people; a disillusion that will turn into rage when the new recession which we are starting to see will increase the jobless level from the present 21,5% to 25 o 26% in a couple of years. And, no doubt, the only thing that we are doing is to follow a known path: collapse. It is sure that, about collapse, Dimitri Orlov recently revised his model of the five phases of collapse (financial, commercial, of the state, of the community and of the family) and his conclusion can't be more disheartening; according to him, it seems that the great effort of states to stave off financial collapse - which should have occurred in its full magnitude during the past 2-3 years - will cause the real financial collapse to arrive at the same time as the commercial one and, eventually, that of the state - this latter entity being dragged in by the giant weight of the debt incurred with the financial rescue. In summary, Orlov's model was too gradual and suave when compared with the abrupt road where the BAU (Business as Usual) is dragging us. It is another piece of evidence of the fact that the descent along the right side of  the Hubbert curve will be dominated by non linear effects. And the present events in Greece indicate that, indeed, the financial collapse will take place at the same moment as the commercial one. Greece had no choice but turn to Iran as its major supplier of oil (thanks to Ángel, for the reference), since the other countries don't trust the Greek solvency. The descent that us, the Spanish, are starting, following the same path of Greeks, Irish, Portuguese and Italians, will take us from our pretended "First World" condition, where arrogantly we believe to belong because of our merits, to the Second or the Third in which we are being pushed down without the rest of the planet giving a damn; and it will help us little that until a couple of years ago we considered ourselves to be with the rich and the powerful; they have their own concerns and right now we are just a hindrance for them.

These days before the elections are like the sea which retires before the first tsunami wave. There is a strange and unreal calm while a vague and ominous shade is appearing at the horizon. In reality, if we know a little of history and how economy has been practised in the 20th century, we know what it is going to pass in Spain. Starting with Monday, they'll start saying that now it is the time to keep quiet, that it is urgent to find the means to contain the damage, that it is intolerable that the Spanish deficit doesn't stay within the established bounds (fixed by the government for this year at 6%, which could reach 8%). It is possible that the socialist government, in function until January, will be forced to take already some drastic measures; measures that in any case will be adopted by the Partido Popular when it will take charge: immediately lowering the salary of public workers - once more; perhaps 10% in this occasion - cutting even more health services, education, and, ouch, public works, because Germany and France are very sensitive about those multi-million airports without passengers and other stupid infrastructures build during the golden age of concrete. There will be, possibly, an increase in the VAT and surely a generalized reduction of the subsidies and help (that is affecting me, research grants and projects). All that will bring a larger economic contraction and more unemployment, with the result of lower tax revenues and there will be a general tendency to pay more in subsidies - at some moment there will be talk of reducing the unemployment subsidy and the minimum salary. All that in a context where basic goods will see an increase in price while the non basic ones will become cheaper while stocks are being liquidated, to return to high prices, later on. In the end, we'll become poorer, much poorer....


The sun is darkening, the wave is obscuring it, it is here already. I wanted to write somewhere a number of truths in the midst of so many lies as we are being told now. What is being done to countries are not "rescues", they are liquidations; they are not "changes in government for technocratic governments", they are coups that give control of the state to our creditors; it is not austerity, it is increasing financial ruin; it is not order, but repression, it is not for the common interest, but for the private one; it is not returning to growth, but it is the road to poverty; there is no growth, but the end of growth. We are left only with the poor satisfaction that these waves will arrive, eventually, also to Berlin and to New York.

The water is arriving already.

Greetings

AMT

Postscript: This post is not about energy, indeed, but I wanted to write it.