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The Greek debt crisis....why?

999 replies

InDespair · 27/06/2015 17:24

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.

OP posts:
Gemauve · 30/06/2015 21:17

Britain owes much much more than Greece, why is nobody worried about that?

We are very worried about it: have you read the papers lately? Why do you think the current government wants to try to balance the budget?

However, there is no serious risk that Britain will default on the payments due on its debt any time soon. Big G8 economy, decent tax base, etc. Britain has more debt per head of population than Greece does, but is paying the interest and rolling over the bonds on time. Because we aren't in the Euro, we have more levers to pull to control matters, and even though sterling isn't the Euro, it's still an internationally traded, relatively hard currency. We can sell bonds (ie, borrow money) in sterling, and people will take sterling in repayment.

You probably couldn't pay your mortgage off tomorrow morning, but so long as you keep making the payments, that's fine.

Greece isn't able to keep making the required payments, at which point life becomes decidedly more interesting. It is in the Euro so can't just print more money (ie, devalue its currency) and even if it left the Euro, attempts to borrow money in drachma would be met with international laughter. It would therefore need to do scary things involving borrowing money with a promise to repay in dollars or Euros, which involves getting hold of dollars or Euros at the right time. It has very bad choices to make: small economy, weak tax base, illiquid currency if it went out alone.

Britain's the second largest economy in Europe and the fifth in the world (behind the US, China, Japan and Germany, with our overall performance a lot healthier than Japan's). Greece, not so much.

DoctorTwo · 30/06/2015 21:21

Plenty of lecturers with no real life experience - no surprise there.

I'm sure you're right MrsU. But at least he's a qualified economist, unlike your beloved Gidiot. I wonder what Yanis could teach us about folding towels... Probably more than that fucking Gidiot could teach us about economics. Big up real life experience :o

All credible economists are against austerity, calling it a tax on the poor, aiding only the banks and the rich. Why are they wrong and you are right? By extension of course Giddy is included as he's in charge of our economy. Mind you, including the imbibing of coke is now included as part of GDP.

CoteDAzur · 30/06/2015 21:24

"Britain owes much much more than Greece, why is nobody worried about that?"

Britain's debt is 80% of its GDP, Greece's debt is over 170% of its GDP.

GDP = Gross Domestic Product, the revenues that a country generates in a year = Size of a country's economy.

It's like saying your salary is 10x bigger than mine, so it's OK for you to take out a $2000 loan while it's worrying that I've taken out a $500 loan.

Gemauve · 30/06/2015 21:25

Probably more than that fucking Gidiot could teach us about economics

Remind me: is it the country with the qualified economist as finance minister, or the country with Gideon as finance minister, which has closed its banks, imposed capital controls and is a few hours from defaulting on an IMF loan that may see its central bank running out of money? How's that economics lecturing skill working out for Greece at the moment, would you say?

CoteDAzur · 30/06/2015 21:25

"All credible economists are against austerity"

ALL, no less? Wasn't it MOST a minute ago?

I would really like to know where you are getting this impression from.

CoteDAzur · 30/06/2015 21:26

Gemauve Grin

happybubblebrain · 30/06/2015 21:28

So, as long as our deficit keeps growing and we keep borrowing more and more it doesn't matter, just as long as we keep making the repayments? Meanwhile our debt gets bigger and bigger all the time. At what point will we not be able to pay? And when that day comes will we have a much bigger problem than Greece because we owe so much more (19 times as much)?

And I still don't understand why, if nearly all the countries in the world owe money to other countries, why can't we just write them all off and stop lending stupid amounts that end up with people suffering, people who were not to blame. I blame the money lenders mostly and anyone that profits from the misery of others.

CoteDAzur · 30/06/2015 21:29

"Debts don't always have to be paid back."

Of course a country's debts need to be paid, if it wants to keep participating in international money markets. This is not your neighbourly "Lend me a few quid, mate. Come on, mate." sort of debt that might or might not be repaid, and who cares anyway because she is your friend and needs it more than you do.

Gemauve · 30/06/2015 21:30

It's like saying your salary is 10x bigger than mine, so it's OK for you to take out a $2000 loan while it's worrying that I've taken out a $500 loan.

And of course, not only is Greece's debt more than double ours as a proportion of GDP, they are paying massively higher interest. So it might be more apt to say "It's like saying your salary is 10x bigger than mine, so it's OK for you to take out a $2000 extension on your 2% mortgage while it's worrying that I've taken out a $500 payday loan from Wonga at a million percent APR".

because as I recall (proper trading people who can say yield curve convincingly will correct me) the difference between UK and Greek bond yields (which is at least proportional to what servicing the debt costs) is about the difference between a cheap mortgage deal and a dodgy payday loan.

CoteDAzur · 30/06/2015 21:42

"why, if nearly all the countries in the world owe money to other countries, why can't we just write them all off"

National debt of a country normally isn't just to other countries. Most of UK's outstanding debt is held by UK persons, companies, and pension funds. Government can't write off that debt - it would mean a collapse of pensions, at the very least. Nor would it want to.

A country doesn't issue debt only when it needs money. For example, it can sell debt to reduce the amount of cash floating in its own country. There are various reasons for this - for example, to cool down the economy & reduce inflation, since the more money is tied up in investments, the less of it is available to purchase stuff, and the less prices rise. (Simplifying it for clarity)

happybubblebrain · 30/06/2015 21:42

Cote - friends should help each other. Countries should help each other too. If a country is suffering then the rest of the world should help them. That can only be a good way to live, for everyone. Nobody knows when their crisis might come.

Nobody has explained why we can't just wipe all debts? If all countries are in debt it makes sense, it would be especially good for the UK and America as we owe the most.

CoteDAzur · 30/06/2015 21:43

Yes, Gemauve. UK enjoys low rates of borrowing compared to other countries (not just Greece) in part because it has never defaulted on its debt.

Gemauve · 30/06/2015 21:43

Yes Cote, it took me some time to get my head around why offering attractive savings products with high interest rates is a good thing when there's inflation to worry about, and a bad thing (hence why at the moment there are no national savings certificates of any description on sale) in times when deflation is a risk.

happybubblebrain · 30/06/2015 21:44

Sorry Cote - cross post.

MajesticWhine · 30/06/2015 21:46

"And I still don't understand why, if nearly all the countries in the world owe money to other countries..."

happybubblebrain - it's not that simple - the money is borrowed not only from each other's governments but from banks, businesses and private investors. So they are not willing to just write off the debt. Why would they?

Gemauve · 30/06/2015 21:47

Nobody has explained why we can't just wipe all debts?

Are you expecting any sort of pension? You just wrote it off. The main asset held by occupational pensions are investment-grade corporate and sovereign bonds. Were you thinking of saving for your old age? Would you like interest on those savings? Where do you think the interest comes from?

Nobody knows when their crisis might come.

You'll notice that the UK had a fucking great big recession 2007-2010, including the near collapse of at least three banks, and didn't have to go cap in hand to the IMF or the ECB. Why should a relatively stable economy like the UK or Germany put itself at risk to reward irresponsible economies for bad behaviour?

happybubblebrain · 30/06/2015 21:47

Yep, I still don't understand economics at all. Probably because I have no debts.

CoteDAzur · 30/06/2015 21:50

happy - re "friends should help each other"

Sure, but countries are not friends. They are allies at best.

"If a country is suffering then the rest of the world should help them."

If you are talking about sending starving children in Africa some rice and flour - sure.

If you are talking about hardworking taxpayers in one country sending billions over billions to finance the welfare state of another country where most people dodge taxes, take two-hour siestas, and retire at 50 - not so much.

"Nobody has explained why we can't just wipe all debts?"

I just did Confused

happybubblebrain · 30/06/2015 21:54

The recession ended in 2010, that is hilarious. Sorry, I don't believe everything I'm told. We owe much more money now than we did back then.

Gemauve · 30/06/2015 21:58

We owe much more money now than we did back then.

Which is not, in any way, the definition of a recession.

happybubblebrain · 30/06/2015 22:00

Thanks for taking the time to explain it to me Cote. I at least know the justification (excuses) for all of this money nonsense now.

The banks and money lenders are the biggest thieves. The hardworking people will suffer because of them, that is true the world over.

CoteDAzur · 30/06/2015 22:07

happy - You need to have at least a basic understanding of how money markets work before you can decide what to believe. It is great that you are interested. I think you would really enjoy reading about macroeconomics from Khan Academy or similar.

CoteDAzur · 30/06/2015 22:08

... unless your mind is already made up with prejudices and you don't actually want to understand or learn at all Hmm

"I at least know the justification (excuses) for all of this money nonsense now.... The banks and money lenders are the biggest thieves"

ApplePaltrow · 30/06/2015 22:11

Cote, Itisme and Gemauve have dealt with the economics of this so well, I only want to add that as the child of African immigrants, it's intensely frustrating to see the completely different narrative attached to Greek corruption, government failure and default (on what is essentially international development AID) as compared to the narrative placed on countries in the global south who act similarly.

Greece is like the favoured child receiving a slap on the wrist whilst other countries are left to burn. They should never have received IMF loans in the first place and would not have had they not been European. Their ingratitude has been galling and it is that, not their financial and instititutional ineptitude, that will likely see them booted out of Europe.

BigChocFrenzy · 30/06/2015 22:29

I'm old enough to remember in 1976 when the UK Chancellor Denis Healey had to ask the IMF to bail us out. It was humiliating internationally for the country and the government, which had to make deep spending cuts demanded by the IMF.

I think that was a defining moment in UK politics, after which both parties became more hardline about public finances, to avoid repeating such humilation and helplessness.

I feel very sorry for the ordinary Greek people, but getting into such horrible debt gives control of your life to others :
you can vote for whom you want in your own country, but you can't vote to compel other countries to bail you out.
They voted for too many years for politicians who promised them a fantastic welfare state without the taxation to fund it.

Germany has become hardline: they dutifully pay high taxes and retire aged 67, so there is much political opposition there against further taxpayer money for a loan to (as they see it) people who retire 15 years earlier, don't pay proper taxes and don't plan to change.
The German Constitututional Court became embroiled last year in whether Gemany should fund ECB bond-buying.

Also, creditors generally will be reluctant to write off more debt, in case other EU debtor countries demand the same.

Sadly, all options look very grim for Greece and painful for ordinary Greeks.