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.

authority=austerity

Hate the Times, but John Humphrys piece in the Review yesterday is good on the history.

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

There is no glee. EU has been very solemnly helping Greece out in unprecedented ways, not that they get any gratitude for this. You seem to be saying that the rest of Europe is dancing on Greece's grave, which is completely untrue.

What you see is other countries expecting to see some commitments as prerequisite to giving Greece even more billions. Greece has been acting like a banana republic, with extensive black market & corruption, low tax collection, completely unrealistic social state measures, and most shockingly, flat out lying about its accounts. EU is completely justified in demanding that it gets its act together and start behaving like a Western democracy.

Indeed Cote.

And that is exactly what it would like the chance to do.

"Greece" is not an unchanging entity.

Syriza are trying desperately to break with the past and create a functioning country. Just as Germany and many other countries have done.

Should we not applaud their efforts and make them workable? As we did with Germany and other countries?

Why not? What is the point in letting "Greece" fail? What would that achieve?

"And where is the responsibility of lenders in all that?"

The price (interest rate) international borrowers pay, just like via our high street bank, depends on the credit worthiness 'known knowns' at the time - and in the several years before the financial crash, within a global 'boom' as GLOBAL interest rates came down - the 'risk premium' on borrowing tended to narrow, as interest rates fell even further.

When loans go sour, the "responsibility" for lenders, is to their taxpayers or shareholders, not to throw good money after bad - especially when dealing with 'a man without a viable economic plan'.

And that is exactly what it would like the chance to do.

Seriously? It sounds much more like their government wants to delay matters for another month in the hope that the magic money tree flowers. What policies does it have to improve tax collection that it couldn't have implemented since it came to power? What policies does it have to deal with corruption and black market trading? What policies does it have to bring its social payments into rough line with its revenues? As Cote says, "(The) EU is completely justified in demanding that it gets its act together and start behaving like a Western democracy", something which it hasn't made the slightest attempt to do since it came to power.

Fascinating thread; thank you.

Gemauve …. Re your question, let me have a crack and if you have another question please ask.

As you will be aware a ‘normal’ interest rate yield curve for a borrower should be upward sloping, representing the additional risk of time of lending money i.e. current UK government yields, 2-years is 0.59%, 5-years is 1.52%, and 10-years (as mentioned further above) is 2.05%.

Now inflation is historically a factor, but currently not worth mentioning, so the current upward sloping yield curve representing the time to maturity risk is relevant and FYI as governments issues bonds each year, the ‘older’ bonds fill in the maturity gaps, so the UK will have a 2.3.4.5.6.7,8,9 and 10-year onwards, established yield curve.

Moving on, we are not talking derivates here.

The international capital markets, investment banks, to normal fund managers, down to ‘Vulture’ Funds, are experts at pricing ‘risk’, they each do it numerous times a day pricing what they’d pay (and offer from their inventories) for ‘AAA’ rated bonds down to absolute shite.

So looking at Greece with the near term prospects of ‘default’, we are clearly not in ‘normal’ investment conditions, the main RISK for ANY investor in Greek debt is over the near term, not the longer term, hence (using both our examples) for buyers of Greek debt they require 25% to hold 5-year paper, whilst braver souls (that specialise in distressed debt) looking out at 10-years Greece, will buy at 14%.

Markets pricing fixed income securities (bonds), be they new ‘AAA’ highly liquid issues, or old obscure issues that literally trade by appointment’, is always relative to other securities; the government yield curve of the bond’s currency you want to price, similar borrower names known current yields, the credit rating etc etc etc.

Just think, if the Greek government has to pay 14% for 10-year money, WHAT would a Greek Bank have to pay for 10-year money, BEFORE its mark up to Greek citizens/companies to provide future growth? Frightening, huh?

Anyhoo, I’ve gone on (as usual), but you just need to understand that THERE IS a price (liquidity) for everything within the capital markets, that’s what they do - based on their understanding of the needs of their global fund manager clients - I reiterate, clients that want to buy from ‘AAA’ down to absolute shite. lol

Syriza are trying desperately to break with the past and create a functioning country.

Which of its policies make you believe that this is true?

Fascinating thread; thank you.

Thanks, isitmebut, that's much clearer. It was significance of the downward slope of the yield curve I'd missed, but I'm on board now.

Gemauve, IMF and others might be doing justthat right now— extending loans on terms that corresond to greek fiscal/credit standing, but it's year 2015. I am talking about bad decisions made pre crisis (or pre 2012 when all hell broke loose in eurozone)by banks and other lenders who were happy to loan greeks because it suited them at the time knowing fully well that no, greece has never been germany in fiscal terms. Greeks are trying to get new loans to repay old ones. Buying government debt means you have faith in that government, so it's not just that voters should take responsibility for the government they elected, but also lenders for the government they chose to finance. Seems they all had the same taste. I do this for a living, but I've never bought a greek paper and don't intend to.
Apologies for typos, on the phone.

BubaMarra ..... re your "Buying government debt means you have faith in that government, so it's not just that voters should take responsibility for the government they elected, but also lenders for the government they chose to finance."

Buyers of government bonds are not married to them, they hold a portfolio, trade in large sizes on very thin margins i.e. 1/64th of 1%, and are switched on a regular basis as the fundamentals of economies/currencies change.

The EU was trying to keep their 'project' alive and god knows how much money the German taxpayer (retiring far later than the Greeks) in on the hook for - why should they be dictated to by a gobby Marxist Greek government coming to power saying 'we'll show them' what democracy can do.

(How very Scottish) lol

It has been said that the IMF should not have been involved, but Ms Largarde (from French France) chose to show solidarity to the 'project' with IMF money that should have just been from the EU/ECB - she or those she can blame, could be French toast if the money is lost.

gobby Marxist Greek government

That is the explanation for the glee. How dare a democratically elected left wing government who wants to move away from oligopolies, not sell any more state assets to the Chinese or others, restructure the debt so the economy can grow and repayments can be made, not leave old people to starve on the streets and not have youth unemployment of nearly 60% dare to tell neo-liberals that they want to do things differently.

How very dare they.

I think the issue is not so much about responsibility and fault as whether Greece needs Europe more than Europe needs Greece.

Does anyone think the past five years of austerity have worked?

Does anyone think that's a good policy to continue?

Why not just get every Greek to sell a kidney?

"a democratically elected left wing government"

A party elected as a reaction to austerity measures, you mean. With no clear plans for the future of the economy, and just on the basis of "We'll show EU who's boss!" kind of chest thumping.

"they want to do things differently"

Like, how? Macroeconomics is not that hard. Any 1st year university student can tell you what Greece needs to do. Costs need to be cut and that means bye-bye massive public sector employment, among other things. Funds need to come from somewhere, so if they won't privatise, they need to play nice with IMF and/or make Greece VERY attractive for foreign investment which means passing some very capitalistic legislation.

" "Greece" is not an unchanging entity."

Of course it is. It is the same country that joined the Eurozone by lying about its accounts. It is the very same country that issued all those government bonds and now doesn't want to pay them back.

How very convenient it would be if countries could borrow loads of money and then turn around and say "Oh sorry, I'm now a changed entity. That money you gave was to the old country".

"We'll show EU who's boss!" kind of chest thumping.

I haven't seen any of this. I've seen people pointing out that five years of austerity haven't worked. That more of the same won't work, indeed will make things worse. Any two year old can see that, never mind an undergraduate.

Two-year-olds don't know anything about macroeconomics, hully. What they "see" on this subject is likely to be purely on an emotional level, as I suspect your viewpoint to be.

Hullygully ..... "Does anyone think the past five years of austerity have worked?"

Reducing government overspends aka "austerity" worked here, we had a budget deficit around 3x that of France, now ours is lower than France as theirs is rising.

Its the swagger of those politicians who disingenuously get power by ignorantly giving the people false hope that there is another way of correcting a government overspend.

NO left wing government trying to keep a fattened taxpayer funded State in the boom years, while increasing taxation on a private sector (taxpayers) still on its knees, will EVER run a sustainable economy - as the money will run out one day.

To paraphrase a famous politician; 'socialism works fine, until you run out of EVERYONE ELSE'S money'.

So you or anyone else can call people 'neo' anything, the act is, if your economy sucks a big one, THE MONEY will dry up, firstly from your own taxpayers, secondly from those financing the unsustainable.

Syriza offered false promises, put the negotiations back, and have been found out, THAT was democracy, not expecting those citizens who HAVE 'cut their cloth' piling more money in WITHOUT a say.

How very convenient it would be if countries could borrow loads of money and then turn around and say "Oh sorry, I'm now a changed entity. That money you gave was to the old country".

Historically, I think you can do exactly that as long as you think you are playing a good enough hand.

What "historically" is that, merry?

Or if you are a mad dictator.