Greece about to default

[fskimospy]

The "Troika" HAS started "approaching this problem more realistically". This is why Greece is cut off.

Greece isn't cut off by the troika, the troika is simply demanding more of the same cuts that have been so disastrous up to this point in exchange for more funds. If you think mindlessly repeating the same failed policy is 'approaching this problem more realistically', well... actually that wouldn't surprise me at all.

Austerity never fails, it is only failed, right?

 

[theeedude]

Yep, that's the Troika approach:

1. Force more austerity
2. GDP drops as a result
3. Debt is even less sustainable
4. Go to 1

 

[PingviN]

They have an old population, but a big reason they are at the top of pension spending related to GDP is the catastrophic decline in GDP brought on by austerity. Pension spending should be cut, but it needs to be replaced by other spending. (or vastly more accommodating monetary policy)

Greece has had issues with their pension system for at least 30 years. The big increase of minimum pensions in 2002 was even flagged by the OECD as a future cause of financial instability.

Major reform in 1992, major reform in 2002. Wasn't sustainable.

Austerity has directly caused this catastrophe and you think the answer is... more austerity? How is that not the definition of insanity? Did you know that Greece has already cut primary spending by almost 25%? That's like the US cutting about $800 billion annually. Since budgets for the US are evaluated and reported on using 10 year numbers this is the equivalent of the US passing a bill that would be viewed as including $8 trillion in cuts. That's an incredible amount of austerity already.

And it's not enough. As I said, you need to cut wages in the public sector and you need to keep on cutting pensions. How else do you suppose to finance it? Increasing taxes? Good luck with getting a working tax collection agency up and running in less than a decade.

It's also vastly more than the troika originally demanded. The problem was as austerity kept damaging Greece's economy more than it was reducing their debt the troika kept demanding more cuts in response to Greece's shrinking GDP and tax base. Reforming Greece's bloated public sector? Good idea. Doing it in the way the troika is trying to do it? bad, bad, bad idea.

There is nothing left to reform. 75% is spent on wages and pensions. Either you cut those or you increase taxes. Everything else is already cut to the bone.

To show how little the troika understood what they were doing, here's what the original predictions of the effect of austerity on Greece's GDP was, and here's where we're at now:

Does that make you confident that their current solutions for the Greek crisis are good ones, especially considering their solution is basically exactly the same as their previous ones?

Notice that flattening out in last couple of years? That's where they were heading. Guess where those projections will be heading now. Of course austerity measures will have a negative impact, but Greece has barely gone through 5 hard years. If they expect [at least] half a century of financial neglect is fixed in 5 years, their expectations are pretty damn naive.

One of the biggest reasons why they have a massive export deficit is because of the fundamental fucked up nature of the Euro. It's allowed other countries to massively exploit the balance of payments issue between the north and the south. This is why I keep saying that Germany needs to be held to account for their behavior, same as Greece.

So Greece had a blooming export-oriented economy before their entry into the EG?

The way the troika wants to do things simply isn't working. That's why I think the troika needs to start approaching this problem more realistically or Greece should exit the Euro and devalue. Continuing on this path is the worst of all possible answers.

While I agree that Greece should leave the Eurozone, what happens when you devalue your currency while having to export everything?

Massive debt reduction isn't going to happen. There is very little support among the northern and eastern Euro members. And calling the Germans Nazis and the rest terrorists hasn't helped Greece's case.

 

[fskimospy]

Greece has had issues with their pension system for at least 30 years. The big increase of minimum pensions in 2002 was even flagged by the OECD as a future cause of financial instability.

Major reform in 1992, major reform in 2002. Wasn't sustainable.

And it's not enough. As I said, you need to cut wages in the public sector and you need to keep on cutting pensions. How else do you suppose to finance it? Increasing taxes? Good luck with getting a working tax collection agency up and running in less than a decade.

There is nothing left to reform. 75% is spent on wages and pensions. Either you cut those or you increase taxes. Everything else is already cut to the bone.

This is the fundamental misunderstanding. It's way way too much. Austerity in these conditions appears likely to shrink GDP by more than $1 for every $1 spent. (fiscal multiplier >1) That's why I'm saying if you want to cut pensions that's fine and probably a good thing, but you should then increase spending somewhere else to compensate for the reduction in demand.

A fiscal multiplier above one means the more you cut, the worse your debt situation gets, making austerity self defeating. I think the last five years show pretty abundant evidence for that, which is why the troika's position is so foolish.

Notice that flattening out in last couple of years? That's where they were heading. Guess where those projections will be heading now. Of course austerity measures will have a negative impact, but Greece has barely gone through 5 hard years. If they expect [at least] half a century of financial neglect is fixed in 5 years, their expectations are pretty damn naive.

They had exactly one year of non-negative growth after a greater than 20% drop in GDP. There have been many countries that have had fiscal mismanagement in the past and this is a catastrophic result even as compared to those.

The expectations of the IMF and others at the were in fact naive, but that's because they thought you could cut your way to fiscal balance in a depression. It seriously boggles my mind that people haven't learned any lessons since 2008. What will it take???

So Greece had a blooming export-oriented economy before their entry into the EG?

While I agree that Greece should leave the Eurozone, what happens when you devalue your currency while having to export everything?

Massive debt reduction isn't going to happen. There is very little support among the northern and eastern Euro members. And calling the Germans Nazis and the rest terrorists hasn't helped Greece's case.

Massive debt reduction will happen sooner or later. That much is a given. I would bet quite a bit on it. The IMF at this point has already admitted a debt reduction is inevitable, but Germany doesn't want to look weak at the moment and so they will wait until later to give in on that point. (assuming Greece stays in the Euro) If Greece doesn't stay in the Euro they will eventually agree to repay their debt at...again...a massive reduction.

 

[werepossum]

Greece isn't cut off by the troika, the troika is simply demanding more of the same cuts that have been so disastrous up to this point in exchange for more funds. If you think mindlessly repeating the same failed policy is 'approaching this problem more realistically', well... actually that wouldn't surprise me at all.

Austerity never fails, it is only failed, right?

Isn't that the case on both sides? The IMF is pointing out specific promises that were made and never kept. Meanwhile you guys are pretending that Greece has embraced austerity as demanded and pretending that Greece is running a primary deficit, when in fact Greece has only had a surplus through even more creative accounting. Let's not forget that the June 30th payment was for a third major bailout to backstop what was sold as a short term liquidity problem. Instead it was merely more of the same, Greece living on bailouts and spending more than it takes in. There is no surplus; there is no austerity. There never was. And your only solution is to spend even more than it takes in and hope that a miracle happens. Greece's multiplier miracle should have happened over the last several decades. Instead Greece has just gotten deeper in debt, starting long before anyone mentioned austerity in 2009.

This will be especially rough once Greece leaves the EU as it produces comparatively nothing at a primary level; its manufacturing except for some agricultural exports is all value-added. Once Greece is back on the drachma, it's costs for raw materials will be not the current value in drachmas, but rather what the seller thinks will be the cost in drachmas when it's paid. Worst case, Greece might be on a cash up front basis. Real cash, not drachmas.

 

[fskimospy]

Isn't that the case on both sides? The IMF is pointing out specific promises that were made and never kept. Meanwhile you guys are pretending that Greece has embraced austerity as demanded and pretending that Greece is running a primary deficit, when in fact Greece has only had a surplus through even more creative accounting. Let's not forget that the June 30th payment was for a third major bailout to backstop what was sold as a short term liquidity problem. Instead it was merely more of the same, Greece living on bailouts and spending more than it takes in. There is no surplus; there is no austerity. There never was.

This is bafflingly ignorant. Go look at greece's deficit as a percentage of GDP for the last five years and say there was no austerity. And remember, this is all with a tanking economy and GDP, meaning any reductions are majorly understated.

Then again, when you go look at the reduction you might have to admit that there was of course massive austerity. I have no doubt you will come up with some new definition for austerity or simply declare the numbers a conspiracy. Austerity can't fail, it can only be failed.

And your only solution is to spend even more than it takes in and hope that a miracle happens. Greece's multiplier miracle should have happened over the last several decades. Instead Greece has just gotten deeper in debt, starting long before anyone mentioned austerity in 2009.

This is a mistake you have been corrected on so many times that I have to assume it's deliberate at this point. This is what I mean when I say that you are a fundamentally dishonest person.

This will be especially rough once Greece leaves the EU as it produces comparatively nothing at a primary level; its manufacturing except for some agricultural exports is all value-added. Once Greece is back on the drachma, it's costs for raw materials will be not the current value in drachmas, but rather what the seller thinks will be the cost in drachmas when it's paid. Worst case, Greece might be on a cash up front basis. Real cash, not drachmas.

leaving the euro will be terrible for Greece, no doubt. At least that has a light at the end of the tunnel though.

 

[werepossum]

This is bafflingly ignorant. Go look at greece's deficit as a percentage of GDP for the last five years and say there was no austerity. And remember, this is all with a tanking economy and GDP, meaning any reductions are majorly understated.

Then again, when you go look at the reduction you might have to admit that there was of course massive austerity. I have no doubt you will come up with some new definition for austerity or simply declare the numbers a conspiracy. Austerity can't fail, it can only be failed.

This is a mistake you have been corrected on so many times that I have to assume it's deliberate at this point. This is what I mean when I say that you are a fundamentally dishonest person.

leaving the euro will be terrible for Greece, no doubt. At least that has a light at the end of the tunnel though.

Hey, don't argue with me, argue with those naive amateurs at the IMF, EU, and EZ. Surely a wise socialist amateur such as yourself can get the tap turned back on.

 

[Exterous]

Greek tax receipts as a percentage of GDP are a good bit higher than those of the US. Even if a lot of evasion is happening a lot of taxes are still being collected.

https://en.wikipedia.org/wiki/List_of_countries_by_tax_revenue_as_percentage_of_GDP

Greece isn't in the USD zone though its in the Euro zone so it would be far better to compare it to other Eurozone countries:
Belgium: 49
France: 44
Austria: 43
Italy: 42.6
Germany: 40
.
.
.
Greece: 30

Assuming my math is right the average is 37.7 so Greece's being the second lowest at 30 is quite far below the average for members >1 year of membership

The government estimates they are missing 70 billion in arrears. That would have made more than a small dent in their payment issues

 

[theeedude]

You can't collect 10% more in taxes in Greece now without causing a huge economic contraction requiring a bigger additional debt write off than the revenues that you collect.
We have seen this movie already. Austerity does not work, it makes the problem it's trying to solve worse by shrinking the GDP.

 

[fskimospy]

The government estimates they are missing 70 billion in arrears. That would have made more than a small dent in their payment issues

$70 billion is approximately 30% of nominal GDP; collecting that is simply impossible. We are in a way better situation than they are and imagine the economic catastrophe that would happen if the US tried to collect an extra $5 trillion in taxes or so one year. Hell, even spread over many years. Total disaster.

 

[BigDH01]

$70 billion is approximately 30% of nominal GDP; collecting that is simply impossible. We are in a way better situation than they are and imagine the economic catastrophe that would happen if the US tried to collect an extra $5 trillion in taxes or so one year. Hell, even spread over many years. Total disaster.

So will they ever be in a position to collect those taxes or should the rest of Europe just keep shoveling money into Greece so they can keep evading taxes?

 

[werepossum]

Hmm. So to recap: Greece can't collect more taxes and Greece can't cut its spending to match what it takes in, so the only answer (as always) is for other people to give money to Greece which Greece will then spend, forever. (Or until a miracle happens.)

 

[fskimospy]

So will they ever be in a position to collect those taxes or should the rest of Europe just keep shoveling money into Greece so they can keep evading taxes?

Yes, of course. If Europe would stop forcing them to pursue policies that make their debt situation worse then maybe Europe would stop needing to shovel money at them.

 

[fskimospy]

Hmm. So to recap: Greece can't collect more taxes and Greece can't cut its spending to match what it takes in, so the only answer (as always) is for other people to give money to Greece which Greece will then spend, forever. (Or until a miracle happens.)

To recap: werepossum does his "I'm either stupid or dishonest" routine again.

 

[theeedude]

Hmm. So to recap: Greece can't collect more taxes and Greece can't cut its spending to match what it takes in, so the only answer (as always) is for other people to give money to Greece which Greece will then spend, forever. (Or until a miracle happens.)

Do the Germans not want Europeans to spend, on things like their manufactured goods? Would they rather Europe be austere and Germans unemployed?

 

[bshole]

Hmm. So to recap: Greece can't collect more taxes and Greece can't cut its spending to match what it takes in, so the only answer (as always) is for other people to give money to Greece which Greece will then spend, forever. (Or until a miracle happens.)

There are other options available, perhaps Soylent Green, a nice little war, decoupling from the Euro and hyperinflation (think Weimar Republic). Those are three options I came up with in 30 seconds and I don't know a damn thing about what is happening in Greece.

Is this the pivotal event which signals the decline and fall of Western civilization? I don't know. It does appear that most Western countries are set up on a type of pyramid scheme that requires more young people than old people. With the low birth rates and all the old fuckers not dying when they should (at 65), things get kinda grim. The real solution in the Western world is to raise the retirment age to 75. That would pretty much wrap up the problem. Of course it would suck for me....

Not sure this if this a parody post or not.....

Just had another stroke of genuis, ask Russia to help Greece out. I am sure that Russia would be very interested in Greece. Since Europe and America want to write off Greece, what better way than handing her off to Russia. Everybody wins.

“There has been speculation in the media that Greece may apply for accession to the New Development Bank. We know of these assumptions, but so far no one has officially discussed such an option with us,” Yury Ushakov, President Putin's aide, said.

So there is definite interest on the Russian end at least.

 

[BigDH01]

Yes, of course. If Europe would stop forcing them to pursue policies that make their debt situation worse then maybe Europe would stop needing to shovel money at them.

The EZ has also been trying to get Greece to liberalize their economy, a task which they are having trouble doing. If they can't bother to make an attempt to collect taxes, why should the EZ bother throwing money at them?

BTW, Recent news

“The leaders need to provide political guidance on the restart of negotiations — yes or no, and if yes then the timeline.”

Asked if it was strange or disappointing that the Greek’s didn’t present anything at the Eurogroup, Aamann said “I have to say that certainly would have accelerated things.”

Why doesn't Greece come to the table and at least say they'll make an effort to collect taxes?

 

[BigDH01]

Do the Germans not want Europeans to spend, on things like their manufactured goods? Would they rather Europe be austere and Germans unemployed?

The EZ is more than just Germany and Greece. Would Germany not have anyone to sell to if Greece is out?

 

[fskimospy]

The EZ has also been trying to get Greece to liberalize their economy, a task which they are having trouble doing. If they can't bother to make an attempt to collect taxes, why should the EZ bother throwing money at them?

BTW, Recent news

Why doesn't Greece come to the table and at least say they'll make an effort to collect taxes?

They do make an effort to collect taxes. In fact, they collect a larger share of their GDP in taxes than the US does.

They certainly have a huge problem with tax evasion that needs to be fixed, but saying they 'don't bother to make an attempt to collect taxes' is simply wrong.

 

[theeedude]

The EZ is more than just Germany and Greece. Would Germany not have anyone to sell to if Greece is out?

Do they want to sell to Spain, Italy, etc? Or they'd prefer austerity in those countries and unemployment in Germany?

 

[BigDH01]

Do they want to sell to Spain, Italy, etc? Or they'd prefer austerity in those countries and unemployment in Germany?

Um, those countries got European-imposed austerity as well. Say what you want, but if you blame Germany for all of Europe's ills you should at least recognize that Greece wasn't the only country forced into austerity. Yet, Germany survives, who could've figured that?

Oh wait, exports, turns out Germany mostly exports to other productive European countries.

 

[BigDH01]

They do make an effort to collect taxes. In fact, they collect a larger share of their GDP in taxes than the US does.

Yeah? How do they compare with other members of the EZ, those people they are trying to leach from?

They certainly have a huge problem with tax evasion that needs to be fixed, but saying they 'don't bother to make an attempt to collect taxes' is simply wrong.

lol, What does Greece's former tax-collection chief have to say about it?

It was a job given to a man called Harry Theoharis, who was the head of the country's tax-collection agency until last year. He tried to focus on reforming the country's revenue system, so that Greece could better deal with its crippling fiscal crisis.

But in June 2014, after just 17 months, Theoharis resigned.

In an interview with the Telegraph at the start of the year, Theoharis said people were so angry about his attempts that they threatened to "break his legs" during his tenure.

Yeah, can you really blame the other EZ members for not wanting to give them more Euros?

 

[fskimospy]

Um, those countries got European-imposed austerity as well. Say what you want, but if you blame Germany for all of Europe's ills you should at least recognize that Greece wasn't the only country forced into austerity. Yet, Germany survives, who could've figured that?

Oh wait, exports, turns out Germany mostly exports to other productive European countries.

The inclusion of weaker exporters in the Euro zone gives Germany artificially cheap exports compared to what they would have with their own currency.

What you mentioned is actually part of the problem.

 

[BigDH01]

The inclusion of weaker exporters in the Euro zone gives Germany artificially cheap exports compared to what they would have with their own currency.

Any other country in the EZ who feels like they can't compete with German prices in Euros are free to leave or to have not joined in the first place. If they want to end austerity, why don't they just leave?

Oh yeah, because they want to have their cake and eat it too. They want other members to pay for the promises their government made.

 

[werepossum]

To recap: werepossum does his "I'm either stupid or dishonest" routine again.

Hey, you are the one in direct denial of what the IMF, EZ, and EU are saying, not me.

Do the Germans not want Europeans to spend, on things like their manufactured goods? Would they rather Europe be austere and Germans unemployed?

You honestly can't see why giving people money so that they can buy your goods would be self-defeating?

Let me give you a hint. Say you have automobiles you would like to sell for $20,000. Let's assume it costs you $15,000 to build one of these cars, which is a nice healthy profit margin. Along comes a fellow - let's call him Greece - who would like to buy one of your cars, but after paying his monthly bills he has no money left. In fact, each month he already owes more than the month before. One possibility is that you keep the car, which leaves you at a net zero change. You have earned no money, you have lost no money. Another possibility is that you hand him $20,000, he hands it back to you, and you give him the car. You are now out $15,000 (your cost to build the car) plus the cost to do the paperwork. A third possibility is that you simply give him the car, resulting in you losing the $15,000 but no ancillary costs. However, what Greece wants (and what the ultra left wants for Greece) is that you give Greece $20,000 and he agrees to pay you $500/month until you have been paid back the $20,000 plus interest. This is what has been done several times since 2009, and each time Greece has been unable to make his car payment without a fresh additional loan. So now you've agreed that Greece shouldn't have to repay back the whole $20,000, only he now owes you $50,000 because of the additional loans. For anyone who isn't Greece, this is the dumbest possible economic move.

Germany and France et al would have been better served to simply give each Greek citizen an allowance of credits for EU merchandise. When one has a child who refuses to earn his own way, giving him a higher allowance is never going to change that.