The big fat Greek bailout

[killer_carlson]

The greek economic model was not sustainable in any currency regime - EU or otherwise.

[Slava]

I think what happened here is that the Greek government was staring into the abyss and really had little choice but to go back and concede for a bailout. Basically over the past 5 years the ECB was preparing for the Grexit and was prepared to step in a stop contagion (which was the major fear), and if the Greeks were to default they would clear a pile of debt, but be left with nothing anyway. For a government that gets very uncomfortable, very quickly!

The choice appears to have been between default and economic meltdown which probably means civil unrest or concede and try to make the best of that situation. Two poor choices, but this was the lesser evil foe the government.

[temple5]

If Greece had a manufacturing export economy I would probably suggest they stay in the Euro. But with the economy they have, the ability to adjust their currency would be to their benefit. I just dont see it being possible to dig themselves out of this hole without the help of currency manipulation.

With their own currency, people would have economic incentive to vacation there rather than Spain or Italy and would make them more competitive with the North African vacation spots which would bring in much needed foreign currency.

I read an article from the UK a week or so ago giving the broad strokes as to what would happen.

1 - banks would close for a week or so to change everything from E$ to Drachma.

2 - All bank accounts would be converted from E$ - D$ on a 1-1 basis and all contracts would be changed as well (ie debt obligations). Not sure how this would work if you had a contract to say buy greek products for your grocery store in North America?

3 - Banks open and the market would re-value the Drachma. I have seem some estimates as low as 1/10 Euro and would likely then recover within the year to probably 40-50%.

Of course there is some pain there but it would seem to be shorter term more violent pain vs long term medium pain.

I dont see this passing by Wednesday in Greek parliment and I think the Eurozone knows it.

[Byrns]

I wonder if there will be civil unrest if the Greek parliament passes this deal. I'm guessing they're screwed either way.

[CaptainCrunch]

Originally Posted by temple5

If Greece had a manufacturing export economy I would probably suggest they stay in the Euro. But with the economy they have, the ability to adjust their currency would be to their benefit. I just dont see it being possible to dig themselves out of this hole without the help of currency manipulation.

With their own currency, people would have economic incentive to vacation there rather than Spain or Italy and would make them more competitive with the North African vacation spots which would bring in much needed foreign currency.

I read an article from the UK a week or so ago giving the broad strokes as to what would happen.

1 - banks would close for a week or so to change everything from E$ to Drachma.

2 - All bank accounts would be converted from E$ - D$ on a 1-1 basis and all contracts would be changed as well (ie debt obligations). Not sure how this would work if you had a contract to say buy greek products for your grocery store in North America?

3 - Banks open and the market would re-value the Drachma. I have seem some estimates as low as 1/10 Euro and would likely then recover within the year to probably 40-50%.

Of course there is some pain there but it would seem to be shorter term more violent pain vs long term medium pain.

I dont see this passing by Wednesday in Greek parliment and I think the Eurozone knows it.

I don't see how number 2 would work where anyone internationally would accept 1D to 1E, it can happen internally, but I don't think you can really protect the D from the international currency markets, which would plummet the value of the D on day one.

The effects wouldn't be so much for companies importing from Greece as Greece industry can set their price to off set a depressed D. But buying the stuff that they need externally with a 1/10th Drachma international would be devastating in terms of brining in something like Oil or essential raw materials.

[EldrickOnIce]

Originally Posted by Byrns

I wonder if there will be civil unrest if the Greek parliament passes this deal. I'm guessing they're screwed either way.

I think you can count on it, either way.

[Kavvy]

Originally Posted by CaptainCrunch

I don't see how number 2 would work where anyone internationally would accept 1D to 1E, it can happen internally, but I don't think you can really protect the D from the international currency markets, which would plummet the value of the D on day one.

The effects wouldn't be so much for companies importing from Greece as Greece industry can set their price to off set a depressed D. But buying the stuff that they need externally with a 1/10th Drachma international would be devastating in terms of brining in something like Oil or essential raw materials.

I don't get this either.

If i am a Greek, and I have 10 Euro's, those 10 euros are not worth less now then before, which this sort of implies.

Money shouldn't be converted, they should introduce their own currency, but all private monies should stay in the currency.

The USD I have in my USD savings account don't get converted to CAD because I am here, to my mind, same thing.

[EldrickOnIce]

But that is exactly how it would work, more or less.

- Greece defaults on all debts.
- Capital controls put in place to freeze any potential outflow of money from Greece.
- New drachma replaced at 1:1 ratio on anything in Greek banking system.
- Open the currency exchange and watch the drachma plunge

[CaptainCrunch]

Originally Posted by Kavvy

I don't get this either.

If i am a Greek, and I have 10 Euro's, those 10 euros are not worth less now then before, which this sort of implies.

Money shouldn't be converted, they should introduce their own currency, but all private monies should stay in the currency.

The USD I have in my USD savings account don't get converted to CAD because I am here, to my mind, same thing.

If they were to do this, the Greek Banks would probably be forced to put a halt on Euro accounts and force the people into a 1 to 1 Drachma conversion.

But then when the Drachma currency becomes public tender and plunges to that 10 cents on the dollar so to speak. If I'm a business that Imports materials I am literally hyper inflating that cost 10 fold.

[DiracSpike]

If the anecdotal reports I have heard about wide scale, rampant, almost hilarious levels of tax evasion are accurate why don't they beef up their tax enforcement departments. Reign in delinquent tax payers and crony corps instead of raising taxes on everyone and further strangling their economy. It's clear Greece needs a culture change, it would have been nice to see a deal that enforces some level of that change such as actually forcing people to pay tax, but also with some concessions that they could use to try and restart their economy like lowering corporate tax to attract multinationals.

It will be interesting to see what happens, I booked flights to Greece for an early September trip and I'm not sure if I'll go. I don't mind the 60 euro a day rule if thats still going on then but I don't want to be caught in any riots or stuck on a ferry that has no fuel.

[blankall]

Originally Posted by DiracSpike

If the anecdotal reports I have heard about wide scale, rampant, almost hilarious levels of tax evasion are accurate why don't they beef up their tax enforcement departments. Reign in delinquent tax payers and crony corps instead of raising taxes on everyone and further strangling their economy. It's clear Greece needs a culture change, it would have been nice to see a deal that enforces some level of that change such as actually forcing people to pay tax, but also with some concessions that they could use to try and restart their economy like lowering corporate tax to attract multinationals.

It will be interesting to see what happens, I booked flights to Greece for an early September trip and I'm not sure if I'll go. I don't mind the 60 euro a day rule if thats still going on then but I don't want to be caught in any riots or stuck on a ferry that has no fuel.

The only way to really enforce Greece's tax mess would be to haul tradesmen into jail or heavily fine them. This would be a very difficult thing t to do politically. It would be seen as an attack on the working Greek man. Parties like the Golden Dawn party would be all over any government that ever tried that.

[Slava]

^ it's far worse than just tradesman though. There are tax evaders in all kinds of industries and for all kinds of reasons. You're right though; a harsh crackdown on paying taxes would be political suicide.

[EldrickOnIce]

Interesting stuff, as they prepare to vote in the Greek parliament today.
151 votes is a majority.
The majority of the ruling Syzira (162 seats) are likely to vote no, including almost all the cabinet. For these measures to pass, the opposition must strongly support it.

[CaptainCrunch]

Originally Posted by blankall

The only way to really enforce Greece's tax mess would be to haul tradesmen into jail or heavily fine them. This would be a very difficult thing t to do politically. It would be seen as an attack on the working Greek man. Parties like the Golden Dawn party would be all over any government that ever tried that.

Maybe what they need is door to door tax collection by a guy wearing a hood and carrying a very large ax.

Everyone gets their full paycheck and on a weekly basis these guys show up, take their paycheck amount, run it through their hand held Inquisitor 3000, taxlet and then make them pay the percentage right then and there.

Then at the end of the year the tax return that people submit is more about their refundable items.

Of course the preference would be that these tax collectors would only except gold coins, live stock or the Manor's more comely daughters.

[killer_carlson]

In a western democracy, you need political will and popular support to enforce any unpopular rule and see it change behavior long term.

[polak]

And that's why Greece will be in this exact same mess a few years from now. How can they think its possible to run a country, especially one with so many social welfare policies, without paying taxes?

[FlamesAddiction]

Originally Posted by Slava

^ it's far worse than just tradesman though. There are tax evaders in all kinds of industries and for all kinds of reasons. You're right though; a harsh crackdown on paying taxes would be political suicide.

True. When I was there, I chatted with a restaurant worker there and he told me that they get paid cash at the end of the day to avoid being officially on the books. From what I heard, a lot of businesses do that.

[FlameOn]

Originally Posted by polak

And that's why Greece will be in this exact same mess a few years from now. How can they think its possible to run a country, especially one with so many social welfare policies, without paying taxes?

I think it's a long term thing with Greece. They've been used to getting payouts from foreign governments for as long as modern Greece has existed. When the Ottoman empire was collapsing were around they were getting huge handouts from the French and the British to rebuild and fight the Turks. When WWII was around the Allies were propping them up. Post WWII, the Americans were propping them up because of the anti-communist stance and post cold war it's been the EU.

They've been an economic parasite for a long long time... never really had to work out any of their tax problems.

[ah123]

Originally Posted by DiracSpike

If the anecdotal reports I have heard about wide scale, rampant, almost hilarious levels of tax evasion are accurate why don't they beef up their tax enforcement departments. Reign in delinquent tax payers and crony corps instead of raising taxes on everyone and further strangling their economy. It's clear Greece needs a culture change, it would have been nice to see a deal that enforces some level of that change such as actually forcing people to pay tax, but also with some concessions that they could use to try and restart their economy like lowering corporate tax to attract multinationals.

I think you hit the nail on the head, Greece needs a culture change. Read this article a few days ago on how openly people "cheat the system" and it really points to how deep the culture is set

In a notorious scheme that may provide guidance to eurocrats trying to figure out whether this country deserves another big bailout this Sunday, as many as 700 people of the island’s 35,000 residents falsely claimed that they were blind. They were rewarded with more than 350 euros ($477) a month in compensation.
A leading local politician and an ophthalmologist were said to be the ringleaders, although in a lovely twist the medical documents that some of the “blind” provided to the authorities to get their money had been signed by a urologist

“I know from a good friend of mine who grew up in Canada before returning to Greece that your country was built on the rules of Her Majesty. Every country has its own mentality and it has never been the same as that here. What we have is the mentality that rules are made to be broken.”

As Delianis bluntly put it, “In Greece the fish stinks from the head.”

http://news.nationalpost.com/news/wo...nd-scam-822595

[polak]

God, reading #### like that makes me wish they just left it to burn.