Greece about to default

[LegendKiller]

And then what happens next? Spain, Ireland, Italy demands the same treatment and the Euro becomes an undisciplined fiat money currency, crashing in value. Instead of doing something that would destroy the credibility of the Euro as a currency, why not boot out Greece from the Eurozone? The Euro is not only a right for the countries adopting it, it is also a duty, Greece failing to carry on its duties should entail consequences, however bad they are.

Greece should never have been admitted. Everybody knew it. Why were they admitted? Because it was good for Germany and france.

 

[Darwin333]

Greece imports are about 45 billion euros per year, of which more than a third of that is oil and its sub-products, so I don't think Europe is going to miss Greek imports at all, especially if the EU can get rid of the annual Greek bailout bill. Commerce would be the last reason to keep Greece on the EU.

The major banks in the EU won't fare nearly as well hence the entire reason for the bailouts. You honestly don't think they are just trying to be nice do you?

 

[Jhhnn]

And then what happens next? Spain, Ireland, Italy demands the same treatment and the Euro becomes an undisciplined fiat money currency, crashing in value. Instead of doing something that would destroy the credibility of the Euro as a currency, why not boot out Greece from the Eurozone? The Euro is not only a right for the countries adopting it, it is also a duty, Greece failing to carry on its duties should entail consequences, however bad they are.

The Euro, like the dollar, is already fiat currency. Did the dollar crash in value when the FRB bought up a mountain of shitty mortgage bonds, restored liquidity to the banking system?

And if Greeks are guilty, are not the creators of Greek debt equally as guilty, perhaps more so?

Why should they be made whole when they knew they were creating bad debt & making fabulous money doing it?

Yeh, sure, I know they're too big to fail, but are they too big to suffer for their own misdeeds? Or should Euro govts just make Greece the whipping boy?

How far can we depersonalize this in order to put the welfare of a few thousand bankers ahead of the welfare of millions of Greeks & others in similar straits?

 

[lopri]

I largely agree with Jhhnn. Whatever principle one holds dear cannot stand up to humanity of actual living humans. It has been agreed upon by those who are knowledgeable that Greece's debt situation is not going to improve, leaving black and white options only - bailout or exit. Furthermore, the creditors cannot claim clean hands on current situation which has worsened in comparison to 2010's. The creditors played a dangerous game then and should not be allowed to repeat it.

 

[Charmonium]

There's something I don't understand here. Some of the biggest creditors like Germany seem to be actively rooting for Greece to leave. Surely they understand that means that no one, themselves included, are going to be paid back. So at this point, does anyone really believe that they give a rat's butt about the amount they have already sunk into Greece. If they do care, they have a strange way of showing it.

 

[werepossum]

The way I understand it, about 2/3 are owned by the central banks of individual countries. In that case, they had to pay actual euros for the Greek bonds that they bought. Only the ECB can create new money, not individual central banks. You can think of it as the difference between the various Federal Reserve regional banks and the FOMC. Only the fed through the FOMC can print money, no individual bank can.

So if those banks lose money, it has to come out of someone's pocket. That's going to be the taxpayers of each country - or so I assume. I don't think there's any mechanism for the ECB to reimburse losses.

The only way that could happen would be for the ECB to buy the bad bonds from the individual state banks. But I don't think the ECB is as independent as our federal reserve. So public opinion, especially from Germany and France, is going to matter.

I believe you are correct except that some of this money is IMF money, so the USA will also be making up part of the write-off. Perhaps a lot of the write-off, since the ECB & the EZ have no mechanisms for a nation defaulting. To the extent (if any) the IMF bails them out, the USA is on the hook for that, and if memory serves we pay about 20% of the IMF funding. Expect Uncle Sam to be singing another sad song for Uncle Mao since, like Greece, we too live above our means and must borrow to meet our obligations.

 

[werepossum]

There's something I don't understand here. Some of the biggest creditors like Germany seem to be actively rooting for Greece to leave. Surely they understand that means that no one, themselves included, are going to be paid back. So at this point, does anyone really believe that they give a rat's butt about the amount they have already sunk into Greece. If they do care, they have a strange way of showing it.

From their standpoint there are two likely paths. First, Greece stays in the euro. In that case Greece will require another hundred billion or so before either everyone stops pretending this money will ever be paid back. The other option is the Grexit. Greece will still be a charity case, but perhaps less of one as the crashing drachma cheapens and thus encourages domestic production. Also, chances are very good that the IMF and/or USA pick up more of the additional lending. The creditors will also send a strong signal to the other PIGS nations that one cannot default and still enjoy the benefits of the EuroZone and the euro.

After one accepts that the money already loaned to Greece is gone, never to be repaid at any significant level, then the prospect of Greece exiting the EZ becomes more attractive. The biggest wild card I see is the chance that if not propped up, Greece becomes either a communist hellhole in Europe's side or intentionally becomes a Russian vassal state. If Greece is forced out of the euro, then they may not wish to continue as part of NATO either, and given the partial annexation of Ukraine, NATO can't be wild about the prospect of a Russian naval and missile base in Greece. That is why Tsipras has been so visibly courting Putin. It remains to be seen whether the EU can be blackmailed with this and if so, for how long and how much. And of course, whether Greece can ride the bear without becoming bear chow.

None of us have crystal balls (save perhaps those who owned 60s Triumphs with the wire tank racks) so we not only don't know what will happen, we can't know what should happen. ("Should" meaning best for Greece and its creditors, not some form of cosmic justice to punish the Greeks or those who loaned them money.)

EDIT: A bit more good news and bad news. First the good: talks continued for 14 hours, stretching into Monday morning. Thus we know that both sides are serious and do not consider it hopeless. The bad: Greece is apparently asking for another hundred billion euros over three years, with no payments; the European nations are refusing a third bailout unless the IMF is the major player, the IMF is refusing a second (for them) bailout unless the Euros forgive a major portion of the debt, and the Euros are refusing another write-off; even assuming Greece gets enough to keep its banks afloat, the nation also has staggering debts outside of the bailouts, such as over a billion euros owed to pharmaceutical companies; and without the bailout Greece will have to issue IOUs this week to meet pensions and wages. Note that this is all from leaks so YMMV.

 

[lopri]

@werepossum: If what I've read is correct, the Greece's economy is about the size of Miami's. And the nation's total population is a little bit larger than 11 millions. This issue is about politics as much as, if not more than, economics.

Below is the chart from 2012. I assume the current position of Greece is a lot worse.

 

[werepossum]

@werepossum: If what I've read is correct, the Greece's economy is about the size of Miami's. And the nation's total population is a little bit larger than 11 millions. This issue is about politics as much as, if not more than, economics.

Below is the chart from 2012. I assume the current position of Greece is a lot worse.

Your point is well taken. Problem is while everyone concerned wants Greece to recover for political reasons, the economics prohibit that. Assuming Greece manages to produce an honest surplus - not something it has managed to date - it's economy is simply far too small to pay even the interest. Even assuming that surplus were allowed to be plowed back into the Greek economy, AND that Greece would do so honestly rather than simply plowing it right into public sector pensions and wages, Greece's population is too small to ever grow big enough to pay off the principle. Meanwhile most European leaders face constituents dead set against another bailout. Even the first two bailouts may end up rewriting European political landscape as taxpayers eat the first two bailouts.

Somewhere there is a sensible, least pain scenario. Let us pray they find it, and soon.

 

[Charmonium]

Looks like Greece has a deal but they'll be turning over a lot of control.

The deal -- if ratified -- should prevent a chaotic Greek exit from the euro, an unprecedented event that would have shaken Europe to its core.
"EuroSummit has unanimously reached agreement," tweeted Donald Tusk, president of the European Council and summit chairman.
Leaders of the 19 nations that use the euro hammered out the agreement at a marathon overnight meeting in Brussels, after weeks of frantic diplomacy sparked by Greece walking away from a previous bailout program.
That decision left it without the cash to make a payment to the International Monetary Fund, triggered the closure of its banks, and sent Greek economy into free fall.
Fast running out of money, Greece faced an awful choice: Accept the conditions demanded by the only people willing to lend it money, or crash out of the euro.
Speculation about the currency should now fade, but it's not clear how soon the money the country desperately needs will flow, and when its banks will reopen.
The agreement means the Greek government must go way beyond a reform proposal it submitted last week, by making much more profound changes to pensions, energy, labor and product markets, and by scaling up a program of privatization. It also has to overhaul its public administration and justice system.

full article at link

 

[Ns1]

Looks like Greece has a deal but they'll be turning over a lot of control.

full article at link

sounds like that referendum went well

 

[AtenRa]

They got what they asked about reforms, which frankly we would had to make them after all.
We got what we were asking all along, that we also need to grow the economy after all those years taking only austerity measures.

Im more interesting now to see how the World stock exchanges will react now that there is no Grexit in the vocabulary.

 

[CPA]

They got what they asked about reforms, which frankly we would had to make them after all.
We got what we were asking all along, that we also need to grow the economy after all those years taking only austerity measures.

Im more interesting now to see how the World stock exchanges will react now that there is no Grexit in the vocabulary.

So, what's the public's reaction to this - particularly the part about the pension changes?

 

[mrmt]

The Euro, like the dollar, is already fiat currency. Did the dollar crash in value when the FRB bought up a mountain of shitty mortgage bonds, restored liquidity to the banking system?

And if Greeks are guilty, are not the creators of Greek debt equally as guilty, perhaps more so?

All current currencies are fiat currencies, but one thing is to have the Fed or the ECB taking care of it, another thing is the Venezuelan central bank doing it. Allowing all the Europeans countries to write down debt via fiat money would destroy the currency and the bonds credibility.

How far can we depersonalize this in order to put the welfare of a few thousand bankers ahead of the welfare of millions of Greeks & others in similar straits?

The major banks in the EU won't fare nearly as well hence the entire reason for the bailouts. You honestly don't think they are just trying to be nice do you?

That ship has sailed, as the banks were already bailed out and nobody with a bit of sanity on his head has exposure to Greece. Even commercial companies are cutting exposure to Greece.

I think the main objective today is how to not make Greece an economic wasteland, worse than it already is. And unless it reforms, it won't be able to get out of this hole.

Let's see how things fare from here. The deal that passed was so draconian and stringent that either things move forward and Greece starts to behave like a normal country or they will balk and will try a different path, akin to countries like Argentina or Venezuela.

 

[Hugo Drax]

Anyone with money in a Greek bank will now take the opportunity to move it to another eu country.

Greece will be back. Like Arnold Schwarzenegger.

 

[mrmt]

Anyone with money in a Greek bank will now take the opportunity to move it to another eu country.

Greece will be back. Like Arnold Schwarzenegger.

I don't think the government will be able to lift the capital controls for a very, very long time.

 

[werepossum]

They got what they asked about reforms, which frankly we would had to make them after all.
We got what we were asking all along, that we also need to grow the economy after all those years taking only austerity measures.

Im more interesting now to see how the World stock exchanges will react now that there is no Grexit in the vocabulary.

Congrats. I don't know about long term, but short term this averts disaster.

 

[Jhhnn]

All current currencies are fiat currencies, but one thing is to have the Fed or the ECB taking care of it, another thing is the Venezuelan central bank doing it. Allowing all the Europeans countries to write down debt via fiat money would destroy the currency and the bonds credibility.

Mere repetition of a point already countered. If TARP didn't destroy the dollar then why would bailing out Euro banks destroy the Euro?

That ship has sailed, as the banks were already bailed out and nobody with a bit of sanity on his head has exposure to Greece. Even commercial companies are cutting exposure to Greece.

Well, somebody is exposed, given that German bankers are still trying to force payment.

I think the main objective today is how to not make Greece an economic wasteland, worse than it already is. And unless it reforms, it won't be able to get out of this hole.

Let's see how things fare from here. The deal that passed was so draconian and stringent that either things move forward and Greece starts to behave like a normal country or they will balk and will try a different path, akin to countries like Argentina or Venezuela.

The main objective of the Troika is *obviously* to make Greece an economic wasteland & keep it that way for many years to come. In that, they've controlled the message extremely well, creating a conventional wisdom that you accept & isn't wise at all.

 

[mrmt]

Mere repetition of a point already countered. If TARP didn't destroy the dollar then why would bailing out Euro banks destroy the Euro?

TARP is too small in comparison to what a write down of the PIIGS debt would be in comparison. Or do you think you can fiat money without bringing inflation forever?

Well, somebody is exposed, given that German bankers are still trying to force payment.

German bankers couldn't care less about Greece. In fact, I think they would be quite happy with a Grexit. It is the German taxpayers on the hook now.

The main objective of the Troika is *obviously* to make Greece an economic wasteland & keep it that way for many years to come. In that, they've controlled the message extremely well, creating a conventional wisdom that you accept & isn't wise at all.

Greece's problem isn't debt. It's a very inefficient economy, without any globalycompetitive sectors, a byzantine judicial system, disfunctional state bureaucracy, unskilled workforce, over-regulated labor market and way too generous pension system. Do you think Greek economy would blossom after a debt write down when they have that kind of structural problems?

 

[werepossum]

Mere repetition of a point already countered. If TARP didn't destroy the dollar then why would bailing out Euro banks destroy the Euro?

Well, somebody is exposed, given that German bankers are still trying to force payment.

The main objective of the Troika is *obviously* to make Greece an economic wasteland & keep it that way for many years to come. In that, they've controlled the message extremely well, creating a conventional wisdom that you accept & isn't wise at all.

Nobody gives a fuck about making Greece an economic wasteland. It's 11 million people for fuck's sake - that's less than the population of Paris alone. What they care about is making Greece self-sustaining, so that they can get at least some of their money back rather than accepting that Greece will be eternally on the dole. Greece as an economic wasteland would be a continual drain on Europe's resources; Greece as a self-sustaining, economically healthy democracy strengthens Europe and therefore Western civilization.

Anyone who doesn't support this deal is a moron. It not only provides for the tough, painful changes and yes, austerity that Greece needs to remain a modern nation, it also recognizes that without being bled dry in the short run, Greece can rebuild its economy to repay more in the long run, whereas if forced to meet its obligations short term Greece cannot rebuild for the long term and will only service the debt interest until the Greeks revolt and say no more, breaking from Western Europe into communism or life as a Russian colony. Assuming that Greece adheres to the plan and it is successful, this is as good as it is possibly going to get for everyone concerned. There was no more money for Greece to borrow without showing some way it could be paid back, and there was no magic wand Greece could wave to meet its obligations. This is what win-win looks like.

 

[AtenRa]

Congrats. I don't know about long term, but short term this averts disaster.

People in Greece will not see any good coming from those measures in the short term, those measures will take the economy in to a growth trajectory but it will take a few years to feel the change.
The main thing changed that will have an immediately affect is the end of a Grexit threat that had a tremendous negative effect in the economy. Now that the markets (esoteric and foreign) dont get bombarded with a Grexit threat and the field is stable to do business again, the economy will start to move.
The biggest problem so far was the uncertainty, once that is eliminated we can start to build once again. But, lets hope those measures will not only have an austerity effect the next two-three years and that growth measures will have a real affect in the economy, otherwise we will be in the same situation as before.

 

[glenn1]

People in Greece will not see any good coming from those measures in the short term, those measures will take the economy in to a growth trajectory but it will take a few years to feel the change.
The main thing changed that will have an immediately affect is the end of a Grexit threat that had a tremendous negative effect in the economy. Now that the markets (esoteric and foreign) dont get bombarded with a Grexit threat and the field is stable to do business again, the economy will start to move.
The biggest problem so far was the uncertainty, once that is eliminated we can start to build once again. But, lets hope those measures will not only have an austerity effect the next two-three years and that growth measures will have a real affect in the economy, otherwise we will be in the same situation as before.

Maybe you should use this as an opportunity to fix the numerous structural problems with your economy before dreaming of a couple years ahead to your next blowout spending orgy that puts you right back into the situation you find yourself in today.

 

[werepossum]

People in Greece will not see any good coming from those measures in the short term, those measures will take the economy in to a growth trajectory but it will take a few years to feel the change.
The main thing changed that will have an immediately affect is the end of a Grexit threat that had a tremendous negative effect in the economy. Now that the markets (esoteric and foreign) dont get bombarded with a Grexit threat and the field is stable to do business again, the economy will start to move.
The biggest problem so far was the uncertainty, once that is eliminated we can start to build once again. But, lets hope those measures will not only have an austerity effect the next two-three years and that growth measures will have a real affect in the economy, otherwise we will be in the same situation as before.

Agreed. It's going to be a balancing act, no doubt - convincing the Greeks that the pain is short term and worth it, convincing the rest of Europe's leaders that Greece is making the changes necessary, convincing the rest of Europe's people that they are better off allowing Greece to heal than to insist on interest-only payments on the agreed-upon schedules. But I'm optimistic that it can work. This deal (from what I've read anyway, which is limited) seems to be the best obtainable for everyone.

I'm very hardline on paying one's debts and honoring one's commitments, but one also has to be realistic. At some point, one has to admit that one's brother-in-law is never going to repay everything you've loaned him, but that doesn't mean you can't get him back on his feet again, as long as he's honestly on board with the plan. Within the European family, this is the equivalent of accepting that insisting on interest payments which prevent the brother-in-law from buying a car to get to work just hurts everyone.

 

[werepossum]

Maybe you should use this as an opportunity to fix the numerous structural problems with your economy before dreaming of a couple years ahead to your next blowout spending orgy that puts you right back into the situation you find yourself in today.

The money is tightly controlled by the EU and is contingent on Greece fixing its structural problems on schedule. I believe his point was that assuming these structural problems are fixed, it still does little good (for Greece) if the spending saved is immediately sucked out of the Greek economy into interest-only payments, because that leaves no wealth to grow the economy and dooms Greece to making interest-only payments forever, until they revolt. If instead that extra wealth is allowed to stay in the Greek economy for a few years AND if the Greek government can resist seizing it and plowing it right back into the public sector, then Greece's private sector will be generating more wealth, making them able to pay back more and convincing the Greeks that the pain of living within their means is worth it.

 

[glenn1]

The money is tightly controlled by the EU and is contingent on Greece fixing its structural problems on schedule. I believe his point was that assuming these structural problems are fixed, it still does little good (for Greece) if the spending saved is immediately sucked out of the Greek economy into interest-only payments, because that leaves no wealth to grow the economy and dooms Greece to making interest-only payments forever, until they revolt. If instead that extra wealth is allowed to stay in the Greek economy for a few years AND if the Greek government can resist seizing it and plowing it right back into the public sector, then Greece's private sector will be generating more wealth, making them able to pay back more and convincing the Greeks that the pain of living within their means is worth it.

Well put.