The Greek referendum

[Long Run]

I'm still foggy on how the world economy hinges on whether a country of 10 million Greeks can figure out how to pay its debts. But, the powers that be figured out a band aid last week for that problem, which might buy enough time to allow the EU to strengthen itself. Now it looks like there will be a referendum on that and the manic/depressive markets continue.

I'm wondering why some substantial number of Greeks think they are the wronged party here. They have borrowed past their abilities to repay, and their lenders are saying (as lenders do) that they have to cut spending and raise more revenue.* The articles I see suggest the best path for the Greeks is to drop out of the EU, get their own currency, devalue it (i.e., create inflation) and thereby repay creditors less value than the current loans call for. Thus, Greece wants to renege on its EU commitment and it wants to renege on its debts. What is the rationale? I haven't seen one that makes sense to me.

* And if the U.S. gets to this point after a few more years of trillion dollar deficits, we have no one to blame but ourselves.

[Scooter]

I'm wondering why some substantial number of Greeks think they are the wronged party here. They have borrowed past their abilities to repay, and their lenders are saying (as lenders do) that they have to cut spending and raise more revenue.*

Perhaps because they do not see themselves as having benefited from borrowing past the ability to repay, and do not feel they should have to bear the brunt of the cuts that need to be made when those who did benefit will in all likelihood escape virtually unscathed.

[Lord Jim]

Perhaps because they do not see themselves as having benefited from borrowing past the ability to repay, and do not feel they should have to bear the brunt of the cuts that need to be made when those who did benefit will in all likelihood escape virtually unscathed.

Scooter, I was under the impression that the Greek debt restructuring plan included the bank bond holders accepting a 50% loss:

European leaders are doing everything they can not to trigger the default clauses in CDS contracts to avoid putting the banking system at risk. They persuaded bondholders to accept a 50 percent loss on their holdings of Greek debt in an agreement reached in Brussels last week

http://www.businessweek.com/news/2011-1 ... banks.html

In fact when I read about this deal last week, I thought it might serve as a template for addressing "shared sacrifice" issues going forward, vis a vis the the financial industry.

[Crackpot]

You're missing the differentiation between people and the Govt. Jim. THe government gets the deal the people pay the price.

[dgs49]

Greece is the archtype of the Entitlement Society. The main "industry" of Greece is government employment, and every man, woman, and child in the country has been guaranteed a life free from economic strife by a cornucopia of cradle-to-grave protections. Free medical care, generous unemployment compensation, early retirements, free nursing care for the elderly. Even those who work are not working very much or very hard.

And they don't see any of this as special or unusual. They don't recognize that their Government does not have the revenues to continue paying for this level of lifetime coddling, or that it never actually did. It was financed by borrowing, largely from other European sovereigns, but also countries around the world.

The problem is that this huge and mounting debt is denominated in Euros. If Greece pulls out of the Euro, the Drachma (or whatever they decide to call it) will be next to worthless compared to the dollar and the Euro, and the burden of their debt will actually increase dramatically, as the currency will immediately go into free fall. WHo would want it?

Their Euro bondholders already agreed to a 50% haircut, but this is only a stopgap solution, and won't be sufficient unless the Greek government gets its spending in line with revenues. The Leftists in Greece (as everywhere else) see government benefits as pure entitlements, not to be fucked with by anyone at any time. They foolishly believe that the Greek people can simply refuse to accept the austerity measures proposed by the Government, and somehow everything will work out fine.

Can you imagine a whole country throwing a tantrum, threatening to hold its breath until it gets its way?

That's what we have.

And the possible ripple effects are on the order of an economic 8.5 earthquake.

Buy gold and silver. Hoard canned food. Seriously.

[Lord Jim]

Buy gold and silver. Hoard canned food.

And automatic weapons...

[Long Run]

You're missing the differentiation between people and the Govt. Jim. THe government gets the deal the people pay the price.

This makes the most sense, but even so, the people elected their government which provided services and benefits beyond what the country could afford for a long time. No one forced them to make these choices. The recent economy created an immediate recognition of this fact. In light of the unexpectedly bad economy, if they are asking creditors to provide leniency while the country gets its finances in order, that makes sense. If they don't think they have to get their finances straightened out, then I still don't understand their rationale for arguing they are somehow the wronged party.

[Crackpot]

Ok when do you think we'll elect a govenrnment based on the premise of "let's raise taxes so we can pay down our debts."

[Gob]

Q&A on the Greek debt crisis

By DAVID McHUGH

Greece's financial crisis has been in the headlines for days. Here are some questions and answers about what caused it and why it affects people outside Greece.

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Q: Why is Greece in trouble anyway?

A: Too much spending and borrowing for too many years and too much of that due in the next few months. A lot of debt is coming due this year -- around euro54 billion ($74 billion) -- and if Greece can't borrow more to pay off those debts on time, the country is in default.

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Q: Why should people in other countries care about Greece's debt crisis?

A: Good question. Most people don't own Greek bonds, so why care if they default? But the rest of the world is affected indirectly in a variety of ways. If Greece became insolvent and the value of its bonds collapsed, European banks that own those bonds would have to take massive write-offs. That would affect lending, still crimped by the worldwide financial crisis and recession.

Economist Joerg Kraemer at Germany's Commerzbank estimates Greece's outstanding securities at euro290 billion ($395 billion), more than twice what Lehman Brothers had before it went under in September 2008 and sent the world financial system into a meltdown.

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Q: Any other consequences of the Greek debt crisis?

A: Plenty. When Greece's troubles appear worse, stocks tend to slide, mainly in Europe but also in Asia and America because market confidence is interconnected. Also, when one country has trouble repaying debt -- be it Greece or Dubai -- investors worldwide tend to freeze up and look more carefully at other governments' finances. So if Greece can't solve its problems, investors could fear the bonds of other countries with shaky finances, such as Portugal, Spain or Italy. That means governments would have to pay more for borrowing, leaving less for social programs, education and roads.

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Q: Why doesn't Greece just sell more bonds to pay off ones coming due?

A: They're trying. But the markets just discovered that Greece has been faking its deficit numbers for years. Would you loan money to someone who had lied about their financial situation? If you did, you would probably demand a higher interest rate -- even if they say they're telling the truth now. That's the situation for Greek Prime Minister George Papandreou.

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Q: Why doesn't the International Monetary Fund bail them out, the way they do other countries that mess up their finances?

A: The European Union opposes IMF involvement for Greece. On paper, Greece can ask the IMF for help and the IMF says it may be willing to do so -- just as it has loaned emergency money to EU members Romania, Latvia and Hungary. But those countries are not part of the 16 nations that use the common euro currency. Many analysts say the EU doesn't want to concede that it can't manage the eurozone on its own. Some say the European Union needs to set up its own bailout fund -- a "Europan Monetary Fund," so to speak -- but so far it hasn't.

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Q: What if Greece really can't pay?

A: Most people think a Greek default would be such a disaster for banks and the euro that the EU will find a way to stop it. There are rules restricting loans to individual countries, but big EU countries like Germany and France could work out something, such as having state-owned banks guarantee Greek bonds so investors would buy them and Greece would get money to pay its debts.

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Q: Why does the euro matter to people outside the eurozone?

A: All this talk about Greek debts has hammered the euro in currency markets, where it has lost over a tenth of its value in recent months. When the euro goes down, other currencies like the dollar get stronger in relative terms. Exports from the United States become more expensive for Europeans, and Europeans exports become cheaper to Americans. If the euro keeps dropping, tourists from outside Europe might find they can afford that trip to Paris now.

http://www.businessweek.com/ap/financia ... 7U2JG0.htm

[Gob]

Oh, one reason for Greece's debt you will not hear those on the right talking about...

Tax evasion is a way of life in an economy riddled with abuses, discrimination and corruption but changing habits and culture represents one of the biggest headaches for a beleaguered government trying to climb a financial Olympus in flip-flops.

Reducing the estimated €15bn (£13.2bn) that slips through the tax collection net each year is one of the conditions tied to a bail-out.

There have been some imaginative attempts to widen the collection pool. Helicopters have been hovering over plush suburbs in northern Athens in the search for swimming pools in the homes of professional people who claim they are living on only €35,000-€43,000 a year.

Thousands have been identified but tax records show only 300 have been declared. The swimming pool fraternity are also responding by using nets to cover the pools to avoid detection.

Cash provides a convenient escape route for lawyers, accountants and builders. The government has published the names of almost 70 doctors it says have cheated the taxman and some surgeons are said to be earning €900,000 a year and not declaring tax.

“Only the stupid pay tax,” one eye surgeon told a Greek state radio.

Three months ago the country’s top tax official was fired after failing to boost tax income, up from €50bn to only €52.5bn over the last two years. There was another €40bn of outstanding tax payments awaiting collection.

Collectors complain that the taxpayers they chase have pay only about 20pc of what they owe and then disappear

Economists estimate that 2m private sector workers are carrying the brunt of the tax load while a million public sector employees and 1.3m self-employed escape almost financially unscathed.

The government is hoping that the rationalisation of tax offices and the belated introduction of a centralised database will help speed the collections.

[Scooter]

Italy has the same problem. Tax collection is a farce. If you are the recipient of a wage or a pension, you pay taxes. If you are self-employed, there are a thousand ways to evade taxes and enforcement is a joke. Just as one example, a couple of months ago ISTAT, the government statistics agency, released figures that showed the average (reported) income of jewelry store owners to be lower than that of jewelry store sales clerks. And shop owners routinely and brazenly ring up sales receipts for less than the value of goods purchased. The government spends almost nothing on enforcement and in spite of paying lip service to it, never will.

[Gob]

Greek Prime Minister George Papandreou says he is ready to scrap plans for a referendum on an EU bailout plan, as top European leaders continued to pile the pressure on the embattled leader.

Papandreou resisted fresh calls to resign as Greek Finance Minister Evangelos Venizelos cautioned that his country needed an eight-billion-euro ($10.6 billion) slice of aid by December 15, a package which has been put on ice since the prime minister's shock announcement,

"The referendum was never an end in itself," Papandreou told an emergency cabinet meeting called a day after angry EU leaders summoned the prime minister after being wrong-footed by the referendum plan.

Meanwhile, German Chancellor Angela Merkel insisted at a meeting of G20 top economies in the southern French city of Cannes that actions, not words, were what mattered.

"What's important is that there is a quick 'Yes' to the October 27 decisions," she added, referring to last week's offer by euro zone leaders to write down Greek debt in exchange for imposing strict fiscal controls.

EU President Herman van Rompuy and European Commission President Jose Manuel Barroso also ratcheted up the heat on Papandreou, saying that Greece had to stick to the EU bailout plan.

On Wednesday, a livid Merkel, French President Nicolas Sarkozy and top EU officials had called Papandreou to Cannes to explain his move which led to speculation that Greece would have to leave the euro.

Read more: http://www.smh.com.au/business/world-bu ... z1cgN8Y6KD

Fucking Bubble idiot is playing silly buggers with the world economy!

[rubato]

I"...
I'm wondering why some substantial number of Greeks think they are the wronged party here. They have borrowed past their abilities to repay, and their lenders are saying (as lenders do) that they have to cut spending and raise more revenue.* ... "

Which "they" are you talking about?

Did the Greek population as a whole borrow the money? When were they shown the terms? Where did they sign? And what about the moral hazard of the lenders? If I make a stupid loan to someone (or a country) and they default am I not at fault? Am I not expected to take the loss because of my own foolishness?

The Icelandic population did not, and said so, and said that they would not pay debts they did not incur. Fortunately for them they had their own currency.

yrs,
rubato

[dgs49]

"They" is the Greek public, who, through their elected representatives, chose to create and maintain a munificent government which employs millions of them and coddles the rest, and furthermore chose to finance a large portion of that government through loans.

Loans, as you may have forgotten, involve a borrower who needs money, and induces a lender to provide it, IN EXCHANGE FOR A SOLEMN PROMISE TO REPAY, WITH INTEREST.

Now, the people who have benefitted from these borrowed dollars are unwilling to make the sacrifices that it would take to pay back the loans, or even to bring government spending in line with the current revenues.

Pay back the loans? No, I mis-spoke. They are unwilling to even make the sacrifices it would take to pay the interest on the loans, let alone pay them back. That is not even on the table.

[quaddriver]

Pay back the loans? No, I mis-spoke. They are unwilling to even make the sacrifices it would take to pay the interest on the loans, let alone pay them back. That is not even on the table.

the democrats got in control of Greece?

[Lord Jim]

That pretty well sums it up Dave....

[rubato]

No one is 'bailing out' Greece they are 'bailing out' the feckless lenders in Germany and France who thought that they had no moral hazard and thus failed to act like intelligent businessmen and women.

The average citizen of Greece is getting no benefit and all of the pain. The lenders are being bailed out for forgetting that when you lend money you have to take into account the ability of the borrower to pay. Lenders are entitled to a return because they bear a risk. Now they are whining that someone else should pay.

yrs,
rubato

[The Hen]

The average citizen of Greece is getting no benefit and all of the pain ..
yrs,
rubato

I don't think you can really say that "the average citizen is getting nothing out of it. If it wasn't for the average citizen retiring at a poofteenth over 50, Greece may not have been in so much debt paying pensions.

A fair days tax for a fair lifetime in retirement. It's not too much to ask, surely?

[dales]

As long as the price of gyros and baklava doesn't increase.

[rubato]

The average citizen of Greece is getting no benefit and all of the pain ..
yrs,
rubato

I don't think you can really say that "the average citizen is getting nothing out of it. If it wasn't for the average citizen retiring at a poofteenth over 50, Greece may not have been in so much debt paying pensions.

A fair days tax for a fair lifetime in retirement. It's not too much to ask, surely?

The bailout is decreasing the retirement age? Or increasing it?

In addition to losing benefits (which, granted, they probably should not have been offered to begin with) they are also looking at a 15 to 20 year period of serious decline.

The incompetent government of Greece was paid for by lenders who thought someone else would bear their risks for them so they could stop acting like normal lenders who priced the debt based on risk and pretend that "uncle EU will bail us out". It is in many ways like the mortgage-backed securities which caused most of the US and UK housing boom and bust. Too much money was flowing into the economic center (the US and Europe) which had to be invested 'someplace' and people got stupid with 'loan-mongering'.

If that great tidal suck of money had been re-invested in the economic periphery, where much of it came from, we would all be better off. The second and third world is the land of economic opportunity where large investments in infrastructure, education, health, and social services will pay off at much higher rates but when some entity in those areas makes a profit they try to invest it back in the 1st world where we already had excess capacity and deficient demand. That is why stock prices were 'pumped' in the 2000's by companies buying back their own stock; THEY HAD NO PLACE TO INVEST IN GROWTH!.

yrs,
rubato