The big fat Greek bailout

[temple5]

Originally Posted by GP_Matt

If Greece does transition to a new currency, does anyone know what happens to their debt?

Would their mortgage/credit card/car loans be owed in Euros or would they be converted, along with their savings accounts and paychecks, to Drachmas?

If they stayed in Euros and the Drachma tanks there could be a huge round of personal bankruptcies throughout the country during the transition.

I read in an article from some UK paper that the most likely scenario is (not sure if true)...

1 Banks close to convert all euros to drachmas on a 1:1 basis.
2 All debts are reworked to be due in drachmas on a 1:1 basis with Euro
3 As soon as markets open the market will decide the actual exchange in which case its likely to be max worth 30pct of the Euro which decreases Greek external debt by 70pct

After the initial drop it will come back but at what exchange rate, who knows. Probably in the 1/3D/1E

[CaptainCrunch]

Originally Posted by temple5

I read in an article from some UK paper that the most likely scenario is (not sure if true)...

1 Banks close to convert all euros to drachmas on a 1:1 basis.
2 All debts are reworked to be due in drachmas on a 1:1 basis with Euro
3 As soon as markets open the market will decide the actual exchange in which case its likely to be max worth 30pct of the Euro which decreases Greek external debt by 70pct

After the initial drop it will come back but at what exchange rate, who knows. Probably in the 1/3D/1E

I read that article, and I can't see two and three as being acceptable to the Banks or the countries involved. At least the 1 to 1.

At this point if they even agree to it all of the other countries with heavy debts will demand the same thing.

Its more then likely that if they accept the exit they might accept Greek Currency but at a more realistic estimated market value.

There's no reason why they would accept a 1 to 1 repayment with Drachmas only to see the value of that repayment drop to 30% after the repayment..

[FlamesAddiction]

I wouldn't at all be surprised to see Greece start nationalizing industries and possibly even foreign assets later down the road when things start to get really bad. If they nationalize the banks, they will be starting down that path.

[CaptainCrunch]

Originally Posted by FlamesAddiction

I wouldn't at all be surprised to see Greece start nationalizing industries and possibly even foreign assets later down the road when things start to get really bad. If they nationalize the banks, they will be starting down that path.

That never ends well. And I don't see how they could do it without the funds to operate them and pay the employees.

they won't even be able to make their current payroll by Friday without another bailout.

[Itse]

Originally Posted by EldrickOnIce

And as always, Greeks are independent thinkers

As mentioned, that's to some extent factually true. Greeks work more hours per week than anyone else in Europe, Germans are IIRC bottom of the barrel. The difference is in productivity.

(That's actually an important lesson. Stop staring at the hours, they don't mean s**t in modern economy.)

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?

What you are describing happens pretty much everywhere. In Finland government money flows from Helsinki to the north, in the US it flows from California to the west, in the UK it flows from London...

If this didn't happen, you couldn't really have a working economy. To make a very long story very short, in open systems money always flows one way more than it does the other, until something breaks or someone intervenes. Typically that someone is some kind of a government, and typically they fix this by taxation + subsidies / benefits / handouts. This keeps most people relatively happy and the economy running (until it runs into other kinds of trouble).

This is also what pretty much needs to start happening in Europe, subsidies flowing out of the stronger economies into the weaker ones. Or you can forget about the euro and undo most of EU.

Don't get me wrong, I'm not looking forward to handing out my money to those #######s who already have all the nice weather. But on the other hand, I live in a small economy that could easily be the one to crash soon. (Especially with the current totally idiotic government, grr...)

Having their own currency, their own economic policies and less free trade was the old way in which weaker economies were able to survive contact with stronger ones, but now that free trade is constantly expanding and we have a unified currency and to some extent economic policies dictated from Brussels, there actually isn't that much the weaker economies of Europe can do to when they run into trouble.

The rest of the eurozone has the options of bailing them out before they run into trouble or after they run into trouble.

That's not to say that the two old main parties in Greece (ND and PASOK) didn't make a mess of things, they fully deserve most of their scorn. But if Greece had been handled better the weakest link that broke would have just been somewhere else. Even if everyone is great, someone will be the least great, the least competitive, and that someone will crash under the combined weight of everyone else having more competitive economies.

So essentially with Greece you can either kick them out of the Euro or keep giving them money until someone else becomes the weakest link. The problem with the first solution is that it doesn't fix any of the underlying issues. The problem with the latter is that it's probably politically impossible, especially in the current political climate.

[renny]

Originally Posted by EldrickOnIce

And as always, Greeks are independent thinkers

kinda whacky that Poland has Germany listed as Most Trustworthy and Least Trustworthy at the same time.

[stampsx2]

Originally Posted by Itse

As mentioned, that's to some extent factually true. Greeks work more hours per week than anyone else in Europe, Germans are IIRC bottom of the barrel. The difference is in productivity.

(That's actually an important lesson. Stop staring at the hours, they don't mean s**t in modern economy.)



What you are describing happens pretty much everywhere. In Finland government money flows from Helsinki to the north, in the US it flows from California to the west, in the UK it flows from London...

If this didn't happen, you couldn't really have a working economy. To make a very long story very short, in open systems money always flows one way more than it does the other, until something breaks or someone intervenes. Typically that someone is some kind of a government, and typically they fix this by taxation + subsidies / benefits / handouts. This keeps most people relatively happy and the economy running (until it runs into other kinds of trouble).

This is also what pretty much needs to start happening in Europe, subsidies flowing out of the stronger economies into the weaker ones. Or you can forget about the euro and undo most of EU.

Don't get me wrong, I'm not looking forward to handing out my money to those #######s who already have all the nice weather. But on the other hand, I live in a small economy that could easily be the one to crash soon. (Especially with the current totally idiotic government, grr...)

Having their own currency, their own economic policies and less free trade was the old way in which weaker economies were able to survive contact with stronger ones, but now that free trade is constantly expanding and we have a unified currency and to some extent economic policies dictated from Brussels, there actually isn't that much the weaker economies of Europe can do to when they run into trouble.

The rest of the eurozone has the options of bailing them out before they run into trouble or after they run into trouble.

That's not to say that the two old main parties in Greece (ND and PASOK) didn't make a mess of things, they fully deserve most of their scorn. But if Greece had been handled better the weakest link that broke would have just been somewhere else. Even if everyone is great, someone will be the least great, the least competitive, and that someone will crash under the combined weight of everyone else having more competitive economies.

So essentially with Greece you can either kick them out of the Euro or keep giving them money until someone else becomes the weakest link. The problem with the first solution is that it doesn't fix any of the underlying issues. The problem with the latter is that it's probably politically impossible, especially in the current political climate.

Except the ideology doesn't work. There's no incentive for the weakest link to do better. There's no accountability to the government or the people.

With the ideology you desccribed, why should i succeed? What reward will there be? Why shouldn't i just sit back, chill out and wait till the stronger ones hand me some money?

[EldrickOnIce]

Originally Posted by stampsx2

Except the ideology doesn't work. There's no incentive for the weakest link to do better. There's no accountability to the government or the people.

With the ideology you desccribed, why should i succeed? What reward will there be? Why shouldn't i just sit back, chill out and wait till the stronger ones hand me some money?

The poor will still be poor, even with handouts. The only thing with Greece is, you are broke at the beach.

[Itse]

For those looking for economic analysis on the Greek debt situation right now, this is IMO the best I've run into. )It's written by London school of economis professor of international economics Paul De Grauwe.)

It's a bit long and heavy, but not too much if you know your way around the basic economic terminology. I'll provide some keynotes.

http://escoriallaan.blogspot.be/2015...quid-what.html

One feature of the Greek sovereign debt crisis, which is widely misunderstood, is the following. Since the start of the crisis the Greek sovereign debt has been subjected to several restructuring efforts.

As a result of these implicit restructurings the headline debt burden of 175% of GDP in 2015 vastly overstates the effective debt burden.

Various estimates suggest that this effective debt burden of the Greek government is less than half of the headline debt burden of 175%.

This leads to the conclusion that the Greek government debt is most probably sustainable provided Greece can start growing again

The logic of the previous conclusion is that Greece is solvent but illiquid. Today Greece has no access to the capital markets except if it is willing to pay prohibitive interest rates that would call into question its solvency. As a result, it cannot rollover its debt despite the fact that the debt is sustainable.

There is something circular here. If Greece is unable to find the liquidity to roll over its debt it will be forced to default. The expectation that this may happen leads to very high interest rates on the outstanding Greek government bonds reflecting the risk of holding these bonds. As a result, the Greek government cannot rollover its debt except at prohibitive interest rates. The expectation that the Greek government will be faced with a liquidity problem is self-fulfilling. The Greek government cannot find the liquidity because markets believe it cannot find liquidity. The Greek government is trapped in a bad equilibrium.

From here on out we start moving from laying out the facts to policy commentary and criticism. The last part lays out pretty clearly why nothing moves forward.

What is the role of the ECB in all this? More particularly, should the OMT-program be used in the case of Greece? The ECB has announced sensibly that OMT-support will only be provided to countries that are solvent but illiquid. But, as I have argued, that is the case today for Greece. So what prevents the ECB from providing liquidity? There is a second condition: OMT support is only granted to countries that have access to capital markets. This second condition does not make sense at all, because it maintains the circularity mentioned earlier. Greece has no access to capital markets (except at prohibitively high interest rates) because the markets expect Greece to experience liquidity problems and thus not to be able to rollover its debt.

The explicit aim of the OMT-program was to prevent such self-fulfilling expectations that can push countries into a bad equilibrium.

The use of OMT to provide liquidity support to Greece is made difficult by the fact that public authorities hold the largest part of the Greek debt. To solve this problem it would be necessary that these public authorities recognize that the market value of their claims on Greece debt is worth a fraction of the nominal value. These public claims could then be sold in the market at a price that comes close to the net present value of the future disbursements (interest plus capital). At that moment the ECB could extend its OMT-promise to these assets (bonds) thereby creating a market for them.

I am aware that this solution creates a political problem. Governments of the creditor countries will have to recognize the losses they have already made on their claims on Greece. Politicians prefer to live in a fictional world allowing them to pretend no losses have been made so that they can hide the truth to their own taxpayers.

I conclude that providing liquidity to Greece is possible provided governments stop hiding the truth.

...don't hold your breath waiting for that to happen

[Flash Walken]

Originally Posted by renny

kinda whacky that Poland has Germany listed as Most Trustworthy and Least Trustworthy at the same time.

Depends on which generation of Polack you're talking to.

[Flash Walken]

Itse, amazing posts in this thread so far.

Really informative source material.

[Itse]

Originally Posted by stampsx2

Except the ideology doesn't work. There's no incentive for the weakest link to do better. There's no accountability to the government or the people.

With the ideology you desccribed, why should i succeed? What reward will there be? Why shouldn't i just sit back, chill out and wait till the stronger ones hand me some money?

First of all, you are just factually completely wrong.

Neither Canada or USA or Finland or any other area where this system is in place has collapsed, despite this being status quo politics pretty much everywhere in the west for decades. This is how the western economies already work.

The only thing new here is that we're no longer asked to support our poor brethren in Karelia, which we accepted as those guys are still Finns. (Feel free to localize this for other countries). We're now asked to support our poor brethren in Greece. And that's a pretty big leap.


Second, you mistake ideology for basic facts.

Either everybody has their own money, we allow taxes on imports and we let everybody have their own economic policies, or you start handing out money in some form. Or you watch countries crash. That's pretty much the options as far as I've read.

The eurozone as is just doesn't work. It's a fact. You could fill a small library on books from the last decade debating the issue, but that basic fact hasn't really gone away. You have to do something about it at some point.

If you have other solutions I'm sure professors of economics would be happy to hear you out.

(There are a couple of alternative solutions that I didn't mention, but here's why they don't work:

a) Growth. Just keep growing so everybody has money.
Small problem: historically you can't sustain that kind of growth. In fact for a good while now global economy has had trouble coming up with any kind of significant growth.
Big problem: we are running out of planet.

b) Austerity. If everybody just lives neatly nobody ever gets into trouble.
Small problem: economics don't work that way. If everybody saves, nobody buys and the economy stagnates.
Big problem: People always screw up. )

[Itse]

Originally Posted by Flash Walken

Itse, amazing posts in this thread so far.

Really informative source material.

Well this is related to my current field of studies, social and economic history. Plus the politics of the situation are really quite fascinating.

Plus my Facebook feed is now probably 40% Greece and 30% economic politics in general, so I get a lot of help


Oh, I meant to comment:

Greece being "pro-Russian" is a complicated claim to put it mildly.
The Greek civil war was really the first battlefield of the Cold War, with US and Brits supporting the government side and communist Yugoslavia and Albania supporting the other side. The government won that war and Greece became a country firmly in the Western camp, joining NATO among other things.

On the other hand Russia and Greece are both primarily Orthodox Christian countries. That's a pretty small club that likes to stay in touch, which to casual observers can create the illusion that they are politically closer than they actually are. Many also assume the Americans supported the military coup. (It's probably not true, even though USA does have quite a bit of pro-junta history elsewhere.)

It's also one of those things that people who don't live in the borderlines of the cold war never get. The best way to stay truly independent in that game is to play both sides. The other option is to firmly embrace one camp over the other, but that often leads to some of your policies being dictated either from Moscow or from Washington/London.

So are the Greeks playing the Russia-card against the west? Yeah, probably. Do I blame them?
Not a lot of high horses in Finland on that topic.

[stampsx2]

Originally Posted by Itse

First of all, you are just factually completely wrong.

Neither Canada or USA or Finland or any other area where this system is in place has collapsed, despite this being status quo politics pretty much everywhere in the west for decades. This is how the western economies already work.

The only thing new here is that we're no longer asked to support our poor brethren in Karelia, which we accepted as those guys are still Finns. (Feel free to localize this for other countries). We're now asked to support our poor brethren in Greece. And that's a pretty big leap.


Second, you mistake ideology for basic facts.

Either everybody has their own money, we allow taxes on imports and we let everybody have their own economic policies, or you start handing out money in some form. Or you watch countries crash. That's pretty much the options as far as I've read.

The eurozone as is just doesn't work. It's a fact. You could fill a small library on books from the last decade debating the issue, but that basic fact hasn't really gone away. You have to do something about it at some point.

If you have other solutions I'm sure professors of economics would be happy to hear you out.

(There are a couple of alternative solutions that I didn't mention, but here's why they don't work:

a) Growth. Just keep growing so everybody has money.
Small problem: historically you can't sustain that kind of growth. In fact for a good while now global economy has had trouble coming up with any kind of significant growth.
Big problem: we are running out of planet.

b) Austerity. If everybody just lives neatly nobody ever gets into trouble.
Small problem: economics don't work that way. If everybody saves, nobody buys and the economy stagnates.
Big problem: People always screw up. )

Not worth argueing. This was all debated, argued and linked in the elections thread for many pages by many people. I think it's best we agree to disagree. No amount of links, scientists, professors, web pages, real life examples, science experiments, are going to change anybody's mind one way or the other.

[polak]

Originally Posted by renny

kinda whacky that Poland has Germany listed as Most Trustworthy and Least Trustworthy at the same time.

Old v. Young

Poland is one of the strongest economies in Europe and a lot of that has to do with their strong relationship with Germany.

[flamefan74]

Originally Posted by Itse

First of all, you are just factually completely wrong.

Neither Canada or USA or Finland or any other area where this system is in place has collapsed, despite this being status quo politics pretty much everywhere in the west for decades. This is how the western economies already work.

Just asking for clarification, but are you comparing this system in a single country to a group like the eurozone? I would think a single country could handle this system without collapsing, but if it was Canada and the US supporting say Mexico, what incentive is there for Mexico to get better? Continuing payments to that country from the other 2 would have to be a burden and eventually cause a collapse.

[Ozy_Flame]

Originally Posted by renny

kinda whacky that Poland has Germany listed as Most Trustworthy and Least Trustworthy at the same time.

I like how Italy thinks they themselves are the most untrustworthy country. I asked my girlfriend (who is Italian) what she thought and she responded with "Greasy politics, in bed with the Church and the Mafia." That's all I needed for an explanation.

[CaptainCrunch]

Really good column by Andrew Coyne

http://news.nationalpost.com/full-co...-of-victimhood

[Slava]

I know its more fun to discuss how terrible the scenario is for the Greeks and things like that, but the new package they brought forward is essentially what the EU (Germany) wanted. In other words, the Greeks could've just accepted this type of deal weeks ago and saved their citizens the bank closures and pressures, but instead dragged it out.

While nothing is certain yet, it appears to be a solution and the markets are liking what they see at this point.

ETA link: https://www.washingtonpost.com/world...b78_story.html

[White Out 403]

Originally Posted by CaptainCrunch

Really good column by Andrew Coyne

http://news.nationalpost.com/full-co...-of-victimhood

fantastic column. even manages to turn it into a rah rah speech for trickle down economics. cuz that worked so well under bush. and bush. and reagan. basically the united states since 1980... where wages have frozen for virtually everyone and the wealth gap has exploded into making the usa a sort of oligarchy.

sorry i digress. a little off topic.