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.

[TalkinPeace2]

As long as interest on business debt is tax deductible and interest on business (and personal) savings is taxed, the economies of Britain, Europe, America and the rest of the world will never get out of the mess we are in.

[MoreBeta]

SpotsMum - to see what would happen to a country that defaulted and then left the Euro we can take Argentina as an example. Once it had delinked its currency from the US Dollar and defaulted in 2002 its economy sharnk, there was capital flight and it could not borrow money anywhere. However, it quite quickly was able to recover and indeed it boomed in the later part of the 2000s. Unfortunately its political leaders did not push through reforms that were needed so it has once more ended up in a mess but the default and unpegging for the Dollar were good starting points for reform that never happened.

Staying in the Euro and not defaulting will cause these PIIGS countries to be in permanent debt enslavement and recession. They are simply too indebtedand to uncompetitive to ever grow their way out of the hole they are in. The fantasy that somehow they can get back to a stable financial situation with a bit of austerity is well... a fantasy. They do need huge political, fiscal and social reform but that cannot happen without gtting their economy back on track first.

[CountThalim]

Argentina still had it's own currency however. It was a (fairly) simple step of just breaking the legal link between it and the dollar.
For Greece to do something similar it would have to have billions of Drachmas in currency printed and ready for distribution when it broke the link.

It would also have to set an exchange rate between these new Drachmas and the Euro (unlike Argentina which just allowed it's current one to move). An Exchange rate that everyone knows would fall (why else come out of the Euro if not to devalue) would be avoided by all and sundry forcing the government to block capital transfers (in itself illegal under European regulations) and unilaterally force everyone to accept the new currency.

It is unfortunately (or not as you wish) utterly impractical to decouple a country without major disruption.
For a more visual reference try to think about uncoupling a train carriage at 70mph, switching it to a new track and recoupling it to a slower engine...

I agree that a default is inevitable for Greece. But I belive that it will remain within the Euro.

CT

[alexpolismum]

Hully - where did you hear about Greeks moving to the countryside? I suspect they may be in a minority. Here we have been hearing about more and more young people leaving Greece full stop. There's constant talk of a lost generation heading in search of greener pastures in America/ Germany/ France/ wherever. And while that may lead to a small amount of hidden income (money sent home to mum) it will be peanuts in the face of the debt.

Re pensions - it is already a problem. People I know who retired last year have yet to receive a single euro of their pensions. In order to survive they are trying to sell whatever assets they may have in a market that's scarcely moving and relying on support from their children.

[alexpolismum]

CountThalim - you're probably right about the practicalities of leaving the euro, but I still think it would be better for Greece in the long term.

[SinicalSal]

Leaving the euro would involve the most ultimate deepest secrecy, can't see that staying under wraps in Ireland. Don't know about Greece but I suspect it'd be the same there. You'd have middle class wipeout as peoples savings would be worthless, yet their borrowings grow exponentially.

Alexpolismum, that's shocking about pensioners left high and dry. That's not been reported here. Just shots of those crazy Greeks stamping around in town squares refusing to accept austerity reality

[Hullygully]

alex - from friends in Greece. Be interesting to see if there's any new young blood in the village when I get out there!

[MoreBeta]

I know in Ireland of a village where 24 young people left one morning last year on a coach to the airport. They had all got together and had bought one way tickets to go to Australia.

There will be initial capital flight and also flight of young people from the PIIGS countries until they stabilise thir finances. Once they have that stability then the capital and young people will return.

[alexpolismum]

Hully - I wonder what area that is in Greece. In the villages round here it certainly doesn't seem to be the case. I've heard of quite a few professionals leaving. My ds2's neurologist left and is apparently now in the UK working for the NHS!

SinicalSal - now you know why some of those pensioners are in the square!

[CountThalim]

If Greece left the Euro it would be in far worse shape for several years. After that point it would be more competative with devaluation and the clearout of a lot unproductive companies.

Politicians however tend to be focussed on the short-term (i.e the next election) and none of them will want to be remembered for what will be the greatest national humiliation since the Military Junta.

I expect Greece to limp along for several more years being supported by EU loans until the next set of elections. By which point most of the debt will be government held and written off as quietly as possible by France, Germany and the ECB.

CT

[Al0uiseG]

Some wag on Twitter said this: Greece! It's got bills, they're multiplying and they're losing control ....

[TalkinPeace2]

ROTFLMAOPMPL

[SinicalSal]

AlouiseG

they better shape up
Cos they need a plan
And their heart is set on EU

CountThalim that sounds drearily plausible.

[TalkinPeace2]

Euro the one that I want

[Al0uiseG]

Hopelessly indebted devoted to Euro.

[TalkinPeace2]

Greece'd Lightning

[MrsDistinctlyMintyMonetarism]

I worry for those Irish kids on their way to Oz. We are here currently and it reminds me very much of pre-bubble UK and Ireland.

There are huge swashes of money swilling around, prices in the city or suburbs (we are in Brisbane) are pretty much London prices - we are paying over $900 a week for our home (thats about 600 pounds a week) and that's not the highest rent I've heard of, nor the most palatial home. I hear from native aussies that the prices have risen most strongly in the last 10 years - that a house that would have sold for $30,000 10 years ago is now selling for $800,000.

So much of the money is coming from mining and the strength of the Australian dollar must be harming this. I worry that as soon as it becomes uneconomic to mine here the companies will decamp to South America or Africa and Australia will find itself in a terrible place.

The strength of the Aussie dollar has not made imports cheaper either. There is a good deal of profiteering going on, as well as very little competition internally.

Its scary over here too.

[sayanythingRogerjustrogerme]

A timely article in the NY Times on Argentina and Greece.

[westwingfan]

Re Irish kids going to Oz. It is not just the kids but middle aged folks too who are trying their hands at emigrating. A friend of mine who used to work in the building business as a surveyor went over six months ago. He came back ( to N.I) a couple of weeks ago as he said prices were crazy and he could not afford to bring his wife and family over. Life is going to get a whole lot worse for all of us I think. Getting on your bike is harder as you get older.

[erebus]

I second what DistinctlyMinty says. The Australian grass, drought or not, is definitely not greener.

I left Oz 7 years ago and returned on holiday to see family etc over Easter. I felt the country was in the holding breath phase as the roller-coaster reaches the top- before the drop! Whilst Oz wasn't subject to the crash we all have been through/are going through (their banks weren't deregulated so they couldn't buy debt packages like the sub-prime loan fiasco), the signs of a teetering economy are all there, and their wealth is pretty much entirely dependent on the primary industry of mining- the product of which, in its raw state all then gets shipped off to China to be processed and made into things. The cost of living is sky-rocketing, house prices are 'doing a London' as the suburbs reach ever more unsustainably out into the water-less bush.

So best of luck to those young Irish. Some will make good, some will return when their visa expires no richer but having had a bloody good time having tended bar in Bondi for a couple of months!

[alexpolismum]

Well, Greece has just voted in the latest package of austerity measures.

I am getting very depressed about the whole thing. I don't think this latest package will solve anything, just drive ordinary people further into debt themselves. I think they will be asking for another bailout before long, and all the austerity will have come to nothing. Bankruptcy, it seems, is inevitable.

I was in town yesterday, and there were (yet again) long queues outside the banks, with people withdrawing whatever they had, expecting the country and the banks to collapse at any moment. It's all quite frightening.

[SinicalSal]

The protests seem to be turning violent, alexpolismum. I heard on the radio police were kicking the protesters on the ground.

[byronicheroine]

Yup, I'm here in Athens and it looks quite bad in the centre at the moment, and only going to get worse through the evening I expect.
It is depressing, alex do you have everything here in euro? We have paltry savings in pounds and property here. We are also looking for jobs anywhere elsewhere as DP is in finance, in Greece, 2010/11!! He's off work today as he works opposite the parliament and is a bit of a target in a suit (he has more sympathies with the protesters than with his bosses tho!)

[niceguy2]

I don't know whether to be happy or sad that the Greeks have passed their austerity measures.

Happy because it means the rest of Europe have narrowly (and maybe temporarily) avoided another banking collapse. Sad because this is a terrible deal for the Greeks who seem to have been thrown to the wolves to save primarily France, Germany, US and to a lesser extent, UK banks from a wider meltdown.

But this is a very very good example of ultimately what happens if you live outside your means. And that's why I still despair at those in the UK whom think we can carry on without cuts.

[SinicalSal]

In Ireland we're watching closely. Greece is like a 'preview of coming attractions' to us. Though we have already implemented some austerity measures, with more coming down the line.

Any expert out there with any thoughts what we should do with our modest savings, denominated in euro in an Irish bank?
I'm think of investing in beans'n'ammo myself, but DH says It'll all be grand. There's surely a middle ground.