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.

I think most economists agree that Greece would be better off out of the Euro

In the long run, perhaps. The actual leaving will be pretty unpleasant. And as Keynes said, in the long run, we're all dead.

The Greek referendum next Sunday is a government/political ploy to both try and show (yet again) debtor Greek democracy trumps creditor Eurozone democracies, and by recommending a ‘NO’, save their sorry left wing political arses - having promises so much to get into power, but delivered very little.

Technically the final deal they are asking the Greek government to vote on is dead tomorrow.

Confident of a ‘NO’, the closing of the banks for a week is a precursor to what will follow post referendum, even tighter capital controls to stop money leaving Greece.

The Greeks need to dump the Syriza government as their non austerity ‘roar’ over economic expertise will only make economic/financial matters worse post GREXIT as still won’t achieve the confidence of NEW international capital market lenders.

And if remain in the EU, with more competent politicians in charge able to better structure their economy for sustainable growth ,Greece have a ‘wild card’ that their Eurozone creditors would offer better lending terms INCLUDING debt forgiveness as they realise the burden (on Greece) is too high - and this would both support a more right wing government and greatly improve the chances of being paid back the bulk of what they are owed.

Giving Syriza more economic rope to hang the country while still saying they need put further pain on the private sector wealth/job creators, in effect looking for the public sector to ‘grow’ their way out of their problems – guarantees the Eurozone’s taxpayers will be throwing good money after bad.

Greek political chaos will follow next Sunday’s referendum whatever the vote IMO, but whether in or out of the EU, the country needs Greek politicians with economic competence (whoever that is); they tried the Greek ‘democratic’ bluster gamble, the Eurozone democracies not happy with the current government’s handling, roared louder, it is now time to plan for the future with those best able to deliver it.

"The Greeks need to dump the Syriza government"

This is the problem with democracy - One person one vote, and very few voters actually understand the economy & political situation of their country. People know that they are in a terrible economic situation, but they can't be expected to understand the fiscal & monetary measures needed to come out of it.

(It is my belief that basic macroeconomics, microeconomics, and Game Theory should be part of teenagers' school curriculum, but that is another story.)

"Greece would be better off out of the Euro"

Yes, because they would be able to use monetary measures to revive their economy - devalue their currency, print money, etc.

It would also be better for the rest of EU. Throwing money at Greece isn't doing much good and it's causing huge resentment in other countries.

Whether socially or financially, no one WANTS Greece to be a basket case, especially fellow EU citizens, even the sceptics like me.

But NEWSFLASH, Greece STILL IS a basket case, the good news appears to be that the Greeks both realise it and understand that hairy fairy promises of near 'pain free' solutions to excessive national debt, is for the hairy fairies.

I see on the Greek uncertainty German, French and UK 10-year government bond yields have FALLEN as a small flight to ‘quality’, while Spain, Italy and Portugal has seen theirs RISEN.

Greece, has seen their 10-year government bond yield rise nearly 3.50% since Friday to near 14% around the last main bail out crisis levels – so I'd confirm that the Greek 'basket' is both in the toilet and full of 'it'.

To put that Greek bond yield into perspective, in the Eurozone Germany and France are yielding 0.74% and 1.19% respectively, while the UK yields 2.05%.

10-year government bond yield rise nearly 3.50% since Friday to near 14%

Just as tellingly, it would currently cost 2512 basis points (25.1%) to buy a 5 year CDS for Greek government stock. For comparison, Germany is 14 basis points and the UK is 18.5 basis points: ie, the perceived risk of default over the next five years is less than 0.2% for the UK and Germany, which probably translates as "zero, plus the premium we charge for writing the business", but is approaching 25% for Greece. That's good: it was 42% in January!

the govt that presided over Euro entry on false pretences and mass tax avoidance by yacht owners isn't the same as the one now refusing to make the average tax-paying Greek working person pay for the mistakes of the bankers' friends who agreed to extortionate interest rates to maintain a minimum standard of living for the majority
good for them
discusson of the technicalities of international economics is very impressive, but ultimately - is it justifiable to make people unable to feed their children?

^punctuation fail - sorry

Are you seriously saying, juliascurr, that one democratically elected government can simply disown the activities of the previous democratically elected government? Up until last year Britain still had some 3.5% war stock outstanding, issued by the Asquith government to finance the first world war. Should more recent governments have just defaulted on it, arguing that they wouldn't have got sucked into the first world war anyway so it wasn't their problem to pay for it?

julia - Welcome to the real world, where citizens pay for the mistakes of the governments they elect.

And where is the responsibility of lenders in all that? When a bank extends a loan or enters a similar transaction with a borrower or counterarty it needs to calculate the risks and make necessary provisions, etc. Lenders also have responsibility for their money. Eurozone countries have common monetary policy BUT have never had common fiscal policy. Fiscal policy is what defines budget and government's ability to repay debt. If lenders beleived that greek fiscal spending was just as sound as german on the basis that they had the same monetary policy (the same currency), well tough luck because they had NO reasons to beleive that.

Gemauve .... An excellent example of a yield curve pricing in a near term crisis, turning inverted (downward sloping) on the risk expectation of a near term default, versus the probability coming out of it years down the line.

I remember in the South Korean crisis in the late 1990's, their banks short term paper out to 18-months offered yields in the hundreds of percent, even a thousand, if memory serves.

This underlines my earlier point; in the event of a Greek exit from the E.U. and European Central Bank financial umbrella their borrowing rates could remain high up in the lap of the Olympus gods UNLESS new lenders, clearly aware of the Greek default on Euro 350 billion(?), have confidence that a Greek administration can not only service their new debt, but pay back the principle amount at maturity.

And where is the responsibility of lenders in all that?

The IMF and the ECB are currently doing just that: they're saying to Greece that they can only have loans on repayable terms, and they as lender get to set those terms. The howls about it being undemocratic are deafening.

Your point about the lack of a common fiscal policy in the Eurozone is well made, however; thank God we're out of it. Oddly enough, the people that screamed about how vital it was to Britain that we should go in, and how devastating the effects of staying out would be, appear to have gone very quiet.

Sadly for those of us that are pro-EU, the crying wolf of the Euro lobby a decade or more ago makes discussion of the impact of leaving the EU difficult to have, because (not unreasonably) people point to the dire prognostications of what would happen if we stayed out of the Euro and ask "why are you so right this time, when you were so wrong then?". There were people, like me, in favour of the EU but opposed to the Euro at the time (saying in my case, presciently, that any shared currency that includes Greece, Spain and Portugal is built on sand anyway) but we were loudly outnumbered by the pro-Euro, pro-EU lobby who now look very foolish indeed.

news.bbc.co.uk/1/hi/entertainment/1736151.stm

An excellent example of a yield curve pricing in a near term crisis, turning inverted (downward sloping) on the risk expectation of a near term default

If you have your lecturing hat on, I'd be interested in having this explained. Assume a small amount of undergraduate economics but little knowledge of derivatives

Put simply, Greece has a huge number of people who do not pay tax. Evasion and corruption is rife. Coupled with the ridiculously low retirement ages and proportionally large pensions, it's going to take a massive culture change to get it on the straight and narrow.
Italy next....

Can't help looking at greece's position geographically and thinking that there could be other consequences to just letting them siet things out by themselves.

There are political as well as economic reasons for maintaining the EU.

I don't know how the EU and IMF would encourage greater Greek stability and economic growth, but I want their decisions to be influenced by pragmatism, not a desire to put Greece on the naughty step.

There is wagging fingers and saying dear dear you got yourself into this mess etc etc...

But what about the long game?

What Syriza want is a chance to do things differently from the previous oligopolies. They are prepared to pay back debts, but in a manner structured to allow the economy to grow.

Five years of austerity haven't worked, they have crushed the country. More austerity is pointless. Even the IMF, if Greece wasn't in the euro, would be recommending investing, not cutting spending.

I don't get the glee with wanting Greece to fail. Why not help it to succeed as a fellow member of Europe?

Because it's political, not financial. The people pulling the strings don't want a left wing govt, and other countries (Spain, Italy etc) are scared of their left wing movements.

it's unlikely the same electors voted for New Democracy, then for Syriza

this idea that 'The Greeks' are responsible is ridiculous
nurses made redundant have nothing in common with yachting tax avoiders

yy julia

look at our own dear country, governed by arses elected by under 40%. I'm certainly not responsible for their despicable policies.

it's unlikely the same electors voted for New Democracy, then for Syriza

So you're saying that in a democracy, people who didn't vote for the ruling party can just ignore the law for the duration and then disown it afterwards? Short of a party emerging which commands 100% support, just how do you think that will work out?

There does seem to be a bit of glee about greece's suffering- not here I hasten to add but certainly in the press

People are certainly suffering. Maybe they even deserve it. Maybe children should go hungry. Maybe people ought to be homeless. I don't know. I am not an economist or a moralist.

Is austerity working to help make the country into a stable, economically functioning entity? Can anyone confirm, or point to anything which would support a view that there is a value in these people's suffering beyond 'they had it coming'

If not, it feels vindictive and gratuitous

Even Germany which was rendered to rubble was invested in and rebuilt

I think they could be given a chance to put right the policies. That's what they are asking for.

Gemauve - and it is those past "policies" of take the money and run and stuff the majority that caused today's mess. How does imposing yet more authority allow any way to fix the mess?