The big fat Greek bailout

[Flash Walken]

Originally Posted by BigNumbers

If Iceland was smart, they'd have adopted the Euro by now. An economic study of the impact of the adoption of the euro by Iceland found that the Icelandic króna acts both as a barrier and buffer to international trade, and that by joining the EU and adopting the euro, Icelandic international trade might be 60% higher.

That kind of boost to your int-trade is neigh-impossible to obtain by other means and make all kinds of sense. Hopefully, if Greece comes out, then Iceland can come in.

It might also lead to massive unemployment like you see in Spain and Portugal because they are unable to devalue their own currency to keep pace with labour costs.

In answering these questions, the very first thing one has to do is conduct an honest analysis of what went wrong with the ambitious project of giving the old continent a unified currency, and why it is stuck in such a deep crisis today. Indeed, if one is going to be able to draw the correct conclusions for the future, one can only do so by first identifying the mistakes and errors of the past.

But, already at this point, one runs into problems. Almost all of the major political figures in Europe -- whether it's Helmut Schmidt, Germany's chancellor from 1974 to 1982, who sees himself as the grandfather of the common currency, current Chancellor Merkel, Jean-Claude Juncker, the head of the Euro Group, or Jean-Claude Trichet, the president of the ECB until Oct. 31 -- have been unanimous in stressing that there isn't any euro crisis at all. Rather, in their eyes, what we have is simply a debt crisis in some euro-zone countries.

If it were only that simple. Unfortunately, it isn't. Simply put, without a common currency, Greece's problems wouldn't have spilled over into Spain and Italy. And, without this risk of contagion, politicians and central bankers wouldn't be staggering from one crisis summit to the next, ever driven by the fear that the currency union might break apart.

Without the euro, Greece could recover more easily. It could devalue its currency and thereby make its national economy competitive once again.

Indeed, without the euro, Greece wouldn't have ever gotten into this calamitous situation in the first place. The fact that it was a member of the currency union was the only thing that allowed the country to borrow money at such favorable rates and get itself up to the neck in debt.

The Principle of Hope

Nevertheless, not one of the currency union's founding fathers will admit that it was poorly designed. The currency union brought together countries that weren't compatible economically simply because it was opportune politically. It replaced the currency exchange rate, the standard mechanism for balancing out differences between national economies, with the principle of hope. Now, the common currency was supposed to make the economies align themselves with each other, practically automatically.

In reality, however, the differences between the economies of the euro-zone countries became larger rather than smaller. The so-called "Club Med" countries benefited from the low common interest rate. They lived beyond their means and they consumed more than they could afford -- to the detriment of their already weak ability to compete.

A country with a flagging economy normally devalues its currency. Doing so makes its goods cheaper on the global market, allowing it to increase exports and cut back on its deficit. But, in a currency union, there isn't an exchange rate that can serve as a compensatory mechanism. If a country doesn't have a sound economy, the tensions only increase.

For these reasons, it has always been clear that the currency union cannot function without shared economic and financial policies. Indeed, that's exactly how politicians imagined things in the beginning. For example, in November 1991, then-German Chancellor Helmut Kohl told the Bundestag that a currency union without a political union would be absurd.

http://www.spiegel.de/international/...-a-806469.html

The European Central Bank is predicting that Spain will be one of the economic drivers of Europe in 2015. Powered by a cheap euro and low interest, economic growth is predicted to rise by 2.3 percent this year. The Spanish government is expecting one million additional jobs for 2014 and 2015.

Along with Portugal and Ireland, Spain represents an example of how an economic crisis can be turned into an opportunity. These countries' experiences show that a nation can recover its economic competitiveness through painful reform, even in a monetary union.

As a result, Spain -- especially in the eyes of liberal economists -- represents the counterpoint to Greece, which has gotten entangled in its national battle against economic relegation and is losing ever more time with its recriminations against the rest of the euro group. That's one view.

Others see the dark side of Spain's success. Mass unemployment, which is still at 23.7 percent, is simply not going down fast enough. And this past weekend showed that the reformers can't count on the gratitude of their voters.

On Sunday, Andalusia, the most populous area of Spain, headed to the polls. Contrary to many expectations, the incumbent Spanish Socialist Workers Party managed to retain all of its seats, but the conservative Partido Popular, which governs Spain, saw its voter share decrease from 41 percent to 27 percent. Two new protest parties, Podemos and Ciudadanos -- which follow the mold of Greece's Syriza -- received 15 percent and 9 percent of the vote, respectively. In Andalusia, where the Socialists have been in power for decades, more than one-third of people are unemployed.

Hemmed in by the Euro

Álvaro Nadal, 43, one of Spain's reformers, receives visitors in a neoclassical palais located directly behind Moncloa, Madrid's presidential palace. The economist thinks fast and speaks even faster. At the most important international conferences, Nadal sits next to Mariano Rajoy, the Spanish prime minister, and is considered one of his most important economic advisors. His office is characterized by dark, severe furniture -- the big conference table is entirely upholstered with olive-green fabric except for its edges.

"After the introduction of the euro, our inflation was always two or three percent higher than Germany's. So after 2000, our competitiveness on the international markets sank," says Nadal, a Harvard University graduate. At first, the cheap money from the ECB and a big real estate boom plastered over the country's problems. Then in 2008 came the big real estate market crash, and Spain was trapped.

Back when the Spanish peseta was still in use, the country's currency could still simply be devalued. Thanks to that tried and tested method, the country had again and again been able to retain its competitiveness in previous decades. But when the crisis broke out, this exit strategy was off-limits: Spain would have had to leave the euro to use it. The option was seriously discussed in Spain at the time, but is now dismissed even by Podemos Head Pablo Iglesias.

http://www.spiegel.de/international/...a-1025327.html

[Thor]

We have very few good options sadly.

[Flash Walken]

Originally Posted by Thor

We have very few good options sadly.

It's the difference between what constitutes a strong economy: the opinion of an outside private/central banker or the opinion of the citizens living and working in that country.

I don't care what the GDP report says, if I don't have a goddamned job, the economy isn't that strong.

[killer_carlson]

on a cbc interview i watched yesterday morning, it was reported that youth unemployment in Greece is 50%.

[nik-]

That's what it just decreased to in Spain. It was 56% in 2013.

[EldrickOnIce]

The EU has definitely not been beneficial to all the member states.
Losing the ability to control currency as part of fiscal policy seems like a really bad idea to me

[CaptainCrunch]

Greece doesn't help themselves at the talks

http://www.washingtonpost.com/world/...b78_story.html

ATHENS — An emergency summit of European leaders called to salvage Greece’s financial rescue broke up acrimoniously late Tuesday, with officials saying the country now has just five days to avoid bankruptcy.
Following a day of talks in Brussels aimed at finding a way out of months of bitter deadlock, European leaders were scathing in their assessments of Greece’s proposals, calling them inadequate and demanding that the Greek government return with a detailed plan by Friday morning. The leaders of all 28 European Union members will then meet on Sunday in what officials said would be the final chance to save Greece from economic oblivion.
E.U. leaders expressed anger that Greek officials offered only oral proposals, rather than presenting a detailed written plan to address concerns about the country’s debt crisis.

The comments came after Greece’s failure to present a formal proposal appeared to deal a setback to attempts at salvaging the country’s financial rescue before its banks run out of cash

http://www.usatoday.com/story/money/...ting/29804091/

ome European leaders appeared surprised by Greece's failure to present a new blueprint Tuesday. Malta's prime minister and labor party leader Joseph Muscat tweeted Tuesday: "The absence of a concrete proposal by Greece government doesn't help this evening's Eurozone leaders' meeting."Before the meeting, the BBC reported that Greece's new bailout plan included a demand for the country's debt to be cut by up to 30%, with a 20-year grace period.

So basically they showed up at the meeting with no proposal except for a 30% debt write down, a long term grace period where they may or may not pay things down.

Oh and give us a bailout right now and we'll figure the rest out later.

Clown shoes.

This is like a person that's over stretched on their credit card asking for an increase and saying he'll figure out how to control his spending later.

It looks like the Troika is going to take a hard stance before any money is released.

The estimate for the Greek banks to run out of money is days.

[CaptainCrunch]

Interesting look at what could happen next

http://time.com/3948475/greece-euro/

[killer_carlson]

I'm curious how those who support Greece's no vote and attempts to end the austerity measures categorize the Greek leadership in this instance.

I've seen well reasoned arguments opposing the austerity measures (not that I agree with the arguments or am convinced they outweigh the arguments on the other side, but recognize there is some logic or merit to them). However, i'm not sure that you can characterize the Greek leadership as anything but reckless.

I think their card is hoping that Nato pressures the EU into helping out, or think that they have a side deal with China in their back pocket already. If that doesn't happen, look out for the average Greek citizen.

[corporatejay]

Originally Posted by CaptainCrunch

Greece doesn't help themselves at the talks

http://www.washingtonpost.com/world/...b78_story.html





http://www.usatoday.com/story/money/...ting/29804091/



So basically they showed up at the meeting with no proposal except for a 30% debt write down, a long term grace period where they may or may not pay things down.

Oh and give us a bailout right now and we'll figure the rest out later.

Clown shoes.

This is like a person that's over stretched on their credit card asking for an increase and saying he'll figure out how to control his spending later.

It looks like the Troika is going to take a hard stance before any money is released.

The estimate for the Greek banks to run out of money is days.

Greece gonna Greece.

[troutman]

http://www.cnbc.com/id/102487149

Greece's cash-strapped government can save 1 billion euros a year if it eliminates contraband tobacco, according to a new report.

The country lost an estimated 740 million euros in revenue from the sale of illegal cigarettes last year, up from 565 million euros in 2013, Euromonitor said over the weekend - a figure it expects to reach 1 billion by 2019.

Euromonitor's calculations are based on the average price for a pack of cigarettes in Greece - 3.80 euros in 2014 - and the average tax burden per pack - 85 percent of the tax inclusive retail sales price.

[HOWITZER]

Originally Posted by troutman

http://www.cnbc.com/id/102487149

Greece's cash-strapped government can save 1 billion euros a year if it eliminates contraband tobacco, according to a new report.

The country lost an estimated 740 million euros in revenue from the sale of illegal cigarettes last year, up from 565 million euros in 2013, Euromonitor said over the weekend - a figure it expects to reach 1 billion by 2019.

Euromonitor's calculations are based on the average price for a pack of cigarettes in Greece - 3.80 euros in 2014 - and the average tax burden per pack - 85 percent of the tax inclusive retail sales price.

Nothing helps you save a billion dollars like spending 500 million on policing to enforce the rules!

[FlamesAddiction]

Originally Posted by killer_carlson

on a cbc interview i watched yesterday morning, it was reported that youth unemployment in Greece is 50%.

That's the official number, but a lot of people in Greece work "under the table" to avoid taxes. Those ones show up statistically as "unemployed". Especially in the tourism and hospitality industry.

[stampsx2]

Originally Posted by EldrickOnIce

The EU has definitely not been beneficial to all the member states.
Losing the ability to control currency as part of fiscal policy seems like a really bad idea to me

So why does it work in the u.s. or canada? Many states and provinces but one currency. Not asking in a demeaning way or anything.

[Regorium]

Originally Posted by stampsx2

So why does it work in the u.s. or canada? Many states and provinces but one currency. Not asking in a demeaning way or anything.

Because we have political unity as well as fiscal unity.

For example, Alberta basically gives billions of dollars a year to other provinces. No strings attached, because the federal government said so.

Same with the states, California or Massachusetts gives billions of dollars a year to Alabama or Kentucky.

For the Euro to work, they basically need to do the same thing - Germany should give billions of euros for free to Greece. But obviously that solution has shown to be quite unpopular.

[blankall]

Originally Posted by troutman

http://www.cnbc.com/id/102487149

Greece's cash-strapped government can save 1 billion euros a year if it eliminates contraband tobacco, according to a new report.

The country lost an estimated 740 million euros in revenue from the sale of illegal cigarettes last year, up from 565 million euros in 2013, Euromonitor said over the weekend - a figure it expects to reach 1 billion by 2019.

Euromonitor's calculations are based on the average price for a pack of cigarettes in Greece - 3.80 euros in 2014 - and the average tax burden per pack - 85 percent of the tax inclusive retail sales price.

Meh...if you look at numbers in Canada they aren't too far off those figures either. Canada makes about 7.5 billion a year in tobacco taxes and 16-32% a year of tobacco sales in Canada are illegal:

http://www.imperialtobaccocanada.com...M?opendocument

http://www.smoke-free.ca/pdf_1/totaltax.pdf

[stampsx2]

Originally Posted by Regorium

Because we have political unity as well as fiscal unity.

For example, Alberta basically gives billions of dollars a year to other provinces. No strings attached, because the federal government said so.

Same with the states, California or Massachusetts gives billions of dollars a year to Alabama or Kentucky.

For the Euro to work, they basically need to do the same thing - Germany should give billions of euros for free to Greece. But obviously that solution has shown to be quite unpopular.

Alberta gives seven billion a year to quebec as a part of revenue sharing on an ongoing basis (which i disagree with) so quebec can continue it's high social spending. How is it different when germany is asked to do the same for greece?

[Mr.Coffee]

Originally Posted by stampsx2

Alberta gives seven billion a year to quebec as a part of revenue sharing on an ongoing basis (which i disagree with) so quebec can continue it's high social spending. How is it different when germany is asked to do the same for greece?

Because they're different countries, with larger divisions in culture, societal structure, history, economic engines, etc.

I'm sure if Quebec and Alberta started out over literally thousands of years of history as separate nations, and then tried to paper mache some kind of currency together and hope it would work, we would face similar issues as the Euro is today.

I suspect what we may witness over the next couple years is the fall of the Euro in general, given that so many countries, not just Greece, have such huge debt issues and not enough economic engines to balance that currency out.

[Mr.Coffee]

Originally Posted by stampsx2

Alberta gives seven billion a year to quebec as a part of revenue sharing on an ongoing basis (which i disagree with) so quebec can continue it's high social spending. How is it different when germany is asked to do the same for greece?

Also not to derail, but Alberta received transfer payments from Ontario for several years. I suspect that this helps with a province swallowing the fact that it must make transfer payments during a period of relative economic strength.

Could the Germans ever realistically look at Greece in a similar light? When will Greece come to Germany's rescue, ever?

[stampsx2]

Originally Posted by Mr.Coffee

Also not to derail, but Alberta received transfer payments from Ontario for several years. I suspect that this helps with a province swallowing the fact that it must make transfer payments during a period of relative economic strength.

Could the Germans ever realistically look at Greece in a similar light? When will Greece come to Germany's rescue, ever?

In a way didn't the greeks help prop up the european economy after ww1 and ww2 when the german economy was in ruins?

Disclaimer: i don't support the greeks current policies.