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Fernando Pereira
Works at Google
Attended University of Lisbon
Lives in Palo Alto, California
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Fernando Pereira

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I've seen this argument in economist blogs, but never with this clarity and actual numbers. Wow.
 
Irresponsible or unavoidable borrowing?

Growing up in Europe, I didn't pay much attention to the construction of the Euro, and whatever little I remember has nothing to do with the economics of it. Now, older, having lived in the US for a while, with a Greek wife, I'm looking at the way the Euro is unraveling and I've been using the opportunity to try to figure out how it works (or, rather, why it doesn't).

The core mechanism that allows multiple states to share the same currency is pretty simple: since the weaker states can't devalue their currency to compensate for their trade deficit with the stronger ones, money has to flow from the stronger economies to the weaker ones in order to maintain the balance.

We see that in the US: as measured in GDP per capita, there's about a 2:1 ratio between the strongest states and the weakest ones. To compensate for that, a lot of money flows between states, through the federal government. Most taxes in the US are federal taxes, i.e. about 75%, and the federal government doesn't necessarily spend the money it collects in the exact states where it collects them. As an example, about 130 billion dollars paid by California in federal taxes don't make it back into California. Texas and New York are the two other states that have a negative balance of more than 100 billion each. For those 3 states, that outflow on money represents 5.7%, 7.2% and 7.4% of their respective GDPs. California is literally sending money to other states so that those states can buy California stuff. The same is true for Texas, New York, and about 20 of the 50 states that are sending money to the other 30.

Looking back in history, the Marshall Plan followed a somewhat similar logic: the US sent aid to Europe, to allow Europeans to buy US goods, which was both a stabilizing mechanism for European currencies that otherwise were in a devaluation spiral, and an outlet for the huge US industrial production. For reference, the Marshall Plan amounted to 120 billion dollars (in today's dollars) over 4 years, which is tiny compared to the amount of money that the federal government now redistributes across state lines.

We can compare that to the situation in the Eurozone/EU, where the GDP per capita varies by a factor of about 2.3:1. Germany's balance in the EU budget is negative by less than 9 billion Euros. France's and Italy's follow at approximately 6.5 billion and 6 billion. Germany's 9 billion Euros is tiny compared to California's 130 billion dollars, especially since Germany's GDP is 60% larger than that of California. Since the US and EU economies have approximately the same size, that's a reasonably apples-to-apples comparison. The biggest negative balance that a Eurozone country has with the EU is about 0.41% of its GDP. The biggest positive balance is 1.3%. Within the US, only 4 states out of 50 fall within that range.

That's the problem right there: Germany is not flowing enough money out to other Eurozone countries to compensate for its own very strong economy. That's true of other rich European countries as well, e.g. Netherlands, Austria, France.

From the Greek point of view, the only way to get that money to flow in order to maintain balance had been for the government to borrow. That wasn't irresponsible borrowing. That was mechanical, predictable. Greece's poor historical discipline around government finances only accelerated an unavoidable process, but it's not a root cause.

In fact, predictably, pushing Greece into austerity made things worse, much worse: with the root cause being Greece's relatively weak economy compared to the rest of the Eurozone, an austerity approach can only put Greece in a position where it needs even more money to flow in in order to maintain balance.

Even if we assume that all of Greece's debts get somehow forgiven with no further constraints and that Greece manages to run a balanced government budget, it would still be in an unsustainable position in the current Eurozone as its weaker economy would force additional money to flow in. Unless the Eurozone very significantly increases the amount of money that it redistributes across borders, Greece should get out of the Euro at the first opportunity, i.e. literally Monday morning, July 6.

Worse, with Greece out, it's only a matter of time for another weak country to find itself in the same position: that might be Portugal, Spain, Italy, or if Bulgaria, Romania or even Hungary join quickly enough that might go through that same death spiral quickly enough to see the Eurozone as a revolving door, with barely enough time to come in before being back out.

Once that first batch of weak countries is out, there'll always be more that'll be at the bottom of the scale and will find themselves in the same position. France is comfortably in the middle of the pack within Europe today, but attrition will eventually push it toward the bottom, and France having to leave the Euro is a true nightmare scenario for everyone.

In order for the Eurozone to survive, its rich members will need to send a lot more money to the poorer ones: the rich ones literally can't continue reaping benefits from a currency based on the European average without sharing those benefits with the poorer ones that bring that European average down. Otherwise, the Euro will consume country after country until it hits a country that is literally too big to fail.
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Fernando Pereira

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Does your health insurance cover orca attacks? You better check.
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TL; DR  Never underestimate the ability of politicians to do the wrong thing. I will try to remember next time. Sharp rundown of EU and Greek political malpractice.
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Taken in isolation, decisions by the Troika seem inaccurate. But what off follow-on effects in other debtor nations or nations that have emerged from a painful restructuring? And what off voters from creditor nations who might also anger with the European Union?
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Fernando Pereira

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Pour encourager les autres.
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Is it politics or a failure to learn? If you read the chapter on the 1930's in Bernstein's The Power of Gold: The History of an Obsession, and substitute "Euro" for "Gold", the speeches of the bankers and politicians seem remarkably similar.
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TL;DR: That (Euro)geld seemed so shiny back then, but now the (Euro)devil is calling his due. Greek (and other) Southern Europe governments who signed away their national currencies would have done well in brushing up on the ancient German folktale of Faust. But that shiny seduction was so so tempting.
It's in Europe's interest to make things as hard as possible for Greece
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Ed Chi
 
+Peter Ludemann Thanks for sharing that.  Blyth explained it very well indeed.  Class politics is killing the EU, and the leading politicians seems blissfully unaware.
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Fernando Pereira

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Whoever might have still been deluded about the overreaching, undemocratic character of EU institutions just got another cold shower of reality. Of course (C) maximalists will just point out the "reasonable" arrangements in Canada and other countries where devices or media that enable copying (just about anything digital, that is) is subject to a levy (aka tax) to "compensate" (C) holders. Those of us who mostly buy (pricey) digital downloads already will be just collateral damage.
Today the High Court of the United Kingdom handed down an excellent decision—excellent because the result is so unreasonable, so out of touch with reality, and so divorced from the needs and expectations of ordinary users, that it provides a textbook illustration of the need for urgent reform of the outdated and unbalanced European Copyright Directive.
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The article is right, "This decision is so bad, that it isn't even wrong."

Where are we getting our High Court judges from, the fossil collections of the Natural History Museum?
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Fernando Pereira

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The perfect jazz story to read while listening to Joshua Redman with his James Farm ensemble in City Folk. They'll be at the Stanford Jazz Festival on Aug 5!
In honor of Father's Day, Christian McBride, host of NPR's Jazz Night In America, stops by for a conversation about jazz families — starting with saxophonist Joshua Redman and his father, Dewey.
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Have him in circles
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Fernando Pereira

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A healthy dose of history to counter the hypocritical moralism of Euro-creditors.
 
Germany never repaid it's debts.
In a forceful interview with German newspaper Die Zeit, the star economist Thomas Piketty calls for a major conference o…
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It's not just politicians. The media has seriously skewed the whole discussion, too, by focusing solely on Greece's mistakes (which they certainly have made, it's just not the only part of the story).

This continues even with the article above. On "Zeit"''s website, it is shown alongside articles critical of Piketty's book. What does that tell us about the Zeit's stance...

Of course, this doesn't excuse the politicans. However, I'm pretty skeptical that a sane solution will emerge from this mess, because the public opinion has been thoroughly poisoned.
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Fernando Pereira

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Possible as in p > 0, barely. Good rundown of the decision tree, pretty grim odds at all leaves, just some not quite as grim as the others.
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The best explanation I've seen of the Greek dilemma.
Eurozone membership has either been great or a disaster, depending on how you look at it.
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Fernando, I'm not arguing that the 'European Union Elites' have the correct view here - rather that the article isn't showing the full picture, and with such high Greek government debt it's wrong to argue that the current situation is reasonable based on pre-Euro trends.
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Fernando Pereira

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Summary quote: Do they think that the EU’s ever-declining hold on the loyalty of Europe’s youth can be reversed by creating a martyr state on the Left? Do they not realize that this is their own Guatemala, the radical experiment of Jacobo Arbenz that was extinguished by the CIA in 1954, only to set off the Cuban revolution and thirty years of guerrilla warfare across Latin America? Don’t these lawyers – and yes they are almost all lawyers - ever look beyond their noses?
Guardians of financial stability are deliberately provoking a bank run and endangering Europe's system in their zeal to force Greece to its knees
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Fernando Pereira

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Key quote: The Confederate flag should not come down because it is offensive to African Americans.  The Confederate flag should come down because it is embarrassing to all Americans.
The meaning of the Confederate flag is best discerned in the words of those who bore it.
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Fernando's Collections
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Have him in circles
4,583 people
Anat Caspi's profile photo
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Work
Occupation
Distinguished researcher
Employment
  • Google
    Distinguished researcher, 2013 - present
  • Google
    Research director, 2008 - 2013
  • LNEC, Lisbon
    1975 - 1977
  • SRI International
    1982 - 1989
  • AT&T
    1989 - 2000
  • University of Pennsylvania
    2001 - 2007
Places
Map of the places this user has livedMap of the places this user has livedMap of the places this user has lived
Currently
Palo Alto, California
Previously
Menlo Park, California - Lisbon, Portugal - Edinburgh - Westfield, New Jersey - Philadelphia
Story
Tagline
Helps computers learn language, when not skiing
Introduction
I am a distinguished researcher at Google, where I lead work on natural-language understanding. My previous positions include chair of the Computer and Information Science department of the University of Pennsylvania, head of the Machine Learning and Information Retrieval department at AT&T Labs, and research and management positions at SRI International. I received a Ph.D. in Artificial Intelligence from the University of Edinburgh in 1982, and I have over 120 research publications on computational linguistics, machine learning, bioinformatics, speech recognition, and logic programming, as well as several patents.  I was elected AAAI Fellow in 1991 for contributions to computational linguistics and logic programming, and ACM Fellow in 2010 for contributions to machine-learning models of natural language and biological sequences.  I was president of the Association for Computational Linguistics in 1993.

Bragging rights
Still keeps up with the youngsters on the uphill.
Education
  • University of Lisbon
    Mathematics, 1969 - 1975
  • University of Edinburgh
    Artificial intelligence, 1977 - 1982
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Male
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Married
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