Greek Debt Crisis Deal Is Reached, but Long Road Remains(nytimes.com)
nytimes.com
Greek Debt Crisis Deal Is Reached, but Long Road Remains
http://www.nytimes.com/2015/07/14/world/europe/greece-debt-plan.html?_r=0
10 comments
It isn't that black and white.
While exiting might be good in the long run, you make it sound like it will be all right. If they exit, Greece will suffer worst and will need humanitarian help to save it's citizens.
Remember, Argentina still can't raise capital from market even after more than a decade.
While exiting might be good in the long run, you make it sound like it will be all right. If they exit, Greece will suffer worst and will need humanitarian help to save it's citizens.
Remember, Argentina still can't raise capital from market even after more than a decade.
> Remember, Argentina still can't raise capital from market even after more than a decade.
Argentina was quite capable of doing that just right before their legal case with a few predatory holdouts made life for the government difficult again.
To be fair, it was an incredibly mismanaged trial (both by the defending lawyers and Cristina's insane and confusing statements), and the holdouts in question are essentially the scum of planet Earth, purposely speculating on junk bonds and always going to trial for profit.
Despite that, both national and local governments have been raising capital to the tune of several billion dollars. Of course, the interest rate is insane, but that's more of a question of the government's disastrous capital control policies; serious private investors were not convinced that the default over the holdouts' bonds is too relevant.
Argentina was quite capable of doing that just right before their legal case with a few predatory holdouts made life for the government difficult again.
To be fair, it was an incredibly mismanaged trial (both by the defending lawyers and Cristina's insane and confusing statements), and the holdouts in question are essentially the scum of planet Earth, purposely speculating on junk bonds and always going to trial for profit.
Despite that, both national and local governments have been raising capital to the tune of several billion dollars. Of course, the interest rate is insane, but that's more of a question of the government's disastrous capital control policies; serious private investors were not convinced that the default over the holdouts' bonds is too relevant.
You've been drinking a lot of cool aid, it seems. This is a popular propanda statement on a lot of TVs in the region.
The greek governments and people had many, many years to reform and they simply refused. They have jaw dropping social spending and corruption. They elected a populist party and voted OXI to the last proposal, which was better than this one.
Also, Argentina is in a terrible situation, don't know why you even bring it up. Probably more kool aid you drank from some politician you saw on TV.
The greek governments and people had many, many years to reform and they simply refused. They have jaw dropping social spending and corruption. They elected a populist party and voted OXI to the last proposal, which was better than this one.
Also, Argentina is in a terrible situation, don't know why you even bring it up. Probably more kool aid you drank from some politician you saw on TV.
You're both talking past each other by adopting extreme positions and making sweeping moral judgments about entire nations.
My issue with this new bailout is that it presents yet more debt as the solution to crushing debts which Greece can't even afford the interest payments on.
As the IMF admitted, it's not a sustainable solution, the many politicians and reporters talking about it probably know this but they just don't care because they can more easily sell a simple morality tale about Greek profligacy or German imperialism to their constituents.
My issue with this new bailout is that it presents yet more debt as the solution to crushing debts which Greece can't even afford the interest payments on.
As the IMF admitted, it's not a sustainable solution, the many politicians and reporters talking about it probably know this but they just don't care because they can more easily sell a simple morality tale about Greek profligacy or German imperialism to their constituents.
Right. And I don't think there is any good path forward. Greece has essentially gone up a box canyon.
What annoys me about the IMF is, where the hell were they with these observations and recommendation about debt even one month ago when everything was actually working? Where were they six months ago? The debt load being untenable is not news for everyone else.
Apparently the EU has a law that makes actual debt forgiveness illegal, all that can be done is extend it or reduce the interest rate. Neither of these approximates what the IMF would recommend, has recommended, to any other country with their own currency rather than being part of a currency union: monetize the debt through inflation.
I can understand the German affinity for rules and policy adherence over politics. But self evidently the Greeks are not Germans, and do not share this preference. So how does the EU system afford a compromise that at worst means both sides are equally unhappy? Because right now, basically Germany and the creditors are getting their way to the expense of Greece.
Europe is clearly not willing to either bail out Greece (or Portugal, or Italy), nor long term subsidize their economies like what happens in the U.S. It's not willing or able to setup an EU wide tax structure that's EU administered and audited to both make compliance easy, as well as consistently punishing tax evasion across all socio-economic levels.
None of the major problems have been addressed: Greece's debt load is unchanged, as well as its affinity for patronage and tax evasion.
What annoys me about the IMF is, where the hell were they with these observations and recommendation about debt even one month ago when everything was actually working? Where were they six months ago? The debt load being untenable is not news for everyone else.
Apparently the EU has a law that makes actual debt forgiveness illegal, all that can be done is extend it or reduce the interest rate. Neither of these approximates what the IMF would recommend, has recommended, to any other country with their own currency rather than being part of a currency union: monetize the debt through inflation.
I can understand the German affinity for rules and policy adherence over politics. But self evidently the Greeks are not Germans, and do not share this preference. So how does the EU system afford a compromise that at worst means both sides are equally unhappy? Because right now, basically Germany and the creditors are getting their way to the expense of Greece.
Europe is clearly not willing to either bail out Greece (or Portugal, or Italy), nor long term subsidize their economies like what happens in the U.S. It's not willing or able to setup an EU wide tax structure that's EU administered and audited to both make compliance easy, as well as consistently punishing tax evasion across all socio-economic levels.
None of the major problems have been addressed: Greece's debt load is unchanged, as well as its affinity for patronage and tax evasion.
> None of the major problems have been addressed: Greece's debt load is unchanged, as well as its affinity for patronage and tax evasion.
The current ultimatum is very much about addressing those problems.
The current ultimatum is very much about addressing those problems.
How is adding more debt designed to address the debt load problem? Is Greece getting a sizable interest-free repayment holiday?
Yes. And they have been enjoying one for several years now.
I agree that more debt is disconcerting. But the alternative of going "cold turkey" would result in a humanitarian crisis. This is a country which imports most of its food, energy and medicine. The banks are bust and the government doesn't have the money to pay next month's public sector salaries.
To actually exit the vicious downward spiral, they need significant debt forgiveness (yes more), as Germany received after WWII, as well as stuctural reform of course, but one without the other will disappoint both creditors and the Greek people.
The funniest thing about this whole manufactured crisis is that the ECB is printing 1 trillion euros via QE at the moment to buy gov bonds and nationalised industry bonds, which completely dwarfs the sums for Greece and is essentially doing the same thing - buying government debt and making all EZ citizens slightly poorer in order to allow counter-cyclical investment.
http://www.bloombergview.com/quicktake/europes-qe-quandary
The funniest thing about this whole manufactured crisis is that the ECB is printing 1 trillion euros via QE at the moment to buy gov bonds and nationalised industry bonds, which completely dwarfs the sums for Greece and is essentially doing the same thing - buying government debt and making all EZ citizens slightly poorer in order to allow counter-cyclical investment.
http://www.bloombergview.com/quicktake/europes-qe-quandary
This is not a matter of black and white. One side is grey and the other is pitch black. A black hole sucking money. I'm sorry, but they have been paying themselves pensions, child support, 13th, 14th and 15th salaries + other bonuses for national holidays for decades, with money they don't have. Time to pay up. That's how it goes. If they have to pay with tears, I'm truly sorry for the situation, but the party is over.
I think you make some good points, but unfortunately your first paragraph and last sentence destroy the value of your comment.
This is my thought as well.
Countries which recognised the problem and took charge of it are doing good now, eg Ireland.
Greek politics looks quite bad. They need a market friendly government who can indeed do reforms. Sadly, left parties have the majority.
Only way forward I guess is to force reform down their throat by IMF/EU first and then hope they realize it then continue it. That's what happened in India in 1991 https://en.wikipedia.org/wiki/Economic_liberalisation_in_Ind...
Countries which recognised the problem and took charge of it are doing good now, eg Ireland.
Greek politics looks quite bad. They need a market friendly government who can indeed do reforms. Sadly, left parties have the majority.
Only way forward I guess is to force reform down their throat by IMF/EU first and then hope they realize it then continue it. That's what happened in India in 1991 https://en.wikipedia.org/wiki/Economic_liberalisation_in_Ind...
I'll leave aside the ad hominems, and address the core of your arguments.
From what I've read there appears to be consensus across the board that the Greeks approach to taxation is currently too complex, and reform of this tax system would be sensible.
With that said, there's a fundamental misunderstanding of what's happening with these loans. Read this...
http://jubileedebt.org.uk/reports-briefings/briefing/six-key...
"When the IMF, European and ECB bailouts began in 2010, €310 billion had been lent to the Greek government by reckless banks and the wider European financial sector. Since then, the ‘Troika’ of the IMF, EU and European Central Bank have lent €252 billion to the Greek government.[1] Of this, €34.5 billion of the bailout money was used to pay for various ‘sweeteners’ to get the private sector to accept the 2012 debt restructuring. €48.2 billion was used to bailout Greek banks following the restructuring, which did not discriminate between Greek and foreign private lenders. €149.2 billion has been spent on paying the original debts and interest from reckless lenders. This means less than 10% of the money has reached the people of Greece."
Furthermore, there's a common misconception that the Greeks are lazy, but the statistics show that they have the longest average working hours in Europe, and their average retirement age is not that different from the rest of Europe.
As for Argentina, yes they're not out of the woods yet, but since their economic crash they've had impressive growth. IIRC it's been the fastest growing economy in South America recently, I'm sure I could find the stats if you disputed this.
So, with all this in mind, why do you think more loans is the answer?
From what I've read there appears to be consensus across the board that the Greeks approach to taxation is currently too complex, and reform of this tax system would be sensible.
With that said, there's a fundamental misunderstanding of what's happening with these loans. Read this...
http://jubileedebt.org.uk/reports-briefings/briefing/six-key...
"When the IMF, European and ECB bailouts began in 2010, €310 billion had been lent to the Greek government by reckless banks and the wider European financial sector. Since then, the ‘Troika’ of the IMF, EU and European Central Bank have lent €252 billion to the Greek government.[1] Of this, €34.5 billion of the bailout money was used to pay for various ‘sweeteners’ to get the private sector to accept the 2012 debt restructuring. €48.2 billion was used to bailout Greek banks following the restructuring, which did not discriminate between Greek and foreign private lenders. €149.2 billion has been spent on paying the original debts and interest from reckless lenders. This means less than 10% of the money has reached the people of Greece."
Furthermore, there's a common misconception that the Greeks are lazy, but the statistics show that they have the longest average working hours in Europe, and their average retirement age is not that different from the rest of Europe.
As for Argentina, yes they're not out of the woods yet, but since their economic crash they've had impressive growth. IIRC it's been the fastest growing economy in South America recently, I'm sure I could find the stats if you disputed this.
So, with all this in mind, why do you think more loans is the answer?
The word "lazy" is an emotional appeal. The practical issue seems to have been that Greece had, at least until recently, a very expensive retirement system, projected to dominate GDP within a few decades, and vaulting them to the top of the Eurozone prior to reforms. Not only that, but even after reforms, large numbers of people were grandfathered in to a previous scheme that allowed people working in "arduous" careers --- a list that included such dangerous careers as hairdressing --- to draw a generous (relative to the EU) minimum pension after just 10 years of experience.
It's not that people are lazy for accepting generous retirement benefits, or for retiring early. They're being entirely rational by doing that. The problem isn't the people, it's the policy.
(Most of this is from The Economist).
It's not that people are lazy for accepting generous retirement benefits, or for retiring early. They're being entirely rational by doing that. The problem isn't the people, it's the policy.
(Most of this is from The Economist).
The pension situation is interesting. First of all, let's look at the average retirement age, there's a useful graph here:
http://www.bbc.co.uk/news/world-europe-31803814
As you can see, whist the average retirement age is lower than average, they're not that different from the average. So you have the Greeks retiring at 57.8 and the British retiring at 58.3, not that different.
Secondly, talking about the average Greek pension payment is €713, and 45% of Greek pensioners live below the poverty line. http://www.theguardian.com/world/2015/jun/17/greece-pension-...
Lastly, costs of pensions is an issue for many countries, as we all live longer (on average). The most straightforward solution is to raise the retirement age, and I fully expect that to happen in Greece.
http://www.bbc.co.uk/news/world-europe-31803814
As you can see, whist the average retirement age is lower than average, they're not that different from the average. So you have the Greeks retiring at 57.8 and the British retiring at 58.3, not that different.
Secondly, talking about the average Greek pension payment is €713, and 45% of Greek pensioners live below the poverty line. http://www.theguardian.com/world/2015/jun/17/greece-pension-...
Lastly, costs of pensions is an issue for many countries, as we all live longer (on average). The most straightforward solution is to raise the retirement age, and I fully expect that to happen in Greece.
You can't quote the retirement age in isolation. You also have to capture the replacement rate, the percentage of the pensioners salary paid out by the plan. That rate usually changes as employers age, so that early retirees replace significantly less of their salary through pensions.
The UK, not surprisingly has apparently one of the lowest replacement rates in the world, even for people with full pensions. Greece has one of the highest, and was (at least prior to reforms, some of which may have grandfather clauses) notorious for generous replacement plans for early retirees.
Again: these aren't value judgements about Greek citizens. They're assessments of the sustainability of Greece's pension obligations. Greece spends an anomalously high percentage of its GDP on its pensions.
The UK, not surprisingly has apparently one of the lowest replacement rates in the world, even for people with full pensions. Greece has one of the highest, and was (at least prior to reforms, some of which may have grandfather clauses) notorious for generous replacement plans for early retirees.
Again: these aren't value judgements about Greek citizens. They're assessments of the sustainability of Greece's pension obligations. Greece spends an anomalously high percentage of its GDP on its pensions.
So what do you propose? How would you fix it?
As far as I can see, if you've already got nearly half of your pensioners living below the poverty line, the answer is not more cuts to their payouts. With unemployment at approximately 25% there are many people who can't save money to supplement their pension, plus right now we need Greeks to invest in their own future rather than save. The only solutions I see for the Greeks (if they stay in the Euro) are to stimulate growth and raise the retirement age. Do you agree, or do you see it differently?
As far as I can see, if you've already got nearly half of your pensioners living below the poverty line, the answer is not more cuts to their payouts. With unemployment at approximately 25% there are many people who can't save money to supplement their pension, plus right now we need Greeks to invest in their own future rather than save. The only solutions I see for the Greeks (if they stay in the Euro) are to stimulate growth and raise the retirement age. Do you agree, or do you see it differently?
Ultimately, you can only make the pension payments you can actually afford. Regardless of the standard of living of Greek pensioners, they can't make up money out of thin air to pay them. Something has to give. Usually, that means raising taxes on young workers. But in Greece's case, that's problematic for other reasons.
Sure, you can only make the pension payments you can afford, but if a high proportion of Greek pensioners are already struggling (nearly half), wouldn't it be better all round to look to other areas of the economy to find money? Furthermore, increasing the retirement age buys you time to reform the economy by temporarily slowing the number of new retirees.
Pension reform is almost inevitable, but let's not punish those who are already struggling on their current pension, let's reform it for later generations, making it clear that private savings will be an essential component of future pensions, giving those affected time to save (once the economy returns to growth).
Pension reform is almost inevitable, but let's not punish those who are already struggling on their current pension, let's reform it for later generations, making it clear that private savings will be an essential component of future pensions, giving those affected time to save (once the economy returns to growth).
> the answer is not more cuts to their payouts
Either Greece would start living within their means, or -- as the case is now -- other countries are giving money to Greece so Greece can e.g. pay pensions to their citizens.
But in the long run, they may run out of other countries willing to give them money, and then they must start living within their means.
Either Greece would start living within their means, or -- as the case is now -- other countries are giving money to Greece so Greece can e.g. pay pensions to their citizens.
But in the long run, they may run out of other countries willing to give them money, and then they must start living within their means.
Dropping the debt burden in the short term strikes me as the most effective way to give Greece the time to make those adjustments. If the interest generated on the debt was frozen and payments deferred for a few years, and no extra loans given, Greece could readjust, but with debt of approximately 150% of GDP and restrictive austerity demands made by those who hold the debt, Greece has limited opportunities to find the growth it needs to 'balance the books'. You could look at the pensions issue as an example of living beyond their means, or you could look at it as a high portion of GDP only because the growth wasn't strong enough. Focus on growth and the pension issue becomes far less significant.
Debt servive is a problem and it seems like much of Greece's debt should simply be written off, but Greece pretty consistently runs a primary deficit; even the years in which they've claimed a primary surplus, the numbers have turned out to be very sketchy.
Supposedly Greece had small signs of growth in 2014, but I'm not clear on how accurate these claims were. From what I've read the last clear signs of growth that Greece had was around 2008 (before the global economic recession), is this claim also sketchy?
Debt service is however not one of Greece's current problems, no matter what they say or think.
Can you elaborate on why you think that?
Greece has been giving enough time to reform itself. It refused to do so. You propose to give them more time? It won't change anything. Open your eyes.
Greece hasn't been given any time to effectively reform since 2010. Austerity hinders growth, and growth is the only reasonable solution (in the short term at least). With the EU demanding austerity meant Greece had little room to improve their situation. Also remember the stats I shared with you before, the vast majority of the last loan went to the banks and paying off the prior loan payments, the money available to the Greek people to grow the economy was far less. Pausing the debt burden would give time for growth that Greece hasn't had since 2010.
Not only hairdressers but also radio hosts -- microphones harbour a lot of dangerous bacteria, you see.
More Kool-Aid.
Reform is the answer. They have three days.
Reform is the answer. They have three days.
> They elected a populist party and voted OXI to the last proposal, which was better than this one.
It was nicer and softer but not better -- with this agreement, they have three days to finally, finally!, pass some much needed reforms, many of which were already promised as part of previous relief packages. If they actually do pass them, they will be much, much better off.
Shame that the "Greuhandanstalt" will be in Athens under Greek management instead of in Northern Europe under adult control. Maybe they will fix that if Greece doesn't meet the deadline and they get a chance to renegotiate.
This is what happens when you try to play chicken with a brick wall.
It was nicer and softer but not better -- with this agreement, they have three days to finally, finally!, pass some much needed reforms, many of which were already promised as part of previous relief packages. If they actually do pass them, they will be much, much better off.
Shame that the "Greuhandanstalt" will be in Athens under Greek management instead of in Northern Europe under adult control. Maybe they will fix that if Greece doesn't meet the deadline and they get a chance to renegotiate.
This is what happens when you try to play chicken with a brick wall.
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The debt is already beyond what Greece can pay, unemployment is very high, and yet the plan is to combine more debt and more austerity.
These are the bad news. The good news is that now Greece will participate in ECB's QE program that will relief some of the debt burden and is also promised a 35bn five-year program to finance growth, as part of Juncker's 315bn investment plan. [1]
All things considered this isn't a bad deal after all, if we could leave aside all the unpleasantness and the bad blood of the negotiation process.
As a Greek I'm happy we avoided bankruptcy because exiting the Eurozone would bring us back to the stone age. And of course if we haven't been fooling around for five months we could probably get a much better deal.
[1] http://www.euractiv.com/sections/eu-priorities-2020/junckers...
These are the bad news. The good news is that now Greece will participate in ECB's QE program that will relief some of the debt burden and is also promised a 35bn five-year program to finance growth, as part of Juncker's 315bn investment plan. [1]
All things considered this isn't a bad deal after all, if we could leave aside all the unpleasantness and the bad blood of the negotiation process.
As a Greek I'm happy we avoided bankruptcy because exiting the Eurozone would bring us back to the stone age. And of course if we haven't been fooling around for five months we could probably get a much better deal.
[1] http://www.euractiv.com/sections/eu-priorities-2020/junckers...
I'm so happy to hear someone from Greece say that. I think the alternatives were all worse and this is the best of a lot of bad options.
Reading the details of Juncker's €315bn investment, it just sounds like a new loan package, what makes this particular loan package good for economic growth?
Because it goes directly to the economy rather than bailing out banks.
I don't think it's quite as good a deal as you might think.
First of all, the investment is €21 billion, not €315 billion. €315 billion is the projected return on that investment.
Secondly, that €21 billion will be spread across a number of EU countries, Greece's share will be a fraction of that total.
Thirdly, whilst SMEs are mentioned in the announcement, a larger portion of the investment returns are expected to come from long term investments. Long term investments generally refer to investments that have a low return on investment in the short term and better return in the long term, which can be a sensible way to invest, but those investments will be based on loans, and the interest accumulated on those loans doesn't necessarily start when the investment pays off (i.e. the interest could start straight after the loan is made, regardless of how long the return on investment is projected to take).
Lastly, even if Greece got the full investment (which they aren't likely to), this €21 billion is a drop in the ocean compared to the existing debt, and furthermore will come with its own debt, it might help if it was managed right but it's a huge gamble and I'm not convinced it would make much of a dent in the overall debt. Perhaps I'm wrong, but I hope you can see why I have these doubts.
First of all, the investment is €21 billion, not €315 billion. €315 billion is the projected return on that investment.
Secondly, that €21 billion will be spread across a number of EU countries, Greece's share will be a fraction of that total.
Thirdly, whilst SMEs are mentioned in the announcement, a larger portion of the investment returns are expected to come from long term investments. Long term investments generally refer to investments that have a low return on investment in the short term and better return in the long term, which can be a sensible way to invest, but those investments will be based on loans, and the interest accumulated on those loans doesn't necessarily start when the investment pays off (i.e. the interest could start straight after the loan is made, regardless of how long the return on investment is projected to take).
Lastly, even if Greece got the full investment (which they aren't likely to), this €21 billion is a drop in the ocean compared to the existing debt, and furthermore will come with its own debt, it might help if it was managed right but it's a huge gamble and I'm not convinced it would make much of a dent in the overall debt. Perhaps I'm wrong, but I hope you can see why I have these doubts.
Oh I have doubts too, dozens of them. If you see the agreement you'll be dazzled by the amount of new taxes. But all things considered I still think it's the lesser of two evils. Because I don't think we could go to drachma in an orderly fashion. We'd go highly unprepared, the capital controls are a proof of how the government was caught with their pants down, and then all hell would broke loose.
There are risks with going back to the drachma, but the implementation can be handled sensibly. For example, set the currency value to match the Euro, so 1 drachma = 1 euro. That would give reassurance that savings wouldn't be lost, and while wages and product costs are likely to go through a period of notable fluctuations, it doesn't have to be dramatic.
"I hope the Greek government has the guts to go bankrupt. It'd be a short term loss with a long term gain. It's not like the creditors have to lose out, Argentina showed that by paying off its debts after their currency issues."
The confusing part is that there is a very recent, very relevant precedent that was set by Iceland and for some reason that course of action is completely off the table.
I don't know why. It appears to have worked very well for Iceland.
The confusing part is that there is a very recent, very relevant precedent that was set by Iceland and for some reason that course of action is completely off the table.
I don't know why. It appears to have worked very well for Iceland.
I don't think Iceland's government defaulted. AFAIK, they simply let their own banks fail and made no move to support them. UK was pretty pissed off because their citizens lost cash in those banks, and they expected Iceland's citizens to cover for them.
Greece is in a completely different pot of hot water. Their incomes (taxes) keep being lower than expenditures, aka salaries, pensions etc. Not getting any more EU help means they will start paying their doctors and firefighters with monopoly money.
Greece is in a completely different pot of hot water. Their incomes (taxes) keep being lower than expenditures, aka salaries, pensions etc. Not getting any more EU help means they will start paying their doctors and firefighters with monopoly money.
> and they expected Iceland's citizens to cover for them.
because that was actually Iceland's obligation so it wasn't at all unreasonable for the UK and the Netherlands to expect that.
http://ec.europa.eu/finance/bank/index_en.htm (Single Passport and cross-border banking)
because that was actually Iceland's obligation so it wasn't at all unreasonable for the UK and the Netherlands to expect that.
http://ec.europa.eu/finance/bank/index_en.htm (Single Passport and cross-border banking)
I don't know the exact details but I didn't think Iceland was in Europe, the UK wanted to rush them in so that those rules could apply:
https://en.wikipedia.org/wiki/Accession_of_Iceland_to_the_Eu...
https://en.wikipedia.org/wiki/Accession_of_Iceland_to_the_Eu...
Iceland is and was in the EFTA and hence in the EEA where the single-passport rules apply -- and applied back then as well, otherwise the Iceland banks operating in the UK and the Netherlands would have been under UK/NL supervision instead of IS supervision. UK/NL were not ALLOWED under those rules to meaningfully supervise IS banks operating in their countries. As long as they operated under IS law and IS supervision, they operated under IS insurance rules with the usual EU (EEA) 100k€ limit. Iceland blatantly broke the rules.
Later, after the shit hit the fan, Iceland did apply for EU membership and negotiations begun. Iceland later withdrew their application.
Later, after the shit hit the fan, Iceland did apply for EU membership and negotiations begun. Iceland later withdrew their application.
Iceland isn't part of the Eurozone, is it?
No, it isn't.
Then how are the situations comparable?
Iceland had a bank crisis triggered by a speculative bubble produced by poorly managed deregulation. It imposed capital controls, was bailed out by the IMF, and took on a crapload of debt in the process, which it is paying off. All this was managed by Iceland's central bank, which controls Iceland's own currency.
Greece has multiple structural flaws and an economy that does not appear compatible with the Eurozone, while being locked into the monetary policy of Germany and France, who effectively control the ECB.
The only thing these events seem to have in common is that they were economic crises. Iceland's problems were acute; Greece's chronic. Iceland's had a single cause, Greece many. Iceland controls its monetary policy, Greece signed that over to the Eurozone. Iceland got assistance from the IMF, Greece requires ongoing assistance from the ECB. Iceland is paying off its debts, Greece is (it seems apparent) never going to do that.
Iceland had a bank crisis triggered by a speculative bubble produced by poorly managed deregulation. It imposed capital controls, was bailed out by the IMF, and took on a crapload of debt in the process, which it is paying off. All this was managed by Iceland's central bank, which controls Iceland's own currency.
Greece has multiple structural flaws and an economy that does not appear compatible with the Eurozone, while being locked into the monetary policy of Germany and France, who effectively control the ECB.
The only thing these events seem to have in common is that they were economic crises. Iceland's problems were acute; Greece's chronic. Iceland's had a single cause, Greece many. Iceland controls its monetary policy, Greece signed that over to the Eurozone. Iceland got assistance from the IMF, Greece requires ongoing assistance from the ECB. Iceland is paying off its debts, Greece is (it seems apparent) never going to do that.
Greece really needs to get rid of their occupational licenses. It's great for the people who are already licensed, but it's just a drag on the economy: http://www.nytimes.com/2010/10/15/world/europe/15greece.html
25% of German workers require an occupational license.
As a matter of principle, there is a difference between:
- you need expertise in order to be able to safely do X: take these exams and you're certified
- the state sells a limited number of licenses in order to create artificial shortage, usually combined with guaranteed profits, like the 35% profit in the link. The certification is just a piece of paper and only loosely related to a set of exams.
- you need expertise in order to be able to safely do X: take these exams and you're certified
- the state sells a limited number of licenses in order to create artificial shortage, usually combined with guaranteed profits, like the 35% profit in the link. The certification is just a piece of paper and only loosely related to a set of exams.
To compare, roughly 30% of the US require an occupational license. Germany's more free-market than the US in this regard. Weird, right?
I couldn't find good numbers on what % of jobs in Greece require a professional license.
I couldn't find good numbers on what % of jobs in Greece require a professional license.
And Germany would be much better off without that.
All they did was kick the can down the road for the 32nd time. This is the most boring sovereign default in history.
It is in the creditors interest to only provide a short term solution. They want to see reforms actually put in place to ensure the money is going to where it is needed.
If Greece were given enough to tide them over for 10 years how do you think the government would spend it?
Debt management is about a partnership, where financial responsibility is learned but both sides. The creditors are learning to be more cautious and Greece is/has learnt to control its spending.
If Greece were given enough to tide them over for 10 years how do you think the government would spend it?
Debt management is about a partnership, where financial responsibility is learned but both sides. The creditors are learning to be more cautious and Greece is/has learnt to control its spending.
Yes, I feel it will never end. Detroit is almost the size of the greek economy (~ 200 billions USD vs ~ 242 billions USD) and had gone bankrupt without any major waves.
Detroit's insolvency is backstopped by the state of Michigan and the federal government.
other than it is now a complete and utter wasteland in comparison to the rest of the US?
That happened well before. The bankruptcy was the result, not the cause, of Detroit's decline.
Note that "wasteland" is exaggerated. Certainly there are a lot of abandoned buildings and neighborhoods, but many places are still thriving. It's not what it once was, but there's still a lot going on.
Seems that there are a lot of stakeholders who are care a lot more about not having Greece default than was the case for Detroit, while at the same time nobody has enough power to really make anybody do anything. So Greece is coming down to a very long and drawn-out series of negotiations where nobody can put their foot down and say, look, here are the lines you can't cross, and here's where you're allowed some flexibility. Figure it out.
With Detroit, it all happened in an environment with a strong legal system that could keep the various parties under control. The fact that federal (and even state) benefits aren't affected by Detroit's finances no doubt helps a lot too. No matter what happened with Detroit, 70-year-old retired autoworkers living there would continue to receive Social Security. That simplifies things a lot since there's a backstop for how bad things can get in the worst case.
Note that "wasteland" is exaggerated. Certainly there are a lot of abandoned buildings and neighborhoods, but many places are still thriving. It's not what it once was, but there's still a lot going on.
Seems that there are a lot of stakeholders who are care a lot more about not having Greece default than was the case for Detroit, while at the same time nobody has enough power to really make anybody do anything. So Greece is coming down to a very long and drawn-out series of negotiations where nobody can put their foot down and say, look, here are the lines you can't cross, and here's where you're allowed some flexibility. Figure it out.
With Detroit, it all happened in an environment with a strong legal system that could keep the various parties under control. The fact that federal (and even state) benefits aren't affected by Detroit's finances no doubt helps a lot too. No matter what happened with Detroit, 70-year-old retired autoworkers living there would continue to receive Social Security. That simplifies things a lot since there's a backstop for how bad things can get in the worst case.
It was headed that way before the bankruptcy, though. People moving out caused the default, not the default causing people to move out.
The point is that Detroit going broke didn't bring all the capital markets in the US to their knees. It's definitely not good that Detroit went broke. But it didn't break the US economy.
The point is that Detroit going broke didn't bring all the capital markets in the US to their knees. It's definitely not good that Detroit went broke. But it didn't break the US economy.
It was such before the bankruptcy. In fact, the flight of people and businesses out of the city, and resulting collapse in tax base, is part of what caused the bankruptcy.
Yeah but which is the cause and which is the effect?
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Yep, the problem with the greeks is that there is never a crisis. Three months from now we are going to be hearing about this all over again.
This is why Germany and the baltics wanted reform up front - it prevents Greece from screwing around for another 3 years and not making any changes that get it healthy over the long run.
Ignorance alert: I'm no economist nor an European.
Since Greece's economy has been in the doldrums for a while, I'm wondering why don't European powerhouses (like Germany) move some manufacturing there? Greece is a popular tourist destination; so how come I'm not hearing of lots of outside money moving in to buy hotels, resorts, etc.?
Since Greece's economy has been in the doldrums for a while, I'm wondering why don't European powerhouses (like Germany) move some manufacturing there? Greece is a popular tourist destination; so how come I'm not hearing of lots of outside money moving in to buy hotels, resorts, etc.?
Corruption.
It's not a coincidence that money had vanished. German manufactures will face extortion that will draw away any perks provided by low cost of living.
It's not a coincidence that money had vanished. German manufactures will face extortion that will draw away any perks provided by low cost of living.
> so how come I'm not hearing of lots of outside money moving in to buy hotels, resorts, etc.?
In the leisure industry that'e been happening big time on the Premium level for the last 10 years and now slowly at the Luxury level.
As for European/Global industrial powerhouses it's always been the red tape and government agency middle men that has been the main friction for moving in.
Whats happening is that these hassles are being removed as Greece gets more in line with European regulations.
In the leisure industry that'e been happening big time on the Premium level for the last 10 years and now slowly at the Luxury level.
As for European/Global industrial powerhouses it's always been the red tape and government agency middle men that has been the main friction for moving in.
Whats happening is that these hassles are being removed as Greece gets more in line with European regulations.
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Greece is quite corrupt by western standards. Their previous minister for defense is serving jail time for bribery. Politics and society are based on clientism and patronage rather than rules and an independent legal system. This is why tax compliance is so low. Even the ownership of land is murky (they've spent 20 years and 100m of EU grant money attempting to build a basic land registry with little to show for the money). So without connections it's quite a hostile environment to operate a business.
Edit: seems I'm getting downvoted for some reason. So here are some links: http://openeurope.org.uk/blog/reforming-greece-easier-said-d... http://www.nytimes.com/2013/03/05/world/europe/former-greek-... http://www.transparency.org/cpi2014/results
Edit: seems I'm getting downvoted for some reason. So here are some links: http://openeurope.org.uk/blog/reforming-greece-easier-said-d... http://www.nytimes.com/2013/03/05/world/europe/former-greek-... http://www.transparency.org/cpi2014/results
The current minister of finance in Germany had to resign after accepting 100,000 DM from an arms dealer, and is director of The Institution for Growth which he suggested 50B in Greek assets be transferred to. More blatant corruption would be hard to find. Yet somehow he has the chutzpah to lecture Greece on financial probity.
https://www.kfw.de/KfW-Group/About-KfW/Vorstand-und-Gremien/...
https://www.kfw.de/KfW-Group/About-KfW/Vorstand-und-Gremien/...
I know you are being rhetorical but even New York Times would agree the Greek government is more corrupt than the German government. Some level of corruption is inevitable in every ruling class; an old Chinese saying is that pure water has no fish: no one will work in a graft-free institution. Your rhetorics is not helpful at the current critical juncture; cooler heads must prevail. It is far more important to consider whether the existing economic, financial, and political arrangement is sustainable and whether Greeks may be better off with a clean slate. A massive European aid program is necessary in any case and the current level of Greek debt is unrealistic. Why not acknowledge the facts and spend money on people to help them get back on their feet and at least reap political good-will, which is sorely lacking right now. Muddling through has not worked so far. If a fourth bailout becomes necessary, it will be a political earthquake with strategic implication for the rest of the world. God, I hope it does not come to pass.
> Why not acknowledge the facts and spend money on people to help them get back on their feet and at least reap political good-will, which is sorely lacking right now.
Because giving Greece more free money will not make the Greeks reform their country. Debt relief would just mean that they could borrow more money on the market and let the party continue.
Debt relief (even more than the huge amounts they've already received and squandered) is very much in the cards and has been all the time, if only they would reform.
Because giving Greece more free money will not make the Greeks reform their country. Debt relief would just mean that they could borrow more money on the market and let the party continue.
Debt relief (even more than the huge amounts they've already received and squandered) is very much in the cards and has been all the time, if only they would reform.
"Debt relief (even more than the huge amounts they've already received and squandered) is very much in the cards and has been all the time, if only they would reform."
Debt relief has been discussed, but has been blocked by the German government, even despite the German finance minister admitting the debt was unsustainable...
http://uk.mobile.reuters.com/article/idUKL8N0ZP3P720150709?i...
"Europe's legal set-up therefore gives government leaders sufficient space to strike a debt restructuring of some kind for Greece if they want to. The issue is how far they go with any reprofiling as part of a potential deal with Greece.
German Finance Minister Wolfgang Schaeuble said on Thursday the IMF was correct in saying Greece's debt was not sustainable without a haircut, but he added: "I think the leeway we have ... is very low.""
Debt relief has been discussed, but has been blocked by the German government, even despite the German finance minister admitting the debt was unsustainable...
http://uk.mobile.reuters.com/article/idUKL8N0ZP3P720150709?i...
"Europe's legal set-up therefore gives government leaders sufficient space to strike a debt restructuring of some kind for Greece if they want to. The issue is how far they go with any reprofiling as part of a potential deal with Greece.
German Finance Minister Wolfgang Schaeuble said on Thursday the IMF was correct in saying Greece's debt was not sustainable without a haircut, but he added: "I think the leeway we have ... is very low.""
I know you are being rhetorical but even New York Times would agree the Greek government is more corrupt than the German government.
I was trying to point out the moral relativism at work in painting Greece as a hotbed of corruption, and Germany as paragon of financial virtue.
What I think is not helpful here are moral arguments over debt full stop. Nation states are neither moral nor people, and you can't 'teach them a lesson' which is the basis of much rhetoric around Greece at present.
I was trying to point out the moral relativism at work in painting Greece as a hotbed of corruption, and Germany as paragon of financial virtue.
What I think is not helpful here are moral arguments over debt full stop. Nation states are neither moral nor people, and you can't 'teach them a lesson' which is the basis of much rhetoric around Greece at present.
> and is director of The Institution for Growth which he suggested 50B in Greek assets be transferred to. More blatant corruption would be hard to find.
That is /highly/ misleading.
https://en.wikipedia.org/wiki/KfW
"It is owned by the Federal Republic of Germany (80%) and the States of Germany (20%).[3] It is led by a six-member Managing Board headed by Ulrich Schröder, which in turn reports to a 37-member Supervisory Board. The chair of the Supervisory Board changes annually between the German Federal Ministers of Finance and Economic Affairs; the chairman for 2015 is Wolfgang Schäuble.[4]"
Other members of the supervisory board (from the list you linked to) are members of the German parliament, trade union leaders, other federal ministers, ministers from various German states, etc.
That is /highly/ misleading.
https://en.wikipedia.org/wiki/KfW
"It is owned by the Federal Republic of Germany (80%) and the States of Germany (20%).[3] It is led by a six-member Managing Board headed by Ulrich Schröder, which in turn reports to a 37-member Supervisory Board. The chair of the Supervisory Board changes annually between the German Federal Ministers of Finance and Economic Affairs; the chairman for 2015 is Wolfgang Schäuble.[4]"
Other members of the supervisory board (from the list you linked to) are members of the German parliament, trade union leaders, other federal ministers, ministers from various German states, etc.
That is /highly/ misleading.
I disagree, I think it's highly improper that he even suggested money be given to an institution in which he has influence (currently Chairman of the Board), and which disburses money to German companies (Germany being one of Greece's creditors so not a neutral third party). Particularly given his history of fraud and corruption.
If money/assets are to be held in escrow, they should be held at a completely neutral third party.
I disagree, I think it's highly improper that he even suggested money be given to an institution in which he has influence (currently Chairman of the Board), and which disburses money to German companies (Germany being one of Greece's creditors so not a neutral third party). Particularly given his history of fraud and corruption.
If money/assets are to be held in escrow, they should be held at a completely neutral third party.
Greece wants access to other people's money. Those people can demand pretty much what they like -- if Greece doesn't like /that/ they can borrow on the free market (and pay dearly for their CCC- rating).
Collateral must always be placed where those who lend the money can get at it if the borrower breaks the terms.
Germany was in no way alone in wanting collateral and the rest of the Northern EZ was fine with having Germany/Luxembourg in control of the "Treuhandfonds". But it could also have been placed in Hamburg or Helsinki and they would still have been okay with it.
(It was, as you might know, not to be placed directly under KfW but under the IfG in Luxembourg probably precisely so that it was not under Germany's /direct/ control.)
It should in no way whatsoever have been placed in Athens under Greek management, though!
Can we at least agree on that?
Collateral must always be placed where those who lend the money can get at it if the borrower breaks the terms.
Germany was in no way alone in wanting collateral and the rest of the Northern EZ was fine with having Germany/Luxembourg in control of the "Treuhandfonds". But it could also have been placed in Hamburg or Helsinki and they would still have been okay with it.
(It was, as you might know, not to be placed directly under KfW but under the IfG in Luxembourg probably precisely so that it was not under Germany's /direct/ control.)
It should in no way whatsoever have been placed in Athens under Greek management, though!
Can we at least agree on that?
You are getting downvoted because you hurt the feelings of many HNers by saying something truthful.
So are you ;)
1) It's expensive. Greek industry itself has moved to the balkans, and china. Many greek businesses run through cyprus to survive (low tax).
2) laws not being enforced in places where they should.
3) lets just say, the greeks have been spoiled by a decade of easy lending and dont have the greatest work ethic.
4) Many hotel chains have been sold in the past decade. Tourism doesn't make as much as you think.
2) laws not being enforced in places where they should.
3) lets just say, the greeks have been spoiled by a decade of easy lending and dont have the greatest work ethic.
4) Many hotel chains have been sold in the past decade. Tourism doesn't make as much as you think.
Syriza government is laughably incompetent. They had 6 months to introduce a cryptocurrency and remove reliance on ECB for running internal economy and exports. They also had 6 months to start reforms to reduce bloated government spending and invest to reduce food imports.
Instead, they let ECB take Greek deposits as hostage, wasted 6 months on negotiations before imposing capital controls, did not get anything in return for not vetoing the Russian sanctions and signed a deal that is worse than any worst case scenario from the default. After the deal, they will give ECB direct control of Greek economic sovereignity. And 50 billion of state assets as a repayment for interest on the debt that is essentially permanent! With only vague promises of haircuts sometime in the future.
In 3 years after this new deal, Greece will likely lose 20% of its GDP and 10% of its population, as anyone with a brain will try to emigrate. That is if Greek people do not object to this deal, which seems highly unlikely.
Instead, they let ECB take Greek deposits as hostage, wasted 6 months on negotiations before imposing capital controls, did not get anything in return for not vetoing the Russian sanctions and signed a deal that is worse than any worst case scenario from the default. After the deal, they will give ECB direct control of Greek economic sovereignity. And 50 billion of state assets as a repayment for interest on the debt that is essentially permanent! With only vague promises of haircuts sometime in the future.
In 3 years after this new deal, Greece will likely lose 20% of its GDP and 10% of its population, as anyone with a brain will try to emigrate. That is if Greek people do not object to this deal, which seems highly unlikely.
I'm a Greek immigrant kid, so I have some emotional attachment, and lots of family in Greece, but little actual knowledge of life on the streets in Greece since they joined the Eurozone.
That said, it has seemed to me for some time that exiting the Eurozone would be far preferable to this sort of solution, e.g. one that leaves the debt high and lets Germany force austerity measures down into the local economy.
Isn't precisely what is required right now massive currency inflation, leading to far cheapened Greek exports (tourism and olive oil?). I would love to buy a villa in Greece, if I had the cash. And, if the new drachma is issued, and inflates heavily, it will become much less expensive to do so.
It seems like the Eurozone has locked in these smaller countries with an import friendly lifestyle; they get Germany-quality goods in without tariffs, and it's emotionally very hard to think about going back.
That said, it has seemed to me for some time that exiting the Eurozone would be far preferable to this sort of solution, e.g. one that leaves the debt high and lets Germany force austerity measures down into the local economy.
Isn't precisely what is required right now massive currency inflation, leading to far cheapened Greek exports (tourism and olive oil?). I would love to buy a villa in Greece, if I had the cash. And, if the new drachma is issued, and inflates heavily, it will become much less expensive to do so.
It seems like the Eurozone has locked in these smaller countries with an import friendly lifestyle; they get Germany-quality goods in without tariffs, and it's emotionally very hard to think about going back.
Currency devaluation is usually preferred to inflation - that's why exiting the Euro is under consideration, so that there is a local currency to devalue. High inflation erodes savings and discourages investment - it can be socially destabilizing.
Yes, you said it better. I was imagining devaluation. The interviews with Varoufakis are interesting this week; they indicate he had a "don't leave eurozone, but get leverage" plan which involved nationalizing banks and issuing their own 'ious', presumably senior in some ways to their existing debt. Seems like the administration didn't have the stomach for it.
I don't think this ends well for Greece, frankly. This kind of authoritarian punishment is what drove Germany into WWII at some level; crushing debt and 'punishing' as a thing you do to countries just isn't a great plan.
I don't think this ends well for Greece, frankly. This kind of authoritarian punishment is what drove Germany into WWII at some level; crushing debt and 'punishing' as a thing you do to countries just isn't a great plan.
I think the plan is to sacrifice Greece to keep Portugal, Spain and Italy in line. If Spain or Italy starts demanding debt forgiveness, the Euro really will collapse.
Can the homeland of Archimedes return to buoyancy?
Edit: I am satisfied with zero points (a circle!) for this comment, which seems fair. I therefore implore you good people, "noli turbare circulus meus!"
Edit: I am satisfied with zero points (a circle!) for this comment, which seems fair. I therefore implore you good people, "noli turbare circulus meus!"
Can someone answer this simple question: why do Greek banks have no money? They are private companies and are not the ones that defaulted.
The ECB has been keeping Greek banks alive for many months now. If you missed the news, there are long lines at ATMs and plenty of Greeks moving money anywhere but Greece - no bank can survive a bank run.
Read fractional-reserve banking. They only have a small fraction of deposits in the form of cash. Since the bulk of the Greek economy depends on imports, it means they are constantly importing stuff and exporting cash.
And their dependency on actual physical paper money in the day to day economy has really hurt their economy more in the last two weeks than anything that's happened since the 2nd bailout; it may turn out this current period injures the Greek economy worse than any of the austerity measures.
And their dependency on actual physical paper money in the day to day economy has really hurt their economy more in the last two weeks than anything that's happened since the 2nd bailout; it may turn out this current period injures the Greek economy worse than any of the austerity measures.
The big danger inherent in a bank is a liquidity crisis-- their loans can't be called in all at once and their assets generally can't be sold all at once without losing a lot of value, but their liabilities in the form of demand deposits can be withdrawn at any time. So in the modern era central banks generally stand as a lender of last resort, if all the depositors want their money out at the same time then the central bank will lend individual banks cash against their assets to give to depositors. This promise, if made credibly, has the effect of preventing bank runs.
The Greek banks have a different problem, a solvency crisis. They have made investments and loans that have not done well, in part because the economy as a whole has not done well. That includes lending money to the Greek government in the form of bond purchases. So it is simply the case that their liabilities (including money owned to depositors) are greater than their assets (including the risk discounted value of outstanding loans).
The Greek banks have a different problem, a solvency crisis. They have made investments and loans that have not done well, in part because the economy as a whole has not done well. That includes lending money to the Greek government in the form of bond purchases. So it is simply the case that their liabilities (including money owned to depositors) are greater than their assets (including the risk discounted value of outstanding loans).
> This promise, if made credibly, has the effect of preventing bank runs.
That, and the depositor's insurance, which is supposed to be for the first 100,000€ in the EU. The insurance is funded and legislated at a country level and the Greek insurance fund is simply way too small.
> They have made investments and loans that have not done well, in part because the economy as a whole has not done well.
Don't forget bad loans to connected people/companies.
That, and the depositor's insurance, which is supposed to be for the first 100,000€ in the EU. The insurance is funded and legislated at a country level and the Greek insurance fund is simply way too small.
> They have made investments and loans that have not done well, in part because the economy as a whole has not done well.
Don't forget bad loans to connected people/companies.
Partly because the Greek state forced them to buy Greek treasury bills (until the ECB put a stop to it). They are worthless at the current CCC- rating.
That's one of the reasons why they are most likely insolvent.
They are illiquid (have no cash money) because too much cash money has been withdrawn (and the ECB stopped raising the Emergency Liquidity Assistance debt ceiling at 89G€).
If they are actually insolvent, then it was most likely illegal for the ECB to continue the ELA for so long, but they (along with everybody else but the Greeks) did their utmost to keep the situation from getting worse.
That's one of the reasons why they are most likely insolvent.
They are illiquid (have no cash money) because too much cash money has been withdrawn (and the ECB stopped raising the Emergency Liquidity Assistance debt ceiling at 89G€).
If they are actually insolvent, then it was most likely illegal for the ECB to continue the ELA for so long, but they (along with everybody else but the Greeks) did their utmost to keep the situation from getting worse.
I hope and wish that they are able to reform their country. And limit the influence of the extreme right/left wishful thinkings.
When Greece finally leaves the Euro I hope they deny travel visas to Germans.
LOL - that would be funny cause tourism is only proven way Greece makes money.
That and EU subsidies.
I hope the Greek government has the guts to go bankrupt. It'd be a short term loss with a long term gain. It's not like the creditors have to lose out, Argentina showed that by paying off its debts after their currency issues. Similarly, savings could be protected by freezing their value and offering to pay the equivalent in the new currency (assuming Greece would be required to leave the Euro).