Greece bankrupt; calls in the IMF

[longfingernails]

news.bbc.co.uk/1/hi/business/8639440.stm

Remember, their deficit is more or less the same size as ours.

Only difference - they are in the Euro, and can't set their own interest rates. We have the freedom to change them.

Thank God we aren't in the single currency.

Er, Euro membership is far from only economic difference.

ï billion.
British GDP =~ .67 trillion
Bit of a wee difference there, for instance...

I think the economic trends, history of repaying debts, size of national debt and size of public services might be quite different, too.

But thanks for link to news story. Hard to get any news nowadays except about stranded airline passengers or slanders against Nick Clegg!

Apparently Nick Clegg CAUSED the Greek deficit...from our Scandal Correspondent.

Don't forget the last time there was a hung parliament in this country it ended up with a visit to the IMF....

Crikey, those links went wrong, didn't they!!
Try again without links.

Greek GDP is about $357 billion.
British GDP is about $2.67 trillion.

bidibidi

What does the absolute size of the economy have to do with the deficit as a percentage of GDP?

Greece desperately needs lower interest rates than the ECB is willing to countenance.

Well, at least we're only paying for the IMF part of the bailout - a measly £600m or so. I would be insanely angry if I were a German taxpayer right now.

I worry that the World still does not understand the implications of the European project.

Before the euro the Greek government had to pay between 13%-16%. Greek government book keeping, which was criminal in my humble opinion, lied to obtain Euro entry and have continued to lie even now after a bailout has been discussed. Consequently as of yesterday Greek debt was trading at 11% so i see no reason why it should not go even higher now the world knows the Greeks are liars and are unlikely to change.

In their defense a country whose borrowing costs are set by the free market are set at 13% for a reason so to suddenly be allowed access at single digit "German" rates what country would not borrow and spend? (All of the European countries have taken advantage). Thus Greece has a welfare system that rivals, possibly surpasses that of Germany.

Greece is unable to afford to rollover even a portion of its soon to come due debt at these high rates and so WILL DEFAULT.

The European bailout, which is illegal under European Law, even today after weeks of discussion is still only an agreement in principle and only if the IMF are also involved. If just one member state refuses to take part then why should any of the other member states? This is not a done deal!

The IMF also includes the USA, who posses a veto and have clearly stated that they will veto any IMF bailout of Greece unless the Europeans are involved and quite rightly because Greece is part of the biggest economy in the world (Europe). The IMF would never step in to bailout a US state that defaulted.

When Greece defaults and if the IMF & Europe step in they (the IMF and Germany) will demand severe cuts in public services. I would suggest at a minimum 25% -35%, possibly more across all public employees. For a country with such a large welfare cost this will create great civil unrest. They have no choice in this because they do not control their own currency and are unable to export themselves out of trouble by devaluing the drachma.

On May 19th a large portion of debt comes due. If Greece is unable to borrowing new funds to pay off the old debt then it will default. Portugal, Italy, Ireland, Spain and even France and Germany all share the same woes with Greece in varying degrees. But this is just the start of Europe's problems....

Whilst the Anglo Saxon economies were cleaning out their banks their European counterparts, who lead the world in risky toxic investments, did not. Just the German Landesbanks (part state owned banks) alone have toxic debt of over half the IMF calculated $1 trillion of toxic debt still on European financial institutions books. And the biggest owners of the soon to default Greek debt? The European banks. The largest owners of defaulted Spanish mortgage debt? The European banks. The largest owners of defaulted Eastern Europe mortgage debt? You guessed it....(especially the Austrian banks)

We have all just suffered with credit Crunch One. The coming European Credit crunch will hit everyone hard, probably harder and test the huge European political capital to the limit.

I struggle to see how they can possibly cut the public service employees wages. It is virtually impossible to live in this country on the wages that they pay. The cost of living has shot up and it is very hard to make ends meet.

The poverty in this country is awful. I was so shocked on my last visit to Athens. Even whilst visiting my father during the winter (he lives on a small Greek island) i was shocked when on two separate occasions, elderly women came knocking on the door asking for money or food

As usual, the most vulnerable are suffering due to the actions of others.

Greece is a country that has always struggled. It was completely destroyed during the WW2 and lets not forget that it has only been 35 years since we have been free of dictatorship.

Lots of changes need to be made. I really do hope though that some day we will be able to see a brighter future.

It also needs to be pointed out that due to ongoing issues with Turkey, Greece spends a large %age of its GDP on weapons. Most of these weapons are sold to Greece by Germany.

If Greece had the support of Europe we would not have the need for these weapons and for the large amount of money that is spent on the army.

"I struggle to see how they can possibly cut the public service employees wages. It is virtually impossible to live in this country on the wages that they pay."

Equally it's not possible for the Government to keep paying those wages when it's not earning enough money to cover them.

"It also needs to be pointed out that due to ongoing issues with Turkey, Greece spends a large %age of its GDP on weapons. Most of these weapons are sold to Greece by Germany."

Greek defence spending has dropped but according to NATO's latest statistics but they do still spend more as a percentage of the GDP than any other European member of NATO. That can't be sustainable.

What exactly can the rest of Europe do about it though?

Many other countries will be watching Greece closely. If Greece is able to get it's hands on that extra money without too much effort or sacrifice then it's going to be tempting for them to go down the same route.

Unfortunately this bailout has got to be seen as a last resort and it cannot be an easy option. It sounds callous but Greece is going to have to be seen to suffer somewhat for this so that it doesn't become the first of many.

Elenio: 'If Greece had the support of Europe we would not have the need for these weapons and for the large amount of money that is spent on the army'

...or perhaps if Greece became more realistic, less nationalistic, less greek-centred, less turkey-hating, and decided once & for all to resolve its problems with Turkey in a peaceful way? then maybe there wouldn't be a need for such high spending on weapons that- you're very right- eat up a HUGE amount of money.

Equally, it might help if Greece decided to tax the Greek Orthodox Church which owns lots & lots of land.

But sadly, in Greece the church & the army are never touched or doubted.

Anyway, just mentioned these 2 isues because they're two of my pet hates is all.

I do agree with you Elenio that wages are very very low in Greece when you take into account the cost of living. Doesn't mean there won't be people fired from the public sector, there probably will be, I think it's unavoidable...

Greece owes 115% of it's GDP and it's yearly deficit is 14% of GDP.

It's defence spending is about 4% of GDP.

So even if it completely cut it's defence spending to nothing it would take nearly 30 years to use that money to repay it's debt current level of debt.

And every year it's building new debt at a rate of more than 3 times what it spends every year on defence. So cutting the defence budget to zero won't stop the debt getting any worse either.

So basically the defence thing is a red herring. Yes Greece does spend a very high proportion of it's money on defence compared to the rest of Europe but it's still a drop in it's ocean compared to how big the debt is and how fast it's growing.

BadgersPaws, yes it may be a red herring if you look at it only in terms of numbers but it's certainly not a red herring if you look at it in terms of money well spent (or not). Unfortunately in Greece there is a wide consensus (at least that's my feeling) that defence spending is money well spent, and I think that's very sad and very plainly wrong when the country is in such deep trouble financially.

If you look at it in terms of what is actually adding to the problem and what might fix it it's a complete red herring.

Perhaps it might be a good thing if they prioritised it a little less but they didn't get into this hole by spending too much money on defence and they're not going to get out of it by spending less on it.

Arguing about the defence budget is just a means of avoiding what the real problems are.

So who will be next in the bailout queue?

I reckon Portugal - though it could be Spain.

Bailouts will now become the norm, not the exception, in the Eurozone. Germany seems to have gotten itself a bit of a raw deal with this Euro malarkey.

The countries in the Eurozone that are in the most trouble are Portugal, Ireland, Italy, Greece and Spain. They've even got their own acronym that you see bounced around in the media, PIIGS.

String free bailouts can't become the norm. There's a school of thought that by giving the bailouts the more stable Eurozone Economies, i.e. Germany, can place sufficient conditions upon those countries that they will to a large extent run their economies. Bringing those loose cannon economies to "heel" would certainly be in the Eurozone's best interest.

What makes me laugh about the EU is that we as a continent love to take the highbrow view with other countries yet we've not had the accounts signed off by auditors for YEARS.

Now THAT'S bloody third world. And what sort of auditors don't demand a big old review of procedures - OURS.

longfingernails "What does the absolute size of the economy have to do with the deficit as a percentage of GDP?"

Well, that was the point of bidibidi's post...

You were correct to say that the Greek deficit is the same as ours in absolute terms -
but as our economy is ~7 times bigger, the deficit is ~7 times smaller in percentage terms.

No it's not. That's simply factually incorrect.

Our deficits are comparable, in percentage terms.

Our deficits are comparable but Greece's is still worse, 13.6% compare to our 11.5%.

However their debt relative to GDP is very nearly double ours at 115% compared to 68% (all figures from the BBC at news.bbc.co.uk/1/hi/business/8508136.stm).

So while Greece might be sliding into further debt only a bit quicker than we are it's already far deeper down. And it's that debt that's causing the current problem with lenders now being reluctant to lend more money to Greece and Greece needing that money to pay the bills.

BadgersPaws

True, our debt is lower even though our deficit is comparable. But then we are (supposedly) in the top league of countries, with a AAA credit rating, a seat at the UN security council, and a history of enterprise and thrift. We should be better than Greece.

It's ridiculous that our deficit has been allowed to grow this big.

You could forgive it by saying it's all down to the credit crunch - except that Gordon Brown was running a structural deficit before the recession even hit!

He thought he had abolished boom and bust, so he could borrow forever, even in the good times, instead of paying down some of our debt.

A catastrophic error of judgement.

Not to mention that his regulatory policies made the credit crunch much more severe than it would otherwise have been. We could have gotten away with a mild recession like Australia or Canada. Instead, we got hit with a hurricane.

I'm not actually saying anything about our situation other than our actual debt isn't as close to Greece's and it's the amount of that debt and Greece's inability to pay the interest on it that is causing the current problems.

There are some good illustrations of our debt situation here:
www.ukpublicspending.co.uk/downchart_ukgs.php?year=1900_2010&view=1&expand=&units=p&fy=2010&chart=G0 -total&bar=0&stack=1&size=l&color=c&title=UK%20National%20Debt%20As%20Percent%20Of%20GDP

"He thought he had abolished boom and bust, so he could borrow forever, even in the good times, instead of paying down some of our debt."

I'm not too keen on defending Gordon but that's not actually true...

From when Labour came to power in 1997 and up until 2003 we were paying off the debt. Throughout the entire John Major administration the debt had been going up year on year.

It's only the big spike in the last couple of years that has taken debt back up to a level higher than when the Labour Government came into power.

Now maybe that big spike was due to incompetence and maybe it was unavoidable.

But at least let's argue about what debt situation we are in rather than something that's not true.

What about 2003 to 2007?

Definitely in the "boom years", but Gordon Brown still ran a deficit.

I am a german taxpayer, and there is a lot of talk atm about greece, and supporting the rest of europe - most people are still behind the euro though. Incidentally, there are a lot of people of greek origin in southern germany.

not sure what would happen if we have to bail out the rest of them too, though.

"What about 2003 to 2007?"

A good question, I don't know what changed. As said I don't want to defend him but it's clear that he didn't just borrow and he did pay down a lot of the debt.

However as you point out it is also equally clear that from 2003 onwards he seemed "happy" to allow the debt to slowly track back up again.

BadgersPaws

What I suspect happened was that he stuck to Ken Clarke's proposals in the first Parliament, which called for paying down debt, because Labour were seen as weak on the economy.

After the 2001 landslide victory, and after Tony Blair got distracted by Iraq, Brown reverted to his old Labour borrowing binge roots.

Anyway, it seems that Greece isn't out of the woods by any means. The Germans and French are understandably anxious. The 45 billion euro bailout is just for year 1 - at the moment the total cost seems likely to be at least 90 billion euros.

www.telegraph.co.uk/finance/financetopics/financialcrisis/7636269/Greek-borrowing-costs-soar-as-Germ an-resistance-spooks-investors.html