Greek Crisis continues

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bentheimmigrant
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Re: Greek Crisis continues

Postby bentheimmigrant » Sun Jul 05, 2015 5:18 pm UTC

sardia:

As far as I know, the EU doesn't have any real mechanism for this sort of thing. I mean, there are economic subsidies, but I'm not aware of just general wealth transfers being available.

Austerity is pretty much always bad for the economy in the short run. I expect that it's possible to structure it so eventually it pays off, but taxing more and spending less will always have a recessionary effect pretty much by definition. So I think either you lend and repayments are linked to growth (which, iirc was the Syriza's first request), or you don't make them hurt their own economy and expect prompt repayment. Having both hasn't helped anyone, and had only generated greater resentment in Greece.

BM: I think the above covers how I would prefer things to happen. But the largest repayments I have heard reported have been to the IMF and ECB. Indeed it was the IMF payments for June that have put Greece technically in default. And it is the IMF and EU that are providing the bailout with stipulations that are essentially ineffective as well as unworkable. I don't know if anything *could* have worked, but I personally found the current structure ludicrous from the start.

EDIT:
10% counted and no has a lead. All four opinion polls that they've managed to throw together were no.
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Re: Greek Crisis continues

Postby Mutex » Sun Jul 05, 2015 5:44 pm UTC

sardia wrote:I know the EU does provide some subsidies here, but is it more limited than the US? Or is Greek so bad off, that even heroic levels of wealth transfers wouldn't have worked?


Despite the whinging from UKIP the UK's contributions to the EU are 9Bn compared with 700Bn+ for the UK national budget, so yeah the redistribution of wealth is pretty limited.

Good luck getting support for a massive increase in EU contributions though.

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Re: Greek Crisis continues

Postby bentheimmigrant » Sun Jul 05, 2015 6:28 pm UTC

Update from above link: >30% counted, No up 60:40.
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Re: Greek Crisis continues

Postby Mutex » Sun Jul 05, 2015 8:10 pm UTC

So the Greeks have spoken and it's a big whopping No. This should make things interesting.

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Re: Greek Crisis continues

Postby CorruptUser » Sun Jul 05, 2015 8:27 pm UTC

What I don't quite get is, economically, what is holding back Greece? It's a major player in worldwide shipping, and it has a wealth of culture and islands so it has at least two major sources of tourism. If it's a lack of young workers, which doesn't make sense given double digit unemployment, the entire EU should start investing in robotics. Replace as many things with robots as possible, rather than importing more workers who will grow old and need support requiring even more workers to be imported...

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Re: Greek Crisis continues

Postby sardia » Sun Jul 05, 2015 8:42 pm UTC

CorruptUser wrote:What I don't quite get is, economically, what is holding back Greece? It's a major player in worldwide shipping, and it has a wealth of culture and islands so it has at least two major sources of tourism. If it's a lack of young workers, which doesn't make sense given double digit unemployment, the entire EU should start investing in robotics. Replace as many things with robots as possible, rather than importing more workers who will grow old and need support requiring even more workers to be imported...

You don't get what? Isn't the story they government is bloated with obligations, but revenue is low due to tax evasion and corruption? And then they cooked the books to hide the problem? Once the ruse was revealed, then austerity and panic sets in, the economy goes into recession. Failure of bailout talks lead to bank runs>currency controls leads to no liquidity. Without liquidity, the economy seizes up.

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Re: Greek Crisis continues

Postby Mutex » Sun Jul 05, 2015 8:46 pm UTC

And there's no lack of young workers, there's a lack of jobs, and even the ones with jobs don't pay tax.

In fact, I wonder if the actual unemployment rate is anything like 25% or whether lots of those people have jobs, and don't declare them and earn cash in hand.

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Re: Greek Crisis continues

Postby Lucrece » Sun Jul 05, 2015 9:08 pm UTC

This is not about EU causing single-handedly Greece's downfall. Its about its unethical loaning of money to an inept/corrupt and dishonest Greek government knowing full well that money would not be able to be paid back.

And now they expect the Greek people (the taxpayers) to pay for it.
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Re: Greek Crisis continues

Postby CorruptUser » Mon Jul 06, 2015 1:21 am UTC

Mutex wrote:And there's no lack of young workers, there's a lack of jobs, and even the ones with jobs don't pay tax.

In fact, I wonder if the actual unemployment rate is anything like 25% or whether lots of those people have jobs, and don't declare them and earn cash in hand.


The problem with that argument is that in spite of the shortage of jobs, Greece, still has massive waves of illegal immigrants going there to work. Something doesn't add up. Like you said, it's likely that those "25%" work under the table.

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Re: Greek Crisis continues

Postby Dark567 » Mon Jul 06, 2015 3:29 am UTC

Lucrece wrote:This is not about EU causing single-handedly Greece's downfall. Its about its unethical loaning of money to an inept/corrupt and dishonest Greek government knowing full well that money would not be able to be paid back.
What was the alternative here? To not lend Greece money and cause austerity?(The loans were, by the way, very low interests, so its not like the troika was expecting to profit from this).

As far as I can tell austerity was going to happen to Greece, either due to the ECB twisting its wrists, or due to no longer being able to deficit spend on the open market.
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Re: Greek Crisis continues

Postby elasto » Mon Jul 06, 2015 4:59 am UTC

Dark567 wrote:What was the alternative here? To not lend Greece money and cause austerity?(The loans were, by the way, very low interests, so its not like the troika was expecting to profit from this).

Well, in functional economies, some sections fund other sections not expecting any return at all. eg. in the US, some states permanently run at a federal surplus, and some (usually the red ones) are permanently subsidized. Or, in the UK, some regions are net payers and some net recipients.

Now, there's obviously no democratic will for Germany to pass cash year on year to Greece - so why did they enter into a single currency with them? With such different economies it's the most likely outcome - with the other most likely result being Greece exiting.

The other possible result - Greeks turning into Germans - is highly unlikely to occur within a single generation.

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Re: Greek Crisis continues

Postby BattleMoose » Mon Jul 06, 2015 7:07 am UTC

CorruptUser wrote:What I don't quite get is, economically, what is holding back Greece? It's a major player in worldwide shipping, and it has a wealth of culture and islands so it has at least two major sources of tourism. If it's a lack of young workers, which doesn't make sense given double digit unemployment, the entire EU should start investing in robotics. Replace as many things with robots as possible, rather than importing more workers who will grow old and need support requiring even more workers to be imported...


When Greece entered the EU, they had the option to borrow money at low interest rates, and they did, a lot of it. (1980-1995) The government was running a deficit during the good times and being maintained by low interest loans. All the while, with high levels of tax evasion. And then the GFC hit. The rational response to a financial crisis is spending. But the thing with borrowing money is that you need someone to lend it.

By the time the Greeks requested a bailout, Greek credit rating was "below investment grade", or "junk bond status", or so the parlance goes. And this is where the criticism of the Eurozone are just unfounded. Lending money to a country at a time like this, has a lot of risk for little reward and your money could be doing much better just about anywhere else. No person would choose to lend money to Greece for the intention of a return, certainly not at the agreed rates. Austerity measures made things worse but to not have austerity Greece would have needed to borrow yet more money and where would that come from?

By the second bailout package, Greece's crediting rating was CCC. You are just not going to get your money back. Should the second bailout package have existed is a question worth asking and I have no idea. The situation, certainly with hindsight appears that the situation was untenable.

https://en.wikipedia.org/wiki/Greek_deb ... s_timeline

As for the current situation, Greece needs money so it can reopen its banks. But I cannot see *anyone* lending Greece money at this point no matter how well intentioned. Especially with the recent "no" vote. Some form of debt forgiveness at this stage I think has to happen but it is aggravating all the creditors, and rightfully so.

Greece is in a very dangerous situation, it *needs* to borrow more money but has just "burned its bridges" with the only party that was prepared to lend. I guess the rational response would be for "ALL the creditors" to forgive debt to a addressable amount, but they have just been flipped the bird.

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Re: Greek Crisis continues

Postby Carlington » Mon Jul 06, 2015 7:45 am UTC

To be honest, my concern isn't really the bankers not getting a return on their investment, my concern is the actual ordinary humans who now, through no fault of their own, are completely screwed. At what point do we look at the situation and decide that this near to the point of being a humanitarian crisis? How bad does it get before we say screw loan repayments and bailouts, a quarter of the people can't get jobs to begin with and the rest aren't far off not being able to be paid anyway?
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Re: Greek Crisis continues

Postby BattleMoose » Mon Jul 06, 2015 8:00 am UTC

Carlington wrote:To be honest, my concern isn't really the bankers not getting a return on their investment, my concern is the actual ordinary humans who now, through no fault of their own, are completely screwed.


This language is just wrong. Bankers make such a convenient target for vitriol. About half of the debt is owned by banks which in turn are largely owned by ordinary people. Or it is owned by other sovereign countries which it turn was lent by ordinary taxpayers in other countries. Or it is owned by asset funds, pension fund, or investment funds which are also owned by very ordinary people. No matter which way you cut it, that debt can be traced back to ordinary people.


At what point do we look at the situation and decide that this near to the point of being a humanitarian crisis? How bad does it get before we say screw loan repayments and bailouts, a quarter of the people can't get jobs to begin with and the rest aren't far off not being able to be paid anyway?


I believe we are at that point. But that does not solve the problem. Much of that Greek debt is owned by Greek Banks. If the Greek state goes bankrupt the Greek banks will probably follow, and goodness knows what happens next. But an environment where it is impossible to borrow money will probably result as no one will have money to lend. It will be bad. They need money, and who will lend it to them, you?

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Re: Greek Crisis continues

Postby Carlington » Mon Jul 06, 2015 9:40 am UTC

That was my point. Of course nobody's going to lend Greece any more money. But the problem won't be solved by more lending anyway, I think it's pointless to frame the discussion in terms of lending. Greece cannot pay its debts, ever, so why would lending more money and giving them more debts be discussed as a solution? That's why I compared this to a humanitarian crisis - often relief funds are sent to countries in the throes of humanitarian crises - so write the debts off, call it an economic disaster relief fund, and instead of lending them more money, help them. Just for Christ's sake, don't let the Troika and the commentators keep talking about loan repayments as if it's possible for Greece to work its way out of this debt. As I said in my earlier post in this thread, either Greece leaves the Euro and we deal with all that that entails, or the Troika and the richer half of Europe props up Greece (and, to an extent the rest of PIIGS and the poorer half of Europe) until such time as they can produce a structural surplus, and if that's forever then so be it, because that's just how monetary unions work.

(Of course, all of that puts aside the fact that this whole problem was caused by people entrusting their money to institutions, and those institutions misusing it. Really, I think the best solution is to dismantle the institutions that have failed so badly in their duties, and build something better in their place - but Greece and the EU are not yet at the point of outright revolution, and even so it's unlikely that any changes made, however radical, would really be deep enough, structurally, to reach the point I'd like them to. But that's a little removed from the point at hand, and is a more general sort of position I hold - hence the parentheses.)
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Re: Greek Crisis continues

Postby maybeagnostic » Mon Jul 06, 2015 9:42 am UTC

elasto wrote:Well, in functional economies, some sections fund other sections not expecting any return at all. eg. in the US, some states permanently run at a federal surplus, and some (usually the red ones) are permanently subsidized.
The problem is about more than just the wealthier nations being unwilling to indefinitely hand out money to people with no common history or language although that is very likely an insurmountable issue on its own. The examples you give involve regions that are not only more economically robust but also relatively much larger in terms of population and GDP than the regions they are sponsoring. They also involve governments fulfilling their previously agreed on functions, not the tax payers of Texas deciding to charitably pay off the deficit of a suddenly bankrupted North Dakota and vowing to continue sponsoring their deficit indefinitely.

elasto wrote:The other possible result - Greeks turning into Germans - is highly unlikely to occur within a single generation.
My understanding is that the original assumption was that all member states of the Eurozone are "Germans" (i.e. fiscally responsible governments) and joining the Eurozone just gives them many benefits, lower interest rates with which they can have an easier time being fiscally responsible only one among them.

Carlington wrote:How bad does it get before we say screw loan repayments and bailouts, a quarter of the people can't get jobs to begin with and the rest aren't far off not being able to be paid anyway?

I have serious issues with the fist part of your statement but this question I don't even understand. What are you suggesting exactly?

If you are suggesting the Greek government should default on its debts and hand over control of its tax collection, welfare and pension programs to some other entity, I nominate Australia. They have as much authority to do so as anyone else and are in many ways a much better candidate than Germany or some not-yet-existent Eurozone organization.

Edit:
Carlington wrote:That's why I compared this to a humanitarian crisis - often relief funds are sent to countries in the throes of humanitarian crises - so write the debts off, call it an economic disaster relief fund, and instead of lending them more money, help them.
Comparing this to a humanitarian crisis is disingenuous and does a disservice to actual crises. What kind of help are you suggesting anyway? Job creators, go to Greece where you won't have the support of the government, will face rampant corruption and nepotism, are likely to have all your assets confiscated by the government and all banking institutions are soon going to be bankrupt.
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Re: Greek Crisis continues

Postby BattleMoose » Mon Jul 06, 2015 10:19 am UTC

Carlington wrote:That was my point. Of course nobody's going to lend Greece any more money. But the problem won't be solved by more lending anyway, I think it's pointless to frame the discussion in terms of lending. Greece cannot pay its debts, ever, so why would lending more money and giving them more debts be discussed as a solution? That's why I compared this to a humanitarian crisis - often relief funds are sent to countries in the throes of humanitarian crises - so write the debts off, call it an economic disaster relief fund, and instead of lending them more money, help them.


Even if the debts are written off, Greece is in such a bad situation that she will need to borrow money. Not to pay debt payments but for the running of the country, to reopen the banks, pay civil servants, operate the hospitals and schools, power plants and maintain public infrastructure, et cetera.


(Of course, all of that puts aside the fact that this whole problem was caused by people entrusting their money to institutions, and those institutions misusing it.


Don't be fooled. The institution here that caused this crisis is the Greek government. Irresponsible borrowing 1980-2000, failure to collect tax, continuously running a deficit and committing fraud to be allowed to adopt the Euro.

Really, I think the best solution is to dismantle the institutions that have failed so badly in their duties, and build something better in their place - but Greece and the EU are not yet at the point of outright revolution, and even so it's unlikely that any changes made, however radical, would really be deep enough, structurally, to reach the point I'd like them to. But that's a little removed from the point at hand, and is a more general sort of position I hold - hence the parentheses.)


I wouldn't be too sure. Just about anything is possible in Greece at the moment. The situation is so untenable a lot of things are going to break before it gets better, in my opinion. If you want to know how bad things can get, google Venezuela.

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Re: Greek Crisis continues

Postby BlackSails » Mon Jul 06, 2015 10:28 am UTC

BattleMoose wrote:Don't be fooled. The institution here that caused this crisis is the Greek government. Irresponsible borrowing 1980-2000, failure to collect tax, continuously running a deficit and committing fraud to be allowed to adopt the Euro.


Also the widespread tax evasion, age 52-55 retirement with high pensions, and the fact that greece has almost nothing that other people want

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Re: Greek Crisis continues

Postby Carlington » Mon Jul 06, 2015 10:37 am UTC

BattleMoose wrote:
Carlington wrote:That was my point. Of course nobody's going to lend Greece any more money. But the problem won't be solved by more lending anyway, I think it's pointless to frame the discussion in terms of lending. Greece cannot pay its debts, ever, so why would lending more money and giving them more debts be discussed as a solution? That's why I compared this to a humanitarian crisis - often relief funds are sent to countries in the throes of humanitarian crises - so write the debts off, call it an economic disaster relief fund, and instead of lending them more money, help them.


Even if the debts are written off, Greece is in such a bad situation that she will need to borrow money. Not to pay debt payments but for the running of the country, to reopen the banks, pay civil servants, operate the hospitals and schools, power plants and maintain public infrastructure, et cetera.


Carlington wrote:instead of lending them more money, help them.


BattleMoose wrote:
(Of course, all of that puts aside the fact that this whole problem was caused by people entrusting their money to institutions, and those institutions misusing it.


Don't be fooled. The institution here that caused this crisis is the Greek government. Irresponsible borrowing 1980-2000, failure to collect tax, continuously running a deficit and committing fraud to be allowed to adopt the Euro.

Correct - the Greek government is not blameless, hence my use of "institutions", plural. However, the Greek government is not solely to blame - I'd say that its creditors acted irresponsibly in lending money and acting as though it could ever be repaid.

Really, I think the best solution is to dismantle the institutions that have failed so badly in their duties, and build something better in their place - but Greece and the EU are not yet at the point of outright revolution, and even so it's unlikely that any changes made, however radical, would really be deep enough, structurally, to reach the point I'd like them to. But that's a little removed from the point at hand, and is a more general sort of position I hold - hence the parentheses.)


I wouldn't be too sure. Just about anything is possible in Greece at the moment. The situation is so untenable a lot of things are going to break before it gets better, in my opinion. If you want to know how bad things can get, google Venezuela.
Yes, it's possible for the situation to get very, very bad in Greece. That's exactly what I am saying. What I'm also saying is that there's a very large human cost to things getting any worse in Greece, and that maybe it's time someone prioritised the human cost over the monetary cost. Nobody would lend money to Greece, because it's a terrible investment, right? That's what you've been saying the whole time - there's no way that the debt can be repaid, so nobody will want to lend any more money? So don't lend them money, just give it to them. It comes to the same thing, outlay without return, and it prevents a whole bunch of pain for the actual Greek citizens.
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Re: Greek Crisis continues

Postby BattleMoose » Mon Jul 06, 2015 10:51 am UTC

Carlington wrote:
BattleMoose wrote:
Carlington wrote:That was my point. Of course nobody's going to lend Greece any more money. But the problem won't be solved by more lending anyway, I think it's pointless to frame the discussion in terms of lending. Greece cannot pay its debts, ever, so why would lending more money and giving them more debts be discussed as a solution? That's why I compared this to a humanitarian crisis - often relief funds are sent to countries in the throes of humanitarian crises - so write the debts off, call it an economic disaster relief fund, and instead of lending them more money, help them.


Even if the debts are written off, Greece is in such a bad situation that she will need to borrow money. Not to pay debt payments but for the running of the country, to reopen the banks, pay civil servants, operate the hospitals and schools, power plants and maintain public infrastructure, et cetera.


Carlington wrote:instead of lending them more money, help them.


Writing off the debt and lending them money is the help they need. Unless you have some other suggestion?

Correct - the Greek government is not blameless, hence my use of "institutions", plural. However, the Greek government is not solely to blame - I'd say that its creditors acted irresponsibly in lending money and acting as though it could ever be repaid.


The IMF and ECB were bailing out Greece with 2-3% interest loans when Greece was borrowing money at 12%. This is the exact function that the IMF and ECB was designed to perform.

What I'm also saying is that there's a very large human cost to things getting any worse in Greece, and that maybe it's time someone prioritised the human cost over the monetary cost. Nobody would lend money to Greece, because it's a terrible investment, right? That's what you've been saying the whole time - there's no way that the debt can be repaid, so nobody will want to lend any more money? So don't lend them money, just give it to them. It comes to the same thing, outlay without return, and it prevents a whole bunch of pain for the actual Greek citizens.


Money was lent to Greece at hugely discounted rates, it was never about investment. For the most part I think everyone wants the best for Greece. But for bodies outside of Greece, the only actions they can take are monetary. And just giving money to Greece won't help either. The institutions within Greece cannot work as they are. They need radical reform. Propping up those systems with constant money gifts is just going to maintain a state that is dependent on aid. No one wants that.

And Greece isn't anywhere near the top of the list of countries that need financial aid.

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Re: Greek Crisis continues

Postby Zamfir » Mon Jul 06, 2015 10:56 am UTC

That's why I compared this to a humanitarian crisis - often relief funds are sent to countries in the throes of humanitarian crises - so write the debts off, call it an economic disaster relief fund, and instead of lending them more money, help them.

For comparison, look at the 2004 tsunami. I think we can agree that was a humanitarian crisis on a completely different scale than the situation in Greece, right? It raised somewhere on the order of 15 billion euro in international aid - about 3 years of EU regional support money to Greece. The implicit subsidy in the current loans is already far more than that.

Greece needed far, far more than such amounts of money, just to cover some years of deficits and to keep its banks running. If you go down the humanitarian route, then the rest of Europe could limit itself to tents, a field hospital and food packages.

Greece wants more than food packages, understandably. But at that point, you're leaving the realm of humanitarian aid.

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Re: Greek Crisis continues

Postby cphite » Mon Jul 06, 2015 5:04 pm UTC

CorruptUser wrote:What I don't quite get is, economically, what is holding back Greece? It's a major player in worldwide shipping, and it has a wealth of culture and islands so it has at least two major sources of tourism. If it's a lack of young workers, which doesn't make sense given double digit unemployment, the entire EU should start investing in robotics. Replace as many things with robots as possible, rather than importing more workers who will grow old and need support requiring even more workers to be imported...


Greece is holding back Greece.

Their government has spent itself into oblivion. They've set themselves up with an absolutely incredible amount of obligation via social programs, retirements, and so forth; in an economy where even the people who do have job, evade paying their taxes at levels that are, quite simply, staggering. Pile on top of this mess rampant corruption within the government itself and you have, really, a perfect storm of fiscal disaster.

This isn't the fault of the IMF or the EU or anyone else; it's the fault of Greece. It's the fault of their government, surely, but the government is a reflection of the people who put it in place. Greek society, at least at an aggregate level, is trying to have all the perceived benefits of a socialist economy without actually paying for it via taxes.

So they were bailed out - generously - with stipulations that they at least try to be fiscally responsible. And they failed to even put forth a sincere effort. And so now, somehow, the people who bailed them out are the bad guys for not wanting to do the same thing over again? Honestly, I don't get that at all.

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Re: Greek Crisis continues

Postby Zamfir » Mon Jul 06, 2015 6:06 pm UTC

We can be skeptical about the generosity of the bailout. Back in 2012, Greece didn't want a bailout and they didn't need a bailout. They wanted and needed debt restructuring to a manageable level. But at that time, the Eurozone was incapable of dealing with the consequences of that. Greek debt was spread throughout the European banking system, the banking system was on the edge of collapse, and there was nowhere near the instutional capability to deal with a collapse, and no political agreement on how to proceed.

So Greece was poltitely asked to take one for the team, then pressured until they said yes. Instead of a quick and large bankruptcy, they got a limited deal at a size and speedvthat the euro banking system could handle. And the difference was put on the balance of the Troika .For Greece, this had all of the downsides of a bankruptcy - they lost access to capital markets. But they didn't get the advantage of a small remaining debt, they mostly replaced private debt by Troika debt.

To make that deal palatable to the Greeks, Europe put in a sweetener: cheap loans for some years, so Greece could gradually reduce its deficit instead of cutting it all in one go. But that's not generosity. Without that offer, Greece had little to lose in a unilateral default, and they might have toppled the whole European banking system.

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Re: Greek Crisis continues

Postby KnightExemplar » Mon Jul 06, 2015 6:41 pm UTC

I've been using the following as the "straight to the facts" on the Greek Debt issue: A Primer on the Greek Crisis by Anil Kashyap.

Seems pretty level-headed compared to a lot of analysis elsewhere. So I recommend it as a read to everyone.
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Re: Greek Crisis continues

Postby Tyndmyr » Mon Jul 06, 2015 8:20 pm UTC

maybeagnostic wrote:
elasto wrote:Well, in functional economies, some sections fund other sections not expecting any return at all. eg. in the US, some states permanently run at a federal surplus, and some (usually the red ones) are permanently subsidized.
The problem is about more than just the wealthier nations being unwilling to indefinitely hand out money to people with no common history or language although that is very likely an insurmountable issue on its own. The examples you give involve regions that are not only more economically robust but also relatively much larger in terms of population and GDP than the regions they are sponsoring. They also involve governments fulfilling their previously agreed on functions, not the tax payers of Texas deciding to charitably pay off the deficit of a suddenly bankrupted North Dakota and vowing to continue sponsoring their deficit indefinitely.


And it's STILL not entirely popular, and mostly an artifact of government for other reasons, rather than the people of California graciously accepting to pay for those other states. So, maybe not the best model to follow. There's a certain degree of bitterness that some states are, for political reasons, given a great deal more federal dollars than they pay.

I don't think you can extend such a system indefinitely. I mean, the US has some issues even as is...I can't imagine such a system being popular among the donor countries, at least, not enough to willingly sign on to a great degree. Foreign aid already exists as a concept, but it is usually relatively small, and it's prioritized for diplomatic needs, or disaster relief, or particularly terrible circumstances, not for an ongoing stiped simply because a state can't handle taxation and budgeting responsibly.

Even in the US, I don't think that would be a very popular thing at all. As it's easier for a country to bail out of the EU than for a state to bail out of the US, such a forced system in the EU is likely to result in something of a revolt as countries simply decline to participate. It can't be made to happen.

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Re: Greek Crisis continues

Postby Dark567 » Mon Jul 06, 2015 9:21 pm UTC

Tyndmyr wrote:
maybeagnostic wrote:
elasto wrote:Well, in functional economies, some sections fund other sections not expecting any return at all. eg. in the US, some states permanently run at a federal surplus, and some (usually the red ones) are permanently subsidized.
The problem is about more than just the wealthier nations being unwilling to indefinitely hand out money to people with no common history or language although that is very likely an insurmountable issue on its own. The examples you give involve regions that are not only more economically robust but also relatively much larger in terms of population and GDP than the regions they are sponsoring. They also involve governments fulfilling their previously agreed on functions, not the tax payers of Texas deciding to charitably pay off the deficit of a suddenly bankrupted North Dakota and vowing to continue sponsoring their deficit indefinitely.


And it's STILL not entirely popular, and mostly an artifact of government for other reasons, rather than the people of California graciously accepting to pay for those other states. So, maybe not the best model to follow. There's a certain degree of bitterness that some states are, for political reasons, given a great deal more federal dollars than they pay.
Another thing that is being overlooked is these payments aren't really from state to state, they are mostly from citizen to citizen. The citizens in MA are richer than those in AL, so in effect its a transfer of wealth from MA to AL, but not the MA government to the AL government.
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Re: Greek Crisis continues

Postby sardia » Wed Jul 08, 2015 12:32 am UTC

I'm kinda surprised how many people here are against "throwing good money after bad", especially when the data shows that's exactly what you have to do.
http://www.nytimes.com/2015/07/08/busin ... reece.html
If you want the indebted country to succeed, you have to write off their debt. Though I am surprised that loan extensions and refinancing don't help as much as I thought they should.

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Re: Greek Crisis continues

Postby elasto » Wed Jul 08, 2015 1:05 am UTC

I think there is much truth in that article - though I do think it underplays the present-day dilemma that if Greece has a massive write-down - which the EU can easily afford - why shouldn't Spain and Italy demand the same - which could not be afforded?

But, yes, write-offs are key to recovery - which is why if Greece's creditors won't do it voluntarily, Greece has to default against their will; It's her only chance of being a healthy, successful economy in 10 to 20 years time.

That tale of Germany's own history with debt write-offs reminds me of Japan's which I read in Quora today:

Why didn't the Japanese develop a deep-seated hatred against Americans after the US dropped atomic warheads to obliterate innocent civilians?

I lived in Japan from 1984 to 1987. At that time foreigners were relatively rare, even in Tokyo. One day I was taking someone sightseeing at Asakusa Sensō-ji . An older Japanese man, in his 70s? came up to me, he was drunk (and had an open can of sake in his hand). He told me that after the war he thought he would be a slave*, they had lost the war. But the Americans rebuilt Japan, they couldn't believe it. He thanked me, he thanked America he kept on thanking me for rebuilding Japan, and talked about what America had done for Japan. He went on like this for a long time. He wasn't crying, but he was quite emotional.

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Re: Greek Crisis continues

Postby sardia » Wed Jul 08, 2015 3:03 am UTC

Well... has anyone considered giving Spain and Portugal the debt relief they supposedly shouldn't get? It's not exactly sunshine and honey over there either. I mean there's moral hazard on both sides here, borrower and loaner alike. Why isn't the loaner being punished for the moral hazard of giving out increasing risky loans with the expectation that they will never suffer the majority of the consequences.

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Re: Greek Crisis continues

Postby BattleMoose » Wed Jul 08, 2015 3:45 am UTC

I think there is a fair distinction between not being able to repay war reperatations that were forced on you, in the very literal use of the word force. And not being able to repay debt that was willingly borrowed to subsidise a broken fiscal system. I have a huge amount of sympathy for the former and much less for the latter. That being said, and I have said, and will say again here I do think some debt forgiveness is appropriate.

Why isn't the loaner being punished for the moral hazard of giving out increasing risky loans with the expectation that they will never suffer the majority of the consequences.


Ummm. The very very very real consequences of giving out risky loans is that you won't get that money back. That's a bad thing for a lender. And we have laws to protect individuals from predatory loans, as we should, because the ordinary civilian can fall for such trickery and we recognise that as a moral and civil wrong, as we should.

When it comes to a Government, that has the capacity to employ professional economists whose job it is to manage the economy and make decisions. The idea that we fell to the capitalist tricks because we don't understand how interest works! Just no. And note I am really talking about the period 1980-2007. Before the first bail out, that predatory loan at 2-3% (10% below market rate) which the Greeks asked for.

Ultimately the Greek Government(s) over the past few decades have seriously fucked up. They are in an impossible situation now and the do need help and debt forgiveness. But don't blame lenders who lent in good faith to the governments of a first world country.

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Re: Greek Crisis continues

Postby sardia » Wed Jul 08, 2015 5:06 am UTC

BattleMoose wrote:I think there is a fair distinction between not being able to repay war reperatations that were forced on you, in the very literal use of the word force. And not being able to repay debt that was willingly borrowed to subsidise a broken fiscal system. I have a huge amount of sympathy for the former and much less for the latter. That being said, and I have said, and will say again here I do think some debt forgiveness is appropriate.

Why isn't the loaner being punished for the moral hazard of giving out increasing risky loans with the expectation that they will never suffer the majority of the consequences.


Ummm. The very very very real consequences of giving out risky loans is that you won't get that money back. That's a bad thing for a lender. And we have laws to protect individuals from predatory loans, as we should, because the ordinary civilian can fall for such trickery and we recognise that as a moral and civil wrong, as we should.

When it comes to a Government, that has the capacity to employ professional economists whose job it is to manage the economy and make decisions. The idea that we fell to the capitalist tricks because we don't understand how interest works! Just no. And note I am really talking about the period 1980-2007. Before the first bail out, that predatory loan at 2-3% (10% below market rate) which the Greeks asked for.

Ultimately the Greek Government(s) over the past few decades have seriously fucked up. They are in an impossible situation now and the do need help and debt forgiveness. But don't blame lenders who lent in good faith to the governments of a first world country.
First, countries with economists fail to plan fiscal and monetary policy correctly all the time. If they didn't, we wouldn't have had all those crises from the great depression, to contagion crisis, hell even the dutch tulip bubble. Aren't you blindly following the, not true, idea that first world countries always pay back their loans? So no, people don't understand how interest works. An interest rate of x% does not mean the loan will never default. If that was the case, interest should be 0%.

As for the subsidized loan rates, what does that accomplish? A unpayable loan that is refinanced into a lower interest rate unpayable loan? Great, now you're crushing debt problem grows more slowly. Refinancing like that only works if the debt was manageable in the first place. Why waste money and time like that? Just write off the debt now, and use that bailout money for more productive purposes.

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Re: Greek Crisis continues

Postby BattleMoose » Wed Jul 08, 2015 5:19 am UTC

sardia wrote:First, countries with economists fail to plan fiscal and monetary policy correctly all the time.


And they are professionals and responsible adults and I won't turn a blind eye to their mistakes.

If they didn't, we wouldn't have had all those crises from the great depression, to contagion crisis, hell even the dutch tulip bubble. Aren't you blindly following the, not true, idea that first world countries always pay back their loans?


I would actually be very interested to see the list of first world countries defaulting on their loans. Excluding war reperations.

So no, people don't understand how interest works. An interest rate of x% does not mean the loan will never default. If that was the case, interest should be 0%.


If people don't understand the basics of economics then they should not be managing a countries fiscal policies. No ifs or buts. And the latter half is just wrong on the face of it. Even Australian bonds have a positive interest rate, and yeah, no way they will default for the period of the bond. Just not in the realm of reality.

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Re: Greek Crisis continues

Postby sardia » Wed Jul 08, 2015 5:46 am UTC

And they are professionals and responsible adults and I won't turn a blind eye to their mistakes.I would actually be very interested to see the list of first world countries defaulting on their loans. Excluding war reparations. If people don't understand the basics of economics then they should not be managing a countries fiscal policies. No ifs or buts. And the latter half is just wrong on the face of it. Even Australian bonds have a positive interest rate, and yeah, no way they will default for the period of the bond. Just not in the realm of reality.
[/quote]Excluding war reparation is cheating. =(
https://en.wikipedia.org/wiki/Sovereign ... gn_default
After excluding war,
https://en.wikipedia.org/wiki/Nixon_Sho ... ifications
US defaulted on it's dollar to gold obligations, and investors lost 99% of it's value.

Why do you insist that Greeks are responsible adults who we can't turn a blind eye to mistakes. But lenders who fucked up royally and loaned a shit ton of money to Greece can run to Mommy Germany and get tax payers to bail out Greek bonds (which in turn directly flows to the lenders)? Lenders are adults too, yet you turned a blind eye to their mistakes, and think they're saints or something.

Greece fucked up, we know, Greeks sorta know. Now what? They're gonna default anyway, now Europe(Germany) is deciding just how they're gonna default.

Why is it that you believe that economists are actually in charge of countries? Can you name the number of countries where economists rule? I also find it ironic that you insists economists be in charge, but also insist on a solution that no economist would support. You're emotions are clouding your thoughts.

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Re: Greek Crisis continues

Postby BattleMoose » Wed Jul 08, 2015 6:46 am UTC

sardia wrote:
Why do you insist that Greeks are responsible adults who we can't turn a blind eye to mistakes. But lenders who fucked up royally and loaned a shit ton of money to Greece can run to Mommy Germany and get tax payers to bail out Greek bonds (which in turn directly flows to the lenders)?


Everyone is responsible for their actions. But we excuse the ordinary individual to falling prey to predators. I do not and will not excuse the fiscal actions of a first world government. This isn't a double standard, and applies equally to everyone else, including lenders. Everyone is responsible for their actions and this is much more true if you are in charge of a country or large financial institutions.

Look, Germany is looking after her own interests, first and foremost, as every country should. If they feel that bailing out "the lenders" is in their best interests, so be it. Its up to them and as always the consequences are also theirs to bear.

Access to cheap loans through the EU was a benefit from Greece entering the EU. Those loans were made on large part because Greece lied about her fiscal position. If you want to argue that the EU fucked up because they believed Greece wasn't lying, well I would agree. But committing fraud to enter the EU...

Lenders are adults too, yet you turned a blind eye to their mistakes, and think they're saints or something.


Mistakes were made. They certainly errored in lending money to Greece. And the consequences are theirs to bear. Which mistakes am I not acknowledging?

Why is it that you believe that economists are actually in charge of countries?


I don't believe that. But governments have access to economists and its their responsibility to use them or not. The choices and consequences are theirs.

Can you name the number of countries where economists rule? I also find it ironic that you insists economists be in charge, but also insist on a solution that no economist would support. You're emotions are clouding your thoughts.


I never said that economists are in charge. Just that those who do run countries are responsible for their fiscal policies and they do have access to economists. I did call them professionals and maybe I shouldn't have said that, but they do get paid so technically they are? I actually don't posit a solution at all. FYI. Never have. In fact what I have said is that I could foresee debt forgiveness being appropriate.

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Re: Greek Crisis continues

Postby maybeagnostic » Wed Jul 08, 2015 8:08 am UTC

sardia wrote:Aren't you blindly following the, not true, idea that first world countries always pay back their loans? So no, people don't understand how interest works. An interest rate of x% does not mean the loan will never default. If that was the case, interest should be 0%.

No, it wouldn't be 0% at all because you need to account for many other factors (inflation, opportunity cost of lending the money, amount borrower wishes to borrow). Incidentally, there have been times when 30-yr US bonds had a negative interest rate and interest rates on bank deposits in many European countries have also had times like that. It's a situation where you give someone your money to keep for years without expecting anything extra for it and even allowing them to keep a bit of the money for the favour of allowing you to lend it to them.

sardia wrote:As for the subsidized loan rates, what does that accomplish? A unpayable loan that is refinanced into a lower interest rate unpayable loan? Great, now you're crushing debt problem grows more slowly. Refinancing like that only works if the debt was manageable in the first place. Why waste money and time like that? Just write off the debt now, and use that bailout money for more productive purposes.

sardia wrote:But lenders who fucked up royally and loaned a shit ton of money to Greece can run to Mommy Germany and get tax payers to bail out Greek bonds (which in turn directly flows to the lenders)? Lenders are adults too, yet you turned a blind eye to their mistakes, and think they're saints or something.

You keep saying that and ignore the fact that half of Greek debt was already forgiven through the 50% investor "haircut" in 2011. No one is saying further debt reduction in the future is out of the picture, in fact it would have been certainly guaranteed. All that is happening is that the Troika is trying to dictate Greek fiscal policy while they have the leverage to do so (i.e. while they hold the loans) and still it isn't working. If the debt is forgiven, Greece will continue to borrow as much money as possible and the rest of the Eurozone won't be in a position to make any demands on financial policy any longer which means.

Now the ideal approach from a purely economic point of view is a big debt reduction for Greece followed by further loans coupled with increasing "austerity measures." That, however, assumes perfectly rational actors and no one in their right mind believes the Greek government at the moment would continue increasing austerity given any choice in the matter (as demonstrated by the fact that they are set to leave the Eurozone before they implement further austerity). The fact of the matter is that even if all their foreign debt was forgiven today, the Greek government will still need massive amounts of money to keep it's banks afloat and continue to run a deficit indefinitely.

Also "austerity measures" just means that the Greek government will have to go back on promises to it's people that it never had any choice of keeping just like "debt reduction" means the Greek government goes back on promises to foreign lenders that it never had a chance of keeping. Much as some people seem to want to punish foreign lenders for being gullible enough to lend Greece money, they already lost half of their money and are extremely unlikely to see much of the rest. Besides these foreign lenders weren't some evil cackling banker in a dark-tinted glass tower, they were foreign governments, companies, pension funds and are now the taxpayers of other Eurozone countries.
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Re: Greek Crisis continues

Postby bentheimmigrant » Wed Jul 08, 2015 9:36 am UTC

maybeagnostic wrote:You keep saying that and ignore the fact that half of Greek debt was already forgiven through the 50% investor "haircut" in 2011.

No, half the Greek debt was not forgiven. Privately held Greek bonds lost half their value. That does not include bailout money, or money lent by other means.

According to this, the "haircut" was 100B Euros, and was apparently equivalent to 22%, not 50%. So the holders of the debt, by and large, are not foreign governments. They have not forgiven the debt. Obviously this is not chump change, but it wasn't some big concession by the Troika, it was them making other people bear the brunt of their ineffective policies. I don't have the numbers, but it would be interesting to see how much of those bonds were actually outside Greece. I expect we would find out the answer is very little.
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Re: Greek Crisis continues

Postby BattleMoose » Wed Jul 08, 2015 9:54 am UTC

According to this, the "haircut" was 100B Euros, and was apparently equivalent to 22%, not 50%. So the holders of the debt, by and large, are not foreign governments. They have not forgiven the debt. Obviously this is not chump change, but it wasn't some big concession by the Troika


Actually, if Greece can be considered a company, this is exactly how it works in corporate law. If a company is bankrupt, and the argument is made that the company can continue IF it gets more loans and once again be successful, a judge can rule that the issuer of those loans, has first dibs if the company is liquidated. Without this condition, no one would lend money (or something not sure how this entered my headspace buts its in there). Such as it was with Greece. Pretty sure someone already explained this.

Regardless, a 22% debt forgiveness is a pretty huge concession.

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Re: Greek Crisis continues

Postby bentheimmigrant » Wed Jul 08, 2015 11:15 am UTC

BattleMoose wrote:Pretty sure someone already explained this.

Pretty sure there's nothing in my post to indicate I didn't understand this. I was pointing out that the 50% debt forgiveness was incorrect, and that it wasn't really "forgiveness".
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Re: Greek Crisis continues

Postby Zamfir » Wed Jul 08, 2015 11:22 am UTC

@BattleMoose, that analogy obscures more than it enlightens. Greece is not a corporation, it won't be liquidated, there is no judge and no applicable corporate law.

The current loans are not business deals. They are public policy of the Eurozone, towards one of its own members. It's a political choice to cast some of that policy in the form of agreements that resemble a business loan.

Perhaps it's proper policy for the circumstances, perhaps it's not. But that discussion only gets obscured by treating it by the logic of business deals.

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Re: Greek Crisis continues

Postby Tyndmyr » Wed Jul 08, 2015 4:01 pm UTC

sardia wrote:I'm kinda surprised how many people here are against "throwing good money after bad", especially when the data shows that's exactly what you have to do.
http://www.nytimes.com/2015/07/08/busin ... reece.html
If you want the indebted country to succeed, you have to write off their debt. Though I am surprised that loan extensions and refinancing don't help as much as I thought they should.


Why does anyone HAVE to do that? Clearly, they don't.

Yes, it is obviously more desirable for the hurting country to get free money/written off debt. But there is no motivation to be the donor in an ongoing relationship of that sort.

And if you make it policy that you HAVE to do it, even when they keep getting spend happy repeatedly, what incentive do they have to fix their spending issues? I mean, free money to fund your spending programs is kind of awesome all round.

BattleMoose wrote:
So no, people don't understand how interest works. An interest rate of x% does not mean the loan will never default. If that was the case, interest should be 0%.


If people don't understand the basics of economics then they should not be managing a countries fiscal policies. No ifs or buts. And the latter half is just wrong on the face of it. Even Australian bonds have a positive interest rate, and yeah, no way they will default for the period of the bond. Just not in the realm of reality.


This. It's one thing to complain about predatory loans being marketted to very young folks or something, on the basis of taking advantage of lesser access to knowledge...but if the nation can't manage money, then what? What higher authority is there to default upward to for that decision? The buck HAS to stop somewhere, and it's hard to argue that Greece didn't have the ability to get such knowledge.

sardia wrote:Why do you insist that Greeks are responsible adults who we can't turn a blind eye to mistakes. But lenders who fucked up royally and loaned a shit ton of money to Greece can run to Mommy Germany and get tax payers to bail out Greek bonds (which in turn directly flows to the lenders)? Lenders are adults too, yet you turned a blind eye to their mistakes, and think they're saints or something.


Just as there is no requirement that others bail out Greece, there is likewise no requirement that Germany bail out the lenders. If they think they can do so safely for a net gain, cheers, let them try. But they don't *have* to. Nobody is going to march in with troops and make them.


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