The Greek debt crisis....why?

[InDespair]

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.

Their economy will pick up and this time in the right direction - less state involvement, increased tax collection, proper business incentives, etc.

Are the Greek people ready to trust the state though - doesnt successful taxation require employment, higher wages and non-corrupt government officials?

This is becoming very Alice through the looking glass.

My information, Cote, comes from Nobel laureate Joseph Stiglitz, Paul Krugman and others. Are you telling me they are equally unqualified?

And while GDP increased, it increased at an enormous social cost. A cost which will only get higher.

But the weirdest bit is thinking Tsipras is I'm all right Jack, slippery etc. He is the only politician in recent memory to actually do what he said he would do. He was selected on a no more austerity programme, he has been unable to achieve what he said he would, so he has asked the country what they want. As Yanis said the other day, they are true democrats. He refuses to accept more of the same not only because the cost is way too high, but because, as the IMF say, it simply won't work.

If he was really crafty etc etc, he would have accepted terms and then said yeah sorry, no but yeah but like Nick Clegg et al.

Perhaps you naysayers have grown so used to the lying scum that we have that you can't see integrity when it dances on the table.

I don't mind if you don't want to engage with me Cote as I don't speak economic, I find you equally frustrating with your insistence on the primacy of numbers.

Sorry, re-reading that I think I need to unpack a bit more. (I'm still thinking this through myself.) In order to function, the eurozone requires its members to self-impose certain restrictions on how their economies behave and how and to what extent their governments collect and spend money. When nations fail to do this to the standards required by the eurozone, what seems to happen is that rather than being kicked out of the club they are first lent loads of money to stay afloat, and then told that in order to keep being lent this money the government must change the way it collects and spends money so as to comply with the standards of the eurozone.

Fair enough, from the creditors' point of view, and fair enough within the terms of the eurozone. You can't be in the club unless you stick to the rules, right? But, effectively, those in charge of the club now have the last word on fiscal policy in the club's member nations. Of course within acceptable parameters the national governments can do what they like; but if they transgress those parameters there may be consequences.

One might say this isn't supra-government, but to a significant extent, it is. Whether or not you think this is a problem depends on your view of how important democracy is, and how things should be run in a globalised world. If we all broadly agree that human rights, consumer capitalism and a reasonable welfare state sounds about right, then who cares where the edges of the state are, or whether fiscal policy decisions are being made in Athens or Brussels? (Especially if the voices in Brussels seem at least in some respects more sensible than those in Athens.)

But if we still think nation states should elect governments and those governments should, well, have the power to govern, then there is a fundamental problem with any kind of economic structure that cannot function without having the power to overrule the decisions of democratically elected governments.

There is the further problem when the biggest and most economically successful gets to set the rules, rules which weaker economies are clearly unable to follow, have to try and are therefore set up to fail.

Hully, I think you are on the right lines but slightly wide of the mark.

As with anything in life. Those with money get to set the rules to those who want the money. Doesn't matter if it's one person, lots of people or a country.

Right now Greece wants the money but they also want to set the terms. Since they're about as creditworthy as a teenage spendaholic and no-one else other than the EU (aka Germany) is willing to lend to them, they're sort of finding it hard to 'set the rules' since Germany is already feeling quite pissed off and that they'll never see the money they've already poured in again.

It's more complicated than that niceguy

Tsipras has one goal in this. That's not to be seen by the Greek people as having any responsibility for causing Greece to leave the EU.

Strategy no. 1 for this was to try to spin things in such a way that the other EU states, Germany in particular, could be blamed. When that looked to be not working, he invoked strategy no. 2. That is to hold a referendum where he can wash his hands and say "it's the sovereign will of the people that caused Greece to depart from the EU, nothing to do with me".

It is some of the worst leadership I can recall seeing in Europe for years.

There is the further problem when the biggest and most economically successful gets to set the rules, rules which weaker economies are clearly unable to follow, have to try and are therefore set up to fail.

We don't have to follow Eurozone rules. Because we aren't part of the Eurozone.

A choice Greece had when it lied opted to join.

Yes Gemauve, no one's pretending that didn't happen. Goldman Sachs made a shitload of money helping it "lie" we all know that. And so did everyone else at the time for all kinds of reasons.

There is still the question of now.

That is to hold a referendum where he can wash his hands and say "it's the sovereign will of the people that caused Greece to depart from the EU, nothing to do with me".

Because no one else in Europe is trying that ?

are there any likely lenders outside the EU/IMF?

Actually LH, Angela Merkel suggested using the BRICS bank to fund loans to Greece, at least 75% of which of course will go straight to German and French banks who recklessly loaned money to Southern European countries. If they didn't get the corporate equivalent of PPI or failed to hedge then they deserve to go bust. It'll be cheaper in the long run and would at least fit the capitalist economic model. We only know this because GCHQ tapped phones, shared it with the NSA and it got leaked to Wikileaks.

As for RT being Putin's propoganda machine, maybe it is, maybe it isn't, but they at least when fact checked turn out to be right more often than not. Plus they're not afraid to report about mass protests in London, unlike the BBC who mostly ignore them, fingers in ears saying 'la la la, mustn't upset the Tories'.

Despite European sanctions, which mostly hurt European exports, Russia's economy is pretty healthy. They're just looking East instead of West.

What we have is an unelected troika of lawyers and bankers trying to overthrow a democratically elected government by causing it to default. They are playing fast and loose with the future of at least Deutsche Bank and probably others too.

How Europe Played Greece by Alex Andreou. Well worth a read. From it:-

The idea that Greece has not paid a heavy price for those sins, is fiction. In the last five years, we have made adjustments which reduced a 15% deficit to zero, while the economy contracted by a quarter. Incomes fell by over a third. Pensions were slashed by 40%. 18,000 people are sleeping rough in Athens alone today. 11,000 are estimated to have committed suicide explicitly because of financial worries. The Church is raising thousands of children in orphanages. Almost a third of the population are living below the poverty line.

So Cote, they reduced the deficit from 15% to 0% in 5 years but their economy contracted by 25%, thus proving you wrong.

Also, he says:-

should have been allowed to default in 2010. Default is a normal part of debt, not some monstrously catastrophic event. Germany has defaulted on its debts four times in the last century. Italy six. Default is reflected in interest differentials. An element of interest on a loan is of course "rent" for using someone else's money, but the reason Germany's government 10y bonds trade at below 1% and Venezuela's at over 24% is not whim. It reflects risk. Removing that risk is the real moral hazard. Greece should have been allowed to default

I remember discussing this with a Greek friend at the time and I argued the banks should take the hit as it's the normal state of affairs. Germany defaulted 6 times in the last 100 or so years, France has four times. Even the US, in 1970, felt the need to avoid its obligations offered in a gold backed dollar and paid in the new fiat dollar.

Angela Merkel in 2010:-

“The debt that had to be accumulated, when it’s going badly, is now becoming the object of speculation by precisely those institutions that we saved a year-and-a-half ago. That’s very difficult to explain to people in a democracy who should trust us.”

Oops.

Don't be under any illusion that this money will go to Greece. About 10% of it might, the rest will be to save French and German banks who lent money under false pretences at high interest rates who would fail without this subsidy.

No bank outside Greece will be hit, they have had a long time to trade out and will be supported by the ECB.

In January 2014, the Greek GDP was the same as in 2006, so the collapse is more a reflection of debt-fuelled growth than complete destruction.

The UK GDP fell to 2005 levels, so a comparatively greater issue.

"So Cote, they reduced the deficit from 15% to 0% in 5 years but their economy contracted by 25%, thus proving you wrong."

Err... how exactly did that prove me wrong? I said over and over again that shrinking economy is entirely normal in these circumstances.

Of course their economy shrunk. That is a natural part of the process when you turn off the tap the money was flowing out of.

Again, going back to the credit card analogy: The country maxed out its credit cards, can't get any more money from anyone, and now has to live within its means which means its economy is smaller.

Please give me a sign that you understand this. It isn't rocket science.

"should have been allowed to default in 2010."

"Allowed"? They should have grown a pair, not taken the additional loans and the debt reduction, and defaulted then if that was such a bright prospect.

"Default is a normal part of debt"

No it's not. Not in the sovereign markets and not even for ordinary people paying their mortgage. You can default if you like, but you'd better be self-sufficient for a long while thereafter because nobody except maybe IMF will touch you with a barge pole after that.

You can default if you like, but you'd better be self-sufficient for a long while thereafter

I suspect people who think that default is an easy option are cut from the same cloth as people who think that going bankrupt is a painless and straightforward way to deal with personal debt.

Greece was able to borrow a lot of money very cheaply because, mistakenly, markets assumed that all Eurozone debt was backed by the ECB. If Greece defaults they will know that it isn't, and Greek bond yields thereafter will be immense: no one will want to buy them, even though they'll carry a huge coupon (to set against similarly immense costs of insuring it). But without being able to borrow hard currency, they're fucked.

Someone on this or another thread chided me for suggesting Greece would run out of medicine. The Guardian is still in juvenile Wolfie Smith "Greeks should vote No to give Thatcher capitalists a bloody man, maaan" territory but nonetheless ran this story today:

www.theguardian.com/world/2015/jul/03/greece-economy-collapse-close-food-medicine-shortage

You can default if you like, but you'd better be self-sufficient for a long while thereafter because nobody except maybe IMF will touch you with a barge pole after that.

In the short term, yes. In the medium and long term, no. Argentina and Iceland are borrowing.

Iceland didn't default.

Argentina took a long time to get back into the money markets.

... Greece doesn't have that kind of time or natural resources to leverage.

Looks like opinion polls are very close on YES/No vote and that means no clear mandate but a possible resignation of the Greek Govt.

The EU are talking about installing a technocrat Govt while new elections are called. That Govt will negotiate with the Troika and sounds like an extremely undemocratic process similar to what happened in Italy.

The IMF stirred the pot this week (under pressure from USA) saying Greece needs 30% of its debts writing off. Just as Syriza has been saying. The EU will not agree to that because Italy, Spain, Ireland, Portugal will all ask for the same. That would cause the ECB to go bankrupt as it owns large amounts of EU sovereign Govt bonds. Without ECB liquidity support few banks in the Eurozone could survive.

Meanwhile Bulgaria is being secretly supported by ECB even though not in the Euro to stop Greek bank run contagion spilling into E. Europe.

What a mess!

Yy MoreBeta, an awful and undemocratic mess.

Lots of the No camp are saying 'We want to stay in Europe, just not this Europe, it's gone wrong.' I'm inclined to agree with them.

Does anyone know what the Greek government plans to do if referendum results with a "No" majority?

I don't remember seeing a strategy or even a vague statement of intent.

"We want to stay in Europe, just not this Europe"

Well, there isn't another EU. So, if they don't want to stay in this one, they will need to leave the EU.

A good matter-of-fact overview.

After a long period as one of the EU’s main recipients of investment aid, the funds started to run dry (Brussels switched its support to new joiners in the east and the Baltic nations that had entered the EU and wanted to join preparations for the euro). Nevertheless, Athens kept on spending, helped by its decision to join the euro in 2001. The new currency kept borrowing costs down and made it easy to secure funds from commercial banks at rock-bottom interest rates, increasing its dependence on cheap loans to fill the spending gap. In the 10 years before the financial crash, public sector wages doubled and departmental spending soared.

A report by the EU in 2014 estimated that Greece lost a third of its VAT revenues in fraud and avoidance. With a VAT system that has six bands, tax experts say it was open to manipulation. Shipping, one of the main industries, was known as a tax-free zone.

The creditors expected Greece to pay back at least €50bn of its borrowings from privatisations when the first bailout was agreed. That figure was revised down to €30bn and then €20bn by the time the next bailout was agreed in 2012. Five years after the first bailout, only €2.5bn of sales have been completed.

The Syriza-led government of Alexis Tsipras was asked to cut €400m from the defence budget, less than 10%, to secure the last €7.2bn of its previous bailout. It refused, saying the most it could cut was €200m.

I just heard on Sky News the German Finance minister has said Greece can stay in the Eurozone even if the Greeks don't use the Euro temporarily. How can that work. What will they use. Shells or pebbles. It's a game of bluff. I can't see the point of this referendum. Because either way the deal has expired anyway. But I see why the Greeks can't be given never ending supplies of money ad infinitum which they'll never pay back.

This is a brilliant thread . Thank you to all the economically articulate mums out there!
The Greek crisis is important also because it raises general questions of importance to every country

1. How do democratically elected governments manage the parallel cash based tax evading economies of ordinary people and of corporations. In the UK it might be the plumber taking cash and paying no NI contributions let alone VAT or income tax, or Costa Coffee registering offshore. Ultimately tax avoidance by the man on the street and by the large corporations will bankrupt a state. 2)How do countries manage the problem of never actually seeing the money loaned by the IMF because it goes straight into offshore bank accounts. This happens a lot in Africa. No one seems to know if these are interest repayments or what but IMF money doesn't seem to reach the Governments it loans to. 3)What is an acceptable/desirable level of social welfare and pensions. A pensionable age of 55 seems too low, 67 seems unrealistically high. Subsidised laptops seem essential for school age children but even more so are free school meals for those beneath the poverty line. 4)Greece is a 'friend' country. i. e. I think the emotional attachment and memories that Europeans have resulting from happy student days of Greek island hopping should come into this whole equation. The Germans in particular and others owe Greece a debt of many happy archeological expeditions and holidays, ie a debt of happiness. Money is not always the whole story.