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The Greek debt crisis....why?

(1000 Posts)
InDespair Sat 27-Jun-15 17:24:06

cant find another thread about this so.....

Before anyone accuses me of being thick or burying my head in the sand, I can';t always watch the news in full, and I dont read newspapers. (and Im sure others are wondering too).

Who exactly is in debt?

the people?

the banks?

How did they get themselves into this mess, and why and how do they expect a bailout?

what have they spent all their money on?

And what about tourism?

Laymans terms please.

Gemauve Sat 27-Jun-15 17:30:18

When Greece joined the Euro, international lenders assumed that all government debt denoted in Euros would be backed by the Eurozone as a whole.

Greece had historically had to pay a fairly high interest rate to borrow money, as its currency was weak and its economy was small.

Once it had joined the Euro, the cost of borrowing dropped like a stone, so its government borrowed a lot of money and used that to pay high wages to civil servants and large pensions. The Euro was a lot stronger than the Drachma had historically been. The economy expanded as people started to buy a lot of imported goods. Other Eurozone countries were happy with this, as it was their exports being bought with money their banks were lending.

Then reality hit, and lenders started to realise that the loans were nothing like as safe as they thought. Interest rates rose (a high bond yield is good for lenders, but bad for governments), Greek government debt plunged to junk status, and Greece had to borrow money from various lenders of last resort like the IMF, the ECB and the european liquidity fund whose name escapes me.

Now the IMF and the ECB have lost patience as well. As they are in the Euro, they cannot just print money and inflate/devalue their way out of it. Hence the problem.

lljkk Sat 27-Jun-15 17:32:46

Why would it be so bad if Greece left the Euro?

Squidzin Sat 27-Jun-15 17:37:16

A Greece exit represents the flawed ideology of a united Europe, and paves the way for other countries to cancel their debt, commitments and leave the rest in the lurch.

InDespair Sat 27-Jun-15 17:37:29

Thank you.

So if any other country in Europe had/has the same prob, then the rest of Europe has to help out?

a slight analogy here. (sorry, Im not stupid, but just a bit slow!)

As an individual, Ive never taken out a loan and never been in debt but I know someone who keeps getting loans, buying the latest top notch gadgets/cars etc and getting deeper and deeper into debt.

its her fault, isnt it, cos shes moaning all the time she has no money but expects bailout all the time?

Or people who overspend on their credit cards...is this something similar then?

Not saying anything against the Greeks, Im just asking do they keep borrowing and spending and borrowing more and spending and getting deeper and deeper but know/hope they'll be bailed out each time?

Squidzin Sat 27-Jun-15 17:42:27

The Greeks have "borrowed" money (millions) for projects that never started, no intention of making the money work.
Somehow magically billions has appeared on the London property market from Greeks, Their harbours are filled with luxury yaughts, a corrupt system where no one can trace where and money has come from or gone to.

lalalonglegs Sat 27-Jun-15 17:42:39

Excellent explanation by Gemauve.

In summary, the Greek government has the debt and it cannot raise enough money through taxes to pay it off. The Syriza party which heads the government has said that it can't agree to further austerity as this programme of cuts makes it impossible for the Greeks to pay down the debt and the Greek people are suffering disproportionately. They say that they should be allowed to pay the debt over a longer period - in reality, almost all the money being loaned to them by the IMF etc is simply going back out in interest payments. Syriza wants to start using the loans for infrastructure projects etc that could generate tax revenue but the IMF feels that (a) that is what happened last time (b) Greece has a pretty poor record for gathering taxes.

Syriza has now said it will hold a referendum next week to decide whether to accept the bailout terms or not but the problem with this is that there will be a run on the banks in the intervening period and, if the Greek people vote against further austerity, it means that Greece will have to leave the euro causing further hardship and meaning that the troika don't get their money back anyway. So lose-lose.

Fugghetaboutit Sat 27-Jun-15 17:44:25

They lied about their deficit to get into the Euro.

InDespair Sat 27-Jun-15 17:45:12

Thank you for the explanations, Im up to speed now, .

So as I understand they'll start cutting pensions and other benefits (or equivelant) there?

Gemauve Sat 27-Jun-15 17:46:28

Why would it be so bad if Greece left the Euro?

How would Greece buy energy, medicines and food? Every transaction would require either tourists arriving and spending hard currency, which takes us into the world of Eastern Europe 1970s style, or Greece exporting stuff which it can get hard currency for, which is going to mean food. Pre-EU, the Greek economy was not, to put it mildly, Germany; it now has German expectations of standard of living, and whatever scrip its government issued post-Euro would be close to worthless.

They would have to do what Argentina did and borrow dollars, praying that they can repay them in dollars. To say that ended badly is to understate things quite dramatically.

lalalonglegs Sat 27-Jun-15 17:48:50

It's true the books were cooked to a slurry in order for Greece to qualify for entry into the euro but I'm pretty sure that everyone knew what was going on and turned a blind eye to it. The Greeks who didn't cause this crisis have suffered enough and I think the money lenders could bash out a deal if they wanted to. I can't privilege the IMF's desire to get its money back over the pain of ordinary Greek people who can barely afford to live because of the mess their successive governments have got them into.

Gemauve Sat 27-Jun-15 17:49:18

Syriza has now said it will hold a referendum

This appears to predicated on the contention that if the Greek population vote for free money to be delivered in bulk, it's "undemocratic" for the German central bank to not just start posting out hundred Euro bills to everyone in the Athens phone book.

Gemauve Sat 27-Jun-15 17:50:44

Greek people who can barely afford to live because of the mess their successive governments have got them into

That's the governments they voted for in successive democratic elections, yes? Just to be clear, this isn't some despotic failed state, is it?

CoteDAzur Sat 27-Jun-15 17:54:47

"It's true the books were cooked to a slurry in order for Greece to qualify for entry into the euro but I'm pretty sure that everyone knew what was going on and turned a blind eye to it. "

Err no, absolutely not. When a country announces its accounts, how on earth are you going to know that those numbers are false? You don't have an independent means of verifying those accounts.

If banks, governments, institutional and individual investors knew that Greece's numbers were false, they would not have bought Greek bonds and certainly not at the low EU rates going at the time. Their goal wasn't actually to lose money, you know.

Gemauve Sat 27-Jun-15 17:57:45

Err no, absolutely not. When a country announces its accounts, how on earth are you going to know that those numbers are false?

Because the claim that in 2000 the Greek economy was stronger than the UK economy, and the drachma was a stronger currency than the pound sterling, was obviously false on its face. The UK was the only country to fail the "convergence criteria".

CoteDAzur Sat 27-Jun-15 17:58:14

"Why would it be so bad if Greece left the Euro?"
"How would Greece buy energy, medicines and food?"

They would eat the food they grow and make their own medicines. Or import them. How else do you think countries outside the Eurozone do these things?

lalalonglegs Sat 27-Jun-15 17:59:06

I agree that the Greeks have royally messed up but I think the price that ordinary people are being asked to pay is way too high and, ultimately, it isn't getting the money paid back any quicker anyway as a huge proportion of loans are going back in interest payments. It does seem that there aren't any winners in this current situation, just - potentially - face-savers.

lalalonglegs Sat 27-Jun-15 18:00:46

Cote, Greece couldn't import very much as the new currency, say a return to the drachma, would be regarded as unstable and undesirable by trading partners.

CoteDAzur Sat 27-Jun-15 18:07:41

Gemauve - I don't remember any such claim from the year 2000. My recollection is that UK was in the grip of recession at that time and could not bear the high interest rates following German reunification. An attempt to peg British Pounds to Deutsche Marks was a disaster.

There was no such obvious economic shortcomings with Greece. They deliberately and systematically falsified their numbers, then went crazy on borrowed credit.

CoteDAzur Sat 27-Jun-15 18:12:51

" Greece couldn't import very much as the new currency, say a return to the drachma, would be regarded as unstable and undesirable by trading partners"

That's not how it works. Their currency would be devalued and they would have high inflation for a while (perhaps a very long while) but a currency rate would be found where imports are possible. And a country can always borrow funds in hard currency from other countries.

CalmYoBadSelf Sat 27-Jun-15 18:17:01

I feel sorry for the individuals who are suffering terrible hardship out there but their successive governments have really just taken the piss and thought they could continue to do so. They are still trying to get away with it in these negotiations.

I may be wrong but I think I read that up until recently the state retirement age was much lower than here (maybe 57 or 58 across the board?) and you could retire earlier on full pension for all sorts of spurious reasons

lalalonglegs Sat 27-Jun-15 18:18:38

But if the drachma is valued so low because it is seen as a "junk currency", yhey won't be able to port very much. And as for borrowong hard currency, isn't that going to be an issue if they crash out of the euro? Realistically, who is going to lend to Greece?

CoteDAzur Sat 27-Jun-15 18:24:34

Countries with junk currencies can borrow. They are all outside the Eurozone (obviously) so that is not a problem. The interest rates are high and IMF usually gets involved, but they agree upon the conditions and release the funds.

As someone who has grown up in one such country, I can assure you that people don't starve and die of lack of medicines if taxpayers of other countries don't fund their lifestyles.

olivaceous Sat 27-Jun-15 18:27:22

Message withdrawn at poster's request.

Gemauve Sat 27-Jun-15 19:23:26

They would eat the food they grow and make their own medicines

With their fantastically well developed pharmaceutical industry, I guess.

How else do you think countries outside the Eurozone do these things?

Those without strong convertible currencies? How are things in sub-Saharan African right now?

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