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.

OTheHuge - Ashoka Mody is an odd one. He retired from IMF 14 years ago and has been issuing these views against fiscal authority ever since, basically wherever IMF is involved. Like he did on Ireland back in 2013. Ireland's Minister of State Brian Hayes dismissed his remarks at the time, saying that Mody's opinions were based on the assumption that Ireland had an alternative to its current course of action. The same holds for Greece today, of course.

I read Mody's article and also read IMF's report that he has linked to in the 1st sentence. (That report is essential reading for anyone who wants to understand what is going on, btw). What it says is quite different than how Mody represents it:

At the last review in May 2014, Greece’s public debt was assessed to be getting back on a path toward sustainability, though it remained highly vulnerable to shocks. By late summer 2014, with interest rates having declined further, it appeared that no further debt relief would have been needed under the November 2012 framework, if the program were to have been implemented as agreed. But significant changes in policies since then—not least, lower primary surpluses and a weak reform effort that will weigh on growth and privatization — are leading to substantial new financing needs. Coming on top of the very high existing debt, these new financing needs render the debt dynamics unsustainable. This conclusion holds whether one examines the stock of debt under the November 2012 framework or switches the focus to debt servicing or gross financing needs. To ensure that debt is sustainable with high probability, Greek policies will need to come back on track but also, at a minimum, the maturities of existing European loans will need to be extended significantly while new European financing to meet financing needs over the coming years will need to be provided on similar concessional terms. But if the package of reforms under consideration is weakened further—in particular, through a further lowering of primary surplus targets and even weaker structural reforms—haircuts on debt will become necessary.

Basically, at the end of summer 2014, things were on track, interest rates had declined, and it looked like no further debt relief would be needed if the program continued to be implemented. Then Syriza government came to power and fucked it up - significant changes in policies, stalled reforms, etc. And now Greece needs more debt, and this is what will make its debt unsustainable going forward.

These are the conclusions of the IMF report. It (very generously, imho) recommends throwing more money at Greece and cutting down its debt obligations. Not because IMF previously negotiated "in bad faith" but because Greece didn't hold up its end of the bargain and now needs even more help to dig itself out of their self-made hole.

"austerity + massive debt will not cause the economy to grow, it will shrink it."

Of course austerity will shrink an economy. There isn't (nor was there ever) any doubt about this. When you have less money to spend, the expenditures go down. Shockingly.

You lived it up for years, spending on your credit cards. Then bank refuses to give you more and you have to live within your means. What does this mean? It means you'll work harder and for longer hours, party much less, buy less expensive clothes (if any), start cooking yourself rather than eating out every day. If one day you want to live it up as before, you'll have to work hard to slowly get back up to that level of financial comfort.

I have already said this several times on this thread but clearly needed to say it again.

"I, without the university diploma vested in dear Cote, can understand such simplicity."

Funny how you so easily understand stuff written by people who say what you want to hear. Such is human nature.

I don't know enough about economics to comment one way or the other, but I thank all the contributors who have explained things in a simple way.

I also welcome the contributions from Greek posters who have given a valuable insider insight.

As an Irish person, I feel very sorry for the Greek people who find themselves caught up in circumstances beyond their control. Whatever happens in today's referendum, I don't think there are any magic solutions and I think the Greek people are facing some very difficult years.

Good result for the people, bad result for the bankers and the elites. They played hardball and lost. Watch them back down now. Varoufakis is going to be a worldwide hero. He took the bankers on and won.

I did wonder what Britain's leading statesman has to say about this and it appears he agrees with me.

"Nigel Farage ?@Nigel_Farage · 1 hour ago

EU project is now dying. It’s fantastic to see the courage of the Greek people in the face of political and economic bullying from Brussels.

Nigel Farage ?@Nigel_Farage · 1h1 hour ago

If these poll figures are correct, I commend the Greek people for calling the EU’s bluff. #greekreferendum"

twitter.com/nigel_farage

A former Greek diplomat was on Russia Today just now and he said that if the creditors and EU politicians don't come up with an acceptable deal, Greece will hit them with article something of the Vienna Convention on Treaties followed by an article out of the Lisbon treaty and will negotiate for an orderly exit of the Euro over a period of a year.

The poor old bankers and their political servants won't know what has hit them. Varoufakis is a vary clever man and has got the whole elite in a spin.

The PM of Greece has played a clever game it seems. Now if the banks give the money he's won. And if they don't then Europe are the baddies. I don't really think Europe can keep giving out handouts as when is enough enough.What exactly are the Greeks celebrating. One can only wonder

'I don't really think Europe can keep giving out handouts as when is enough enough.'

Something like 90% of the European bailout money has gone to bail out the German, French and other private European banks who lent money to Greece under their corrupt elite class of politicians. They gave the money in order to avoid a default to their private banks and used European taxpayer money to effectively bail out their own banks. They made the Greek people pay for it via austerity that cut their GDP by 25% in 5 years.

'What exactly are the Greeks celebrating.'

They are celebrating a democratic victory of their government against all the threats of the bankers, their political servants and the media who tried to scare them into doing as they were told. As Farage, the UK's top statesman and political thinker, said

'It’s fantastic to see the courage of the Greek people in the face of political and economic bullying from Brussels.'

Farage says "EU project is now dying"
but it is too early to say yet. the elite will not roll over, they will try their usual tricks. They will probably try to rush through emergency treaty change etc in order to get deeper union and try to save their currency. However, the Greek victory has shown all European people and all the people of the world that the elite can be beaten (at least temporarily), so even though all their bought and paid for politicians will try to force closer union, they will face resistance from the people and from Farage and other anti EU parties.

If the elite back down, Podemos and other left and right wing parties will seek to challenge the elite, and if they don't back down, the whole world will see how undemocratic the elite are.

The really fascinating question is what is America's view, what do the American elite think? I think it is probably in their interest to weaken the EU and the Eurozone etc in order to strengthen the dollar. So, I think that the Eurozone is in for a hiding and America and the people are likely to be the winners long term.

As Farage says "EU project is now dying", the European elites will be teh losers, but the people and other elites worldwide will be the winners.

Not understand Cote, but agree with

I can't believe Oxi is on course to win.

I had all but given up on the left.

Cote you can keep playing the same record but it will change nowt.

Things are much stranger than you would like them to be. That's why "economics" is a crock.

'I had all but given up on the left.'

I think this will change politics across Europe. Most voters had given up hope on the left and thought they were all just Establishment puppets, but this will give left wing voters hope that change really is possible and that it might be worth voting left again.

Or it could, yet again, be an example of how the Left destroy all they have and try and destroy the future as well.

I wish lots of luck to the Greek people, but the current govt will not provide what they want and need.

I have been following the story with interest as the media view is that where Greece goes, Spain is likely to follow.

I struggle to see how they could have won with either vote and it will be interesting to see how it pans out now. I don't think Germany and the like will want to lose face and bail them out again now.

I have hope again. Absolutely extraordinary. Ooopa, Ellada, bravo.

It is interesting that the Greek people have continued to back the left. They don't have the stiff upper lip or compromising culture.

I'm pleased. I dislike Russell Brand intensely, don't think those anti austerity marches are a good use of time or energy, but am still pleased that perhaps with their anti austerity vote the Greek people will stem the tide of European right wing economic policies.

The IMF/EU response will be interesting. We haven't heard much about what the French and Italians think of all this.

George Osborne and his department will be working hard and earning their keep these days. Lets hope they take a hard look again at the budget and don't bring in too many austerity measures which will stunt national growth and lead the UK into a similar situation to Greece.

Its a vain hope I suspect.
My DC, brought up with middle class values, are bowed down psychologically with the weight of their undergraduate student debt. They find themselves understandably mentally unable to take on the additional debt of a proper postgraduate education even though they are academically capable and really want to undertake post grad study/training like the generations in their family before them.
Osborne and his kin will never understand that effect of student debt on national growth, stunting the minds of a generation. The govt wants often to follow an American economic model, but American solutions don't always work this side of the Atlantic. So I'm glad the Greeks voted 'no'. Whatever it is that 'no' means.

A former Greek diplomat was on Russia Today

You do realise RT is merely Putin's personal propoganda tool claig?

There is no doubt that RT is full of propaganda. It plays endless documentaries on racism, asylum seekers locked up in Yarlswood, anti-fracking campaigns, Occupy style protests, reporting of demonstrations in London etc in order to appeal to our progressives and the Labour style Jeremy Corbyns etc by concentrating on the negative in the West rather than the positive. However, if you ignore all that, it does also tell some truths and gives a different perspective,

Vaoufakis has just resigned. Great shame, he is amazing. But that must be a condition that the unelected bankers and their political servants have imposed on Greece in order to save their faces and accept a compromise deal.

France is already softening its stand

EU should negotiate with Greece if No wins referendum, French minister
...
"Whatever the result, we must resume political discussions tomorrow," Macron told a forum on the economy in the southern French city of Aix-en-Provence Sunday.

"But, if the No wins, it will be our responsibility not to create the Treaty of Versailles of the eurozone," he went on in a reference to the treaty that imposed harsh conditions on Germany at the end of World War I."

20150705-eu-should-negotiate-greece-no-wins-referendum-french-minister

The Greek people won, democracy won and the ynelected bureaucrats and bankers' minions will have to do a deal.

"GREECE JUST TAUGHT CAPITALISTS A LESSON ABOUT WHAT CAPITALISM REALLY MEANS
...
Debt is not a guarantee of future payments in full. Rather, it is a risk that creditors take, in hopes of maybe being paid tomorrow.

The key word there is "risk."

If you're willing to take the risk, you'll get a premium — in the form of interest.

But the downside of that risk is that you lose your money. And Greece just called Germany's bluff."

uk.businessinsider.com/greece-referendum-result-and-the-meaning-of-debt-2015-7?r=US

This is what it was all aout. The minnows and political servants of the bankers used European taxpayer money to bail out their banks which made bad, risky loans and tried to threaten and stick the Greek people for it. Now they have had their bluff called by a political party that is outside their political class. Varoufakis embarrassed the masters of the universe worldwide which is why he has had to go.

"There is another key fact that the Greeks are keenly aware of (but which everyone else has forgotten). This debt was initially owed to private investment banks, like Goldman Sachs. But the IMF and the ECB made the suicidal decision to let those private banks transfer that debt to EU insitutions and the IMF to "rescue" Greece. As Business Insider reported back in April, former ECB president Jean-Claude Trichet insisted that the debt transfer take place:

The ECB president “blew up,” according to one attendee. “Trichet said, ‘We are an economic and monetary union, and there must be no debt restructuring!’” this person recalled. “He was shouting.”

uk.businessinsider.com/greece-referendum-result-and-the-meaning-of-debt-2015-7?r=US

Vaoufakis has just resigned. Great shame, he is amazing. But that must be a condition that the unelected bankers and their political servants have imposed on Greece in order to save their faces and accept a compromise deal.

Or alternatively, he was campaigning for No, praying for Yes and now is too much of a coward to attempt to deliver what he knows he can't, demagogue that he is.

No, Varoufakis has embarrased the entire system and its entire retinue of servants on his motorbike, with his tee-shirts and liberal Marxism. He outwitted the lot of them, and when he turned up at Finance Ministers' meetings he knew more about economics than the rest of them put together. They couldn't face him anymore now that he beat them in the world's gaze.

He has said "I will bear the creditors' hatred with pride".

He has shown the world that they can be beaten, that their threats were empty, that their bluff can be called.

To save face, the servants want him out, so that they can do a deal without embarrassing themselves to the world. The servants couldn't handle politicians outside the compromised political class. They lost to what they called a bunch of Marxist amateurs.

Here is Professor James K. Galbraith

"For the North Europeans, the professionals at the “institutions” set the terms, and there is only one possible outcome: to conform. The allowed negotiation was of one type only: more concessions by the Greek side. Any delay, any objection, could be seen only as posturing. Posturing is normal of course; politicians expect it. But to his fellow finance ministers the idea that the Greek Finance Minister Yanis Varoufakis was not posturing did not occur. When Varoufakis would not stop, their response was loathing and character assassination.
...
The stunned and furious reaction of the European leaders was, possibly, not entirely inauthentic. Perhaps they did not realize they were dealing with something not seen in Europe for some years: a political leader. Alexis Tsipras has only been on the international stage for a few months. He is brash, but charming. It would be easy for those as sheltered as Europe's present leaders to fail to figure him out—to fail to realize that like Varoufakis, Tsipras meant what he said."

www.prospect.org/article/greece-only-no-can-save-euro

He has shown the world that they can be beaten, that their threats were empty, that their bluff can be called.

So you tell us. At the moment the banks are closed, with no obvious way to re-open. Let's see how it all plays out.

Either way the servants will lose. I think they will make concessions now and try to wipe the egg off their faces as best they can while calling Varoufakis a vary bad man.

But if they don't compromise, then anti EU parties all over Europe will soar in strength as the people of Europe see clealy who they are ruled by and what their unelected servant class think of the people and democracy.

anti EU parties all over Europe will soar in strength

I think the "vote for us to make the country more like Greece" line is unlikely to work. But as I say, we'll see how it plays out.

I'm baffled by all this talk of Greece winning. They're still totally fucked and their main weapon is that the EU establishment is terrified of total Greek collapse.