Greece, the Euro Zone and Germany - will the Euro fail?

[Callisto]

I'm amazed that nobody is talking about this on here. Greece was (illegally, as I understand it) bailed out to the tune of 110 billion Euros last year. One year on and the Greek economy is practically non-existant, Germany are not keen on another bail-out and there is the distinct possibility that the Euro will fail. The European Central Bank has no money - it can print some or we can bail it out, or it can fail. If the Euro fails the European Union will likely fail and the result will make the credit crunch look like a tiny economic blip.

Germany are not keen but it doesn't look like they have much choice.

They've just caved in on their original demands to roll over Greek debt maturities so I think reality is starting to set in.

There's still a whiff of delaying the inevitable rather than a deep desire to do what it takes to fix the problem.

I read this article earlier today on the respected Time magazine:

Watching a modern greek tragedy

The author is right in his conclusion and puts it very neatly:

"But the Americans, Brits, French, Italians and most other Westerners can't avoid the budget cuts and potentially lower living standards the Greeks are suffering through today as governments across the developed world will inevitably be forced to restore order to their shattered finances. It's the price of living beyond our means like the Greeks have done. Those painful adjustments will have to be made as the West confronts a challenge to its dominance and competitiveness from a rising East. The Greeks need to reform their economy to have any hope of a bright future. So does the rest of the West."

Hopefully we will stay out of anymore bailouts for any country and leave it to those in the euozone .... It is a joke

Who is on the hook for a Greek default? This is what the BIS think as of 2010 year end:

Italian Banks $2.3 billion
UK Banks $3.4 billion

Whilst that is still an awfully large sum they should be able to cope with it. Now it starts to get nasty and you can see why Sarkozy is sweating and as for the ECB?.

French Banks $15 billion
German Banks $23 billion

and the ECB has over $47 billion of Greek debt on its books. Thats $47?000?000?000

Oh and all of that is just Greek debt ? on top you need to add Portuguese, Irish and i suspect rather a lot of credit default swap positions!

And you thought we have already had the Credit Crunch? Bless?..

The above posted was lifted from my husbands blog/forum, I don't spend much time on there but the Greek situation shocked me to the core.

Niceguy - good summary of the situation.

Thanks for that Al0uise - can you link to your DH's blog? Sound v interesting. The possible domino effect of country after country going bankcrupt is very scary.

I just can't get to grips with the enormous amounts of money being talked about. I also don't really understand talk of shoring everything up until 2013 when a new EU mechanism for will come into effect to deal with bail outs (I think). Surely making the Greeks sit it out for 2 more years will just exacerbate the whole situation?

Link here, still on a test server so a little slow sometimes

Would it be a bad thing for Greece to be allowed to go bankrupt/default, and leave the Euro as Boris J suggests?

www.telegraph.co.uk/news/worldnews/europe/eu/8585704/Boris-Johnson-let-Greece-go-bankrupt-and-leave-the-euro.html

Anyone have an opinion on the current situation? What is the best case/worst case/most likely outcome scenario?

I expect there will be a default ultimately. The authorities are just putting off the inevitable. I suspect, however, that Greece will be made to leave the euro first, in order to minimise damage to the single currency, although that would in itself knock the Euro's credibility.

If Greece doesn't default, however, then all the countries involved in the bailout stand to make a profit - they are hardly donating the cash out of the goodness of their hearts, Greece is expected to pay interest - more money to leave the Greek economy and sink it ever further into debt. No wonder people are talking about revolution, they feel that there is no end in sight, no hope of relief.

My impression was that so many of Europe's banks hold loans to Greece that a default could be potentially very dangerous for the economic community.

Are you in Greece? If so, what is it like there atm?

If there is a default we are all in the shit. If the Euro falls or the EU fails we are very, very deeply in the shit, and I say this as a complete Eurosceptic. The end of the EU will send the most enormous economic and political shockwaves around the world - I think it will be something that many EU countries (including us) won't recover from, especially as Asia and South America are becoming so dominant.

It is very scary, and to repeat myself, I can't believe no one on here is talking/worrying/scared shitless about it.

If someone leaves the euro then there will be a knock on effect. It is going to be costly but the expansion of the eu is a mistake and I would be pleased to see the eu dissolve. The millions of pounds saved everyday would offset some of the losses. We can survive without the eu.

Earlybird - yes, I am in Greece, and yes, I am very very worried. I have been giving my dh intensive English lessons in preparation for a possible move to the UK.

Tensions are running very high. People are withdrawing any money they have, as little as 20 euros, from the bank. this is quite a good article about what it's like in Athens. There is a lot of despair here. We have cut back on absolutely everything. Let me give you some examples of ordinary people - yesterday, I took my children to the park and there was an old woman there collecting fallen branches and pinecones in a supermarket trolley. I asked her what was going on and she said that she is collecting for the winter as she has no spare money now, so she won't be able to pay to heat her home in winter. She wanted to gather enough to burn by the time the cold weather comes again. Another example - my son's physiotherapy will no longer be paid for. We have to find 300 euros a month to pay for it or stop his treatment (he was born with hypotonia).

There has been a lot of talk on national TV about reintroducing the drachma, but even then the euro would take a blow. Where would it end? Would Ireland be forced to leave? Portugal? Spain...?

I just read that article and I am deeply saddened by what's happening in Greece.

The root cause of Greece's woes are easy to see. They borrowed too much, spent too much and as the article nicely put it "Wealthy Greeks have always treated the country's tax system like a church collection plate: what they give is strictly optional."

The problem is that Greece is in way over it's head and the rest of the EU are actually delaying the inevitable not because they want to help a fellow EU nation but because they are fearful of the impact upon themselves.

However, if Greece was a family member deep in debt, you'd expect other family members to either lend them money interest free or if that's not possible, let them go bankrupt so wiping the slate clean so they could start again.

But here we're not. We're lending them money with high rates of interest. So in effect we're acting more like Ocean Finance than concerned friend.

I think it's about time we let Greece default, adopt their own currency which would give them the time & breathing space to rebuild their shattered economy.

Yes this will affect the rest of the Eurozone but like with personal finances, i'd argue the last thing someone who's in debt needs is another loan!

niceguy - if only! I've been saying similar for a while now!

One thing, though. What happens to the people who owe the state money if it goes bankrupt? Are their debts also wiped clean, or do they still owe?

No, a default means the Greek government doesn't pay the people it owes money to.

Interestingly the two nations on the hook to lose the most money are France & Germany who understandably are leading the way to organise a bailout. But personally I see this akin to asking your drug dealer to help you kick your habit.

I have little sympathy with the EU. It was clear from day 1 that many Euro nations weren't meeting the criteria but were allowed to join anyway. They didn't invent those rules up for no reason. Worse still, a blind eye was turned for far too long to nations such as Greece flouting those rules on budget deficit.

I'm glad we're not in the Euro or we'd be in the same mess as Greece. Things are bad enough for us without the extra financial straitjacket of the Euro.

I am endlessly- well, actually upset by how many times my gut feeling about so much that has happened in politics, in the UK and internationally has proved to be right. I mean, the Maths on the back of a fag packet could have told ANYONE that much of Europe's southern fringes simply did not have their financial houses in order well enough to be allowed to join the Euro. You cannot seriously tell me that Greece's economy was anywhere NEAR the league that contained the Deutchmark and the Franc! Yet in they were ushered.

Similarly I could not ever believe that sky-rocketing house prices could in any way, shape or form be seem as they almost universally have been (and still are...) as being a good thing. We are by no means anywhere near the actual fall out of THAT little adventure.

It upsets me that sober (!) men in dark suits being paid something like Greece's debt in annual salary can't see any of this yet little old me with my Maths O level can.

Sure look at Ireland, there were people saying in 2002 that the Euro would be a bad move and the government still have their heads buried in the sand. I also can't believe that there isnt more news about all of this.

I too am very concerned about the lack of coverage of the Greek crisis, I am certain it will have severe implications for our own lookout.

Brilliant thread OP, i too am horribly worried about this unfolding tragedy. I think the implications will be massive. alexpolis didn't realise you were in Athens, on a human level my heart goes out to the Greek people.

I lived in Greece for a few years, love Athens,feel a real affinity with Greek people, the current state of their country is scary to watch. It all seems a bit 'the Emperors' new clothes' these billions that just exist somewhere out there in the ether.

I must admit that I struggle to have much sympathy for the Irish, who had their snouts so firmly in the trough that they failed completely to see the financial meltdown to come. I don't know so much about the Greek situation, but I feel that it was also basically caused by sheer greed.

Erebus - like you, I had foreseen the crunch coming and that was just from reading the Economist every week and the Torygraph occasionally. I am staggered that so many 'proper' economists didn't see it coming. How can that be?

I think the problem is and has always been when politician's think they know better than the economists or only believe the ones which tell them what they want to know.

In the case of the Euro, the concerns of economists were ditched in favour of expanding the Euro across many countries as possible. A purely political decision.

But time & time again we've proven no amount of politics can take on the market. Major tried it with the ERM. They tried to manipulate the markets to keep Sterling in it at an artifical level which was too high. Eventually we were ejected.

Brown proved he was a complete baffoon by declaring the end to boom & bust before ripping open the nation's chequebook. Something any economics teacher will tell you is impossible in a free market economy.

France/Germany are now paying for the same decision with the Euro by letting the PIGS countries join when their economy was nowhere near aligned enough.

I watched something a while back on TV where our beloved MP's were asked very simple questions on the economic crisis and many of them completely failed to understand the difference between the deficit, the national debt and most couldn't even get the deficit in the right ball park. In that context, how can we trust them to dig us out of the hole we're in???

In my opinion, Greece needs to be allowed to default now rather than pile on the woes for their poor citizens because i think we're simply delaying the inevitable.

I also think the Greek people should ask themselves if there's a case to answer for their previous politician's who seemed to be quite happy to borrow eyewatering amounts of money without thinking how it will be paid back. They've borrowed 30k Euros in the name of every man, woman & child. They turned a blind eye to an out of control public sector and allowed a lax tax collection regime. Personally I think that would amount to gross misconduct in a public office.

No sympathy for "The Irish" ? You know thats real people you're talking about, not just some faceless governmental entity?