Greece about to default

[theeedude]

/this

they have been bailed OUT TWICE. and yet refuse to do what they need to. they want to continue to live high on the hog.

now they have no choice but to face it now.

well unless they get bailed out yet agian. i think that will be a mistake.

http://www.bbc.com/news/world-europe-33382046

Monthly pensions have gone down to an average of €833 ($924; £594) from an average of €1,350 in 2009, according to INE-GSEE, the institute behind Greece's biggest union.

Yes, still living high on the hog with their 40% pension cuts

 

[norseamd]

Despite much evidence to the contrary many keep revisiting this discussion to yell the dogmatic bullshit that they know to bandwagon from the broadcast news.

 

[norseamd]

And it is clear as such that the developed and educated countries of smart unignorant folk who love the free world are not the type that would be swindled by these poor lazy dirty riff raff.

https://www.youtube.com/watch?v=Vx-1LQu6mAE

 

[Charmonium]

Why are those economies struggling? Could it be that maybe their bailouts should be negotiated?
Is fiscal austerity during 22% unemployment, in case of Spain, a good idea?
Has it been effective in reducing debt to GDP ratio and improving debt sustainability?

I don't know enough about what's going on in the EU to have any firm opinions but having said that, the impression I get is that while austerity measures have created problems in some of the peripheral countries, the yield required by investors on their bonds have dropped substantially.

For example, look at the Spanish 10 year bond. It's dropped from nearly 7% a few years ago to as low as 1% in April. It's only been since the Greek crisis has started getting real that rates have risen and they're still only just over 2%

So overall, their debt service has been declining. And you can see the same thing for the Italian 10yr.

Has it been worth the trade off? IDK. In the short run austerity measures can hurt or cripple an economy. But if it serves to bolster investor confidence, maybe it's worth it in the longer run.

The problem with Greece affecting places like Spain and Italy is that those countries owe a lot more money. While Greece "only" owes about €350B, Italy owes nearly 3T and Spain over 1T. So if the ECB were to just start printing Euros to cover these debts, the value would probably drop considerably.

 

[highland145]

/this

they have been bailed OUT TWICE. and yet refuse to do what they need to. they want to continue to live high on the hog.

now they have no choice but to face it now.

well unless they get bailed out yet agian. i think that will be a mistake.

I keep lending my charge offs. It's good for business, right? I can take it off of my taxes so I must be golden.

Ship them a few metric tons of peanut butter and ramen.

 

[LegendKiller]

http://www.bbc.com/news/world-europe-33382046



Yes, still living high on the hog with their 40% pension cuts

Can they afford the pensions?

No.

 

[theeedude]

I don't know enough about what's going on in the EU to have any firm opinions but having said that, the impression I get is that while austerity measures have created problems in some of the peripheral countries, the yield required by investors on their bonds have dropped substantially.

For example, look at the Spanish 10 year bond. It's dropped from nearly 7% a few years ago to as low as 1% in April. It's only been since the Greek crisis has started getting real that rates have risen and they're still only just over 2%

So overall, their debt service has been declining. And you can see the same thing for the Italian 10yr.

Has it been worth the trade off? IDK. In the short run austerity measures can hurt or cripple an economy. But if it serves to bolster investor confidence, maybe it's worth it in the longer run.

The problem with Greece affecting places like Spain and Italy is that those countries owe a lot more money. While Greece "only" owes about €350B, Italy owes nearly 3T and Spain over 1T. So if the ECB were to just start printing Euros to cover these debts, the value would probably drop considerably.

There is so much central bank meddling in sovereign bond markets through implicit guarantees and direct bond buying that the interest rates can't be used as a reliable measure of actual private investor confidence in those countries.
Do you think Spain with 22% unemployment and no control over its own currency carries identical risk premium to US treasuries. No actual private investor I know does.

 

[Charmonium]

There is so much central bank meddling in sovereign bond markets through implicit guarantees and direct bond buying that the interest rates can't be used as a reliable measure of actual private investor confidence in those countries.
Do you think Spain with 22% unemployment and no control over its own currency carries identical risk premium to US treasuries. No actual private investor I know does.

That's a valid point. But somebody has to buy new issues and the yield is determined by the market. Maybe the reason for the low yield is central bank buying. That's what happened in the US. But if people aren't reasonably assured of getting their money back, no one is going to make that initial purchase. There's no point to doing it if you're just going to turn around and resell the bonds to the ECB.

Also, I would argue that the main reasons for the drop in yields - from almost 7% down to 1% had more to do with increased confidence in the underlying economies than ECB buying.

Here's an example from a year ago

“There’s been some better news from the euro zone and some of the PMIs were better,” said John Wraith, a fixed-income strategist at Bank of America Corp. in London. “There’s still not a great deal to shout about but the peripheral economies have still managed to turn a corner. People are still viewing yields even at these historically compressed levels as offering some value.”

.
.
.
Spanish and Italian 10-year borrowing costs have both dropped below 4 percent this year for the first time since 2010 with investors emboldened by what ECB President Mario Draghi said last month was “remarkable progress in gaining competitiveness.” Portuguese and Greek bond rates have also declined as the nations move toward exiting bailout programs introduced at the height of the regions’ debt crisis.

 

[theeedude]

That's a valid point. But somebody has to buy new issues and the yield is determined by the market. Maybe the reason for the low yield is central bank buying. That's what happened in the US. But if people aren't reasonably assured of getting their money back, no one is going to make that initial purchase. There's no point to doing it if you're just going to turn around and resell the bonds to the ECB.

Also, I would argue that the main reasons for the drop in yields - from almost 7% down to 1% had more to do with increased confidence in the underlying economies than ECB buying.

Here's an example from a year ago

Portuguese and Greek bond rates have also declined as the nations move toward exiting bailout programs

LOL, Greece sure is moving toward exiting those programs

 

[Charmonium]

LOL, Greece sure is moving toward exiting those programs

Yeah, I'm not sure what happened there. People were pretty optimistic about Greece last year despite all of the turmoil. And I don't think you can just blame it on Syriza. I do remember hearing a few commentators saying that Greece was kicking the can down the road but they didn't seem to be in the majority. Guess they were right though.

 

[Greenman]

http://www.bbc.com/news/world-europe-33382046



Yes, still living high on the hog with their 40% pension cuts

Figures from the institute behind Greece's biggest union. I can smell the books cooking from here.

I find it interesting that you and Eskimospy are taking this almost personally.

I understand your position that stimulus spending is (in your view) the only way to save the Greek economy, but since everyone with enough money to do that flatly refuses to do so makes me think that answer is a bit simplistic. The lenders view seems to be that they've been burned twice, why go for three? I've also never seen a figure attached to the stimulus idea. Who comes up with that number, and what is the formula to arrive at it? I also don't see how that would work if the money isn't spent where it's needed. It seems like interest free loans to business would be the best way to get an economy moving, but that's a guess pulled out of my backside with no real knowledge of finance at that level.

 

[Zorkorist]

The economy will start moving again when people are asked to work, and not sit on their butts and collect money.

The work can start simple, like sweeping the streets. 8 hours of sweeping the streets, for your meager pension, and maybe you would like to find a better job.

etc., and etc., and etc.

Stop giving people free money.

-John

 

[AtenRa]

http://www.bbc.com/news/world-europe-33382046



Yes, still living high on the hog with their 40% pension cuts

Its not only that, add

1: Higher taxation than before, not only for income but for property (7x increase since 2010) etc. Also an increase in VAT from 19% to 23%
2: Higher price of goods than before, you pay more to eat less
3: Salaries cut offs in an excess of 20-30%, people is working more, earn less, pay more on taxes.
4: 25% shrinking economy, private sector earns less.

From 1+2+3+4 = We have made an inside country depreciation because the currency(Euro) could not be depreciated. Going to Drachma will not change anything now, it was something considering to do in the early stages back in 2010 but we chose to stay with the Euro back then and that is what we will continue to do now.

So the last 5 years peoples pensions where cut by 40%, salaries where cut off by 20-30%, Taxes have increased by 300%, unemployment increased to 25%+ (for ages up to 35 years old its 60% or more).

People doesnt earn the required income to live and pay its taxes anymore. And after all those years they are asking more austerity measures without a single growth measure.
Well thats not going to happen, we want to pay our taxes, we want to pay back what we borrowed, but with all those austerity measures it is impossible to do it.

What we are asking now is to keep all those austerity measures, not issue new ones but lets try and increase the economy and thus increase the tax income and thus repay what we own.

ps: And just to point, those 200B for the bailout were never reached Greek homes, they were moved to the banks. Since then not even 10B were thrown in to the economy to stimulate growth.

 

[rumpleforeskin]

http://www.bbc.com/news/world-europe-33382046



Yes, still living high on the hog with their 40% pension cuts

With the 40% cut the average Greek state pension is reduced to £594/month which is still higher than the UK state pension of £502.45/month
https://www.gov.uk/state-pension/what-youll-get

 

[fskimospy]

With the 40% cut the average Greek state pension is reduced to £594/month which is still higher than the UK state pension of £502.45/month
https://www.gov.uk/state-pension/what-youll-get

I don't know a ton about those programs but I think you're trying to compare the UK's equivalent of social security with a pension that comes from an employer retirement plan. Not the same thing.

 

[PingviN]

I don't know a ton about those programs but I think you're trying to compare the UK's equivalent of social security with a pension that comes from an employer retirement plan. Not the same thing.

The Greek government isn't cutting employers pension programmes, but the state-financed one. It's very much comparable to state pensions of other European countries. I haven't looked at other social security measures, but Greece's pensions are in no way too low. If anything, they're still too high since they can't finance their pension system.

 

[fskimospy]

The Greek government isn't cutting employers pension programmes, but the state-financed one. It's very much comparable to state pensions of other European countries. I haven't looked at other social security measures, but Greece's pensions are in no way too low. If anything, they're still too high since they can't finance their pension system.

I wasn't saying they weren't too high relative to what they can afford, I just wasn't sure it was an apples to apples comparison. (I'm pretty sure it isn't.) Greece spends quite a bit less per retiree than lots of other countries in the euro zone.

Again, if they are too poor to afford it that's a problem regardless, but that's a different thing.

 

[theeedude]

With the 40% cut the average Greek state pension is reduced to £594/month which is still higher than the UK state pension of £502.45/month
https://www.gov.uk/state-pension/what-youll-get

https://www.gov.uk/additional-state-pension/what-youll-get

2. What you'll get

There is no fixed amount for the Additional State Pension.

How much you get depends on:

how many years of National Insurance contributions you have
your earnings
whether you’ve contracted out of the scheme

Looks like there is a basic part and an additional part to it depending on the person.

 

[PingviN]

I wasn't saying they weren't too high relative to what they can afford, I just wasn't sure it was an apples to apples comparison. (I'm pretty sure it isn't.) Greece spends quite a bit less per retiree than lots of other countries in the euro zone.

Again, if they are too poor to afford it that's a problem regardless, but that's a different thing.

Greece isn't far from the eurozone average in per-person spending. And they're at the very top of pension spending in relation to GDP.

The population is ageing, the system has been far too generous for far too long. Other than wages and pension, there is nothing left to cut. And there needs to be more cutting. A lot more cutting.

You could (and should) increase taxes as well, but the Greek are a corrupt people, with low morals when it comes to paying taxes (simply put, Greeks are not fit for social democracy). There is no working tax collection. And there wont be a working tax collection agency for years and years.

The public sector needs to be cut and cut again. 75% of Greece primary spending is on wages and pensions.


But, too be fair, Greek sucks in pretty much every single way. It has a massive export deficit. What's worse is Greece has no raw material production. It exports oil products, but has to buy crude oil to create value. Leaving the Euro (or getting kicked the fck out) would massively increase the purchase price of raw materials. And food. And everything else too, as everything is being imported.

Stay in the Euro and cut whatever you can to stay afloat. It's going to be a pain either way. The fact the the Greek population hasn't grasped the magnitude of the poop-slide coming if they don't get their house in order is horrifying.

 

[theeedude]

You can't cut your way out of a depression. When will austerians learn this? 5 years of Greece is not enough?

 

[fskimospy]

Greece isn't far from the eurozone average in per-person spending. And they're at the very top of pension spending in relation to GDP.

The population is ageing, the system has been far too generous for far too long. Other than wages and pension, there is nothing left to cut. And there needs to be more cutting. A lot more cutting.

Here's the per-retiree spending:

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)

You could (and should) increase taxes as well, but the Greek are a corrupt people, with low morals when it comes to paying taxes (simply put, Greeks are not fit for social democracy). There is no working tax collection. And there wont be a working tax collection agency for years and years.

The public sector needs to be cut and cut again. 75% of Greece primary spending is on wages and pensions.

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.

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.

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?

But, too be fair, Greek sucks in pretty much every single way. It has a massive export deficit. What's worse is Greece has no raw material production. It exports oil products, but has to buy crude oil to create value. Leaving the Euro (or getting kicked the fck out) would massively increase the purchase price of raw materials. And food. And everything else too, as everything is being imported.

Stay in the Euro and cut whatever you can to stay afloat. It's going to be a pain either way. The fact the the Greek population hasn't grasped the magnitude of the poop-slide coming if they don't get their house in order is horrifying.

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.

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.

 

[Exterous]

Its not only that, add

1: Higher taxation than before, not only for income but for property (7x increase since 2010) etc. Also an increase in VAT from 19% to 23%

There seems to be an incredible amount of evidence that many Greeks aren't paying taxes so I am not sure if this really counts.

http://www.wsj.com/articles/greece-struggles-to-get-citizens-to-pay-their-taxes-1424867495

As for reported income - if the numbers are correct then many Greeks pay more than they make in a year to offset their consumer debts:

Take the examples of lawyers, doctors, financial services, and accountants. In all of these occupations, the self-employed are paying over 100% of their reported income flows to debt servicing on consumer loans

You read that right: More than 100% of the self-reported income of Greece's professional classes is going toward paying off consumer debts. Not, we suspect, because they have massive unbearable repayments to make, but because they're colossally underreporting their income.

http://www.businessinsider.com/this-is-the-real-reason-greece-has-a-massive-tax-evasion-problem-2015-2

The problem is that it’s still too easy for contractors, people in the professions and some big companies not to declare all or part of their earnings.”

He claims the state misses out on between €10bn and €20bn in revenue. Direct and indirect taxation should bring in an average of €50bn a year.

“Even with a low estimate of the amount lost – say €5bn a year – you can see that if we’d been able to collect €5bn more over the past 12 years, that would make €60bn. In other words there would be no debt problem,” says Tryfon Alexiadis, deputy head of the tax collectors’ union, close to Tsipras’s Syriza party.

http://www.theguardian.com/world/2015/feb/24/greece-collecting-revenue-tax-evasion

Greece has a serious problem with tax evasion. Government data suggest tax arrears totaled more than 70 billion euros at the end of 2014.
In January alone, the government's tax revenues fell almost one billion euros below target. Many Greeks held off paying, hoping the new government would scrap many unpopular taxes and wipe out some arrears.

http://money.cnn.com/2015/03/09/news/economy/greece-tourists-tax-inspectors/?iid=EL

Even in the current climate of economic reform overtaking Athens, tax evasion rates remain startlingly high in Greece, with an estimated one in four economic transactions going unrecorded. In fact, a recent report conducted by Stephen Hall, an adviser to the Bank of Greece, finds that two out of three Greek employees are declaring figures less than their actual incomes – and, in some instances, aren’t declaring anything at all.

http://greece.greekreporter.com/2014/10/12/two-out-of-three-greeks-commits-tax-evasion/

 

[theeedude]

Export dominated China pegs its currency to the US dollar by lending money to the US (buying US denominated obligations), so do Japan and Korea. Pegs cost money to the country pegging their currency down.
Germany wants all the export benefits of a currency peg without paying for them.
Initially it was good marketing of Euro dream that kept the rest of Europe going along, now that dream has turned into nightmare, and Germany has nothing left but threatening the others by making an example of Greece.

 

[fskimospy]

There seems to be an incredible amount of evidence that many Greeks aren't paying taxes so I am not sure if this really counts.

http://www.wsj.com/articles/greece-struggles-to-get-citizens-to-pay-their-taxes-1424867495

As for reported income - if the numbers are correct then many Greeks pay more than they make in a year to offset their consumer debts:



http://www.businessinsider.com/this-is-the-real-reason-greece-has-a-massive-tax-evasion-problem-2015-2



http://www.theguardian.com/world/2015/feb/24/greece-collecting-revenue-tax-evasion

http://money.cnn.com/2015/03/09/news/economy/greece-tourists-tax-inspectors/?iid=EL

http://greece.greekreporter.com/2014/10/12/two-out-of-three-greeks-commits-tax-evasion/

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

 

[werepossum]

Of course let's remember its not just the Germans who are holding firm. Other poorer EU nations (which have made deeper cuts and have stuck to their limited spending obligations for their bailout requirements) also have not shown any sympathy toward Greece. So, while it's nice to paint a narrative of "Wealthy Germans screwing over poor little Greeks" the truth of the matter is other poorer EU nations (Bulgaria, Latvia, Lithuania, Croatia, etc who have their representatives attending these talks) are also not happy with Greece. In their view they too are not willing to shoulder the burden of paying for Greece to maintain its status quo toward what they view as "Lavish" Greek pensions in relation to what their citizens are receiving. However, I take Greece's attempt to re-frame the debt solely around Germany and to ignore all other parties involved as a way to try to split public opinion but the truth of the matter is the situation is different in terms of who exactly supports Greece vs who does not in the EU. Of which it is this difference/disconnect that has turned Greece and its government (along with its former finance minister) into pariahs with the bulk of EU creditors and finance negotiators.

Yep, and that's a good point.

/this

they have been bailed OUT TWICE. and yet refuse to do what they need to. they want to continue to live high on the hog.

now they have no choice but to face it now.

well unless they get bailed out yet again. i think that will be a mistake.

Greece is now publicly negotiating with Putin in an attempt to pressure the EU into supporting their welfare ride. I do not think this is going to happen. I think instead Tsipras is going to find himself riding a dragon of his own making as Greece is increasingly isolated from its own neighbors.

Here's the per-retiree spending:

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)

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.

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.

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?



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.

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.

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