Greece to Default on $1.73B IMF Payment

http://www.wsj.com/articles/european-union-prepares-for-potential-fallout-from-greek-bank-shutdown-1435573213

by tormeh • 11 years ago

97 159 11 years ago

Shivetya• 11 years ago

Honestly Greece needs to default if only for their citizens to have to own up to the mess their politicians have made and continue to make. The EU has to cut them off simply because bending to Greece's demands pretty much will open Pandora's box.

Alexis Tsipras and his government have accelerated Greece's decline with their rhetoric, driving bank money out which is reducing the money supply which constrains any recovery. They had to lock down the banks because their economy cannot simply exist on money the state has banked

The EU was never meant to be a transfer union, if it headed that way all the rich nations would likely bail and current politicians would face political defeat.

Close to home (US) Puerto Rico is having difficulties paying their bonds for similar reasons, believing that they could get bailed out just because of what they are.

deciplex• 11 years ago

The EU was never meant to be a transfer union, if it headed that way all the rich nations would likely bail and current politicians would face political defeat.

Is that why it's so easy for the rich over there to hide all their wealth in tax havens like e.g. Luxemburg? To avoid transferring any wealth to the country where they actually made it all, via taxation?

drzaiusapelord10• 11 years ago

My pet theory is that Tsipras is pretty much a communist-lite (Greece is very far to the left politically) and is pivoting to move to state controlled most things/everything under the guise of 'socialism' and 'fighting the evil Germans/Brits/French who steal our money.' I can't see his rhetoric making any sense outside of an extremist power grab. He could be bankrolled by Russian and Chinese interests (both autocracies he looks up to - he has made several secretive visits to Moscow), sell off Greek lands to pay for bills, and pretty much become Cuba. Perhaps even exit NATO as Russia and China pressure him. The funny thing most Greeks would be on board with this.

Or maybe he's crazy like a fox and was courting Russia and China to counter the EU as gambler brinkmanship, but if that was true, there would be a deal by now, not a referendum that will, most likely, remove Greece from the EU.

As a Greek-American I'm always shocked at how extremist the people are there when I visit. They're not like Germans who take something of a middle of the road approach, at least by Euro standards. They're an entirely different beast and I think other EU members are only starting to notice. The EU taking on Greece is like the US making Cuba the 51st state. The culture and governmental divides are huge. It was a bad idea from the start.

I suspect Greece is lost to the EU and somewhat to the West for quite some time. Greeks are prideful people and "OXI" is ingrained into their culture, good or bad.

glesica• 11 years ago

The funny thing most Greeks would be on board with this.

gasp We can't possibly allow a country to do something we don't agree with just because the people want it! That would be undemocratic!

saryant• 11 years ago

Those visits to Moscow were in fact so secretive that the BBC covered them!

http://www.bbc.com/news/world-europe-32214140

selimthegrim2• 11 years ago

So like Avrakotos, are you of the opinion the Colonels were the best thing since sliced bread?

christoph• 11 years ago

It's hard to see how the combined problem of Greece and Puerto Rico nearly simultaneously will not be felt globally.

A bigger worry globally is that China is starting to show serious economic cracks. It's certainly going to be an interesting time ahead.

roymurdock• 11 years ago

Greece = 2% of EU GDP Puerto Rico = 0.006% of US GDP

Both of these default decisions are more ideologically driven (setting precedents) than they are borne of actual economic necessity, such as the TBTF bank bailouts of 2008.

In Greece's case it's not even the private sector's problem anymore as debt restructuring transferred debt from the banks to the EFSF, an entity funded by public, gov't funds (mostly German, French, & Italian). [0] It's fantastic to see how these debt restructuring deals really work. In essence, creditors wrote down 25% of the debt in order to transfer private risk that they had taken on themselves onto the public.

So the direct losers in the case of a Greek default are the taxpayers and, by the transitive property, the politicians of Germany, France and Italy. Indirectly it would be a blow to investor confidence in the EU, but many would probably see Greece leaving the EU as a positive for the overall EU economy and the Euro.

[0] http://www.socialeurope.eu/2012/03/the-mystery-tour-of-restr...

afterburner4• 11 years ago

"The EU was never meant to be a transfer union"

And yet if nations are going to share a currency, they need to have a coordinated economic policy, and that ends up happening. Wealthy states in the US perpetually give money to the poorer states, but there isn't an uproar about it. Seems like the EU was doomed to fail if it didn't allow for this.

notahacker2• 11 years ago

Which is what many relatively level-headed economic commentators were saying before the Euro even launched...

Not to mention the fact that the EU was also never meant to be a debt collection agency, which means that since German and French banks insisted on buying up higher-yielding Greek debt, they richly deserve to share the consequences of it being unsustainable with the Greek taxpayer.

yummyfajitas• 11 years ago

It's unclear how much wealthy US states actually do pay poorer states. Whenever I see statistics attempting to quantify this, they tend to include a lot of questionable things. For example, a military base in Kansas which defends the entire US is treated as a transfer to Kansas, and a person who worked in NJ but retires to Florida has SS/Medicare treated as a transfer to Florida.

If you know of good stats I'd love to see.

ctdonath2• 11 years ago

Several US states are heading toward bankruptcy. NY is very generous with its social spending, while at the same time driving businesses and individuals out via oppressive policies. PR, as noted, just declared its $72B debt is unpayable. Other states are approaching similar conditions.

selimthegrim2• 11 years ago

This is such bullshit - Yugoslavia blew up partially because IMF external pressure (which grew stronger as a result of the country's lost strategic significance after the Wall fell) and a blowup in the current account deficit strained the existing transfer union arrangements and made proper austerity very hard to politically carry out from the center. That should have been the lesson to the EC what happens with a weak union (monetary w/o fiscal)

gonvaled4• 11 years ago

Don't forget that Greece received financial help (IMF etc) so that creditors (big banks, really) could get their risky loans (with high interest rates) repaid, de-facto unloading the private-held debt on the European taxpayer.

This was much worse than a transfer union (where countries are supposed to help each other in times of crisis, alleviating suffering of the people): it was a direct transfer from the European taxpayer to the big banks - mainly French and German. This was neither in any way legitimated by the public, nor is a Eurozone mechanism. It was decided by the European financtial institutions because it made financial sense, so that the European financial system would not collapse.

Once this has been accomplished, it seems that Greece can be disposed of - risking even the disintegration of the Eurozone. Not much good can come of this.

So let's put this in perspective: Germany has benefited manifold of the european crisis:

- extremely low interest rates paid on debt, as opposed to what the Greeks are experiencing. Some of this is based on fundamentals, some of this is pure speculation, which has hugely benefited Germany and hugely in detriment of the Greek.

- big capital gains for the private German banks by investing in risky Greek bonds (help for the Greeks, which was good)

- no loses on the investments, thanks to international help to unload investments once the situation has started to go out of control. They have enjoyed the upside of their investment, and thanks to intervention by the European authorities, no downside.

And the Euro in general has been a big win for Germany thanks to its low exchange rate.

Now the Germans are risking all this in the name of economic Orthodoxy, but Orthodoxy exists to be broken in exceptional times, as it has been broken in the Eurozone several times during this crisis, as the US has broken it (quantitative easing), as the UK has broken it (buying bankrupt banks), as Island (out of the crisis by now) has broken it. Germany itself has broken it several times in the past - breaking the 3% deficit comes to mind.

And now we can not break it to restructure the debt of a country with a GDP lower than the 2% of the Eurozone's GDP? Give me a break!

andrepd3• 11 years ago

"They have enjoyed the upside of their investment, and thanks to intervention by the European authorities, no downside."

This is what gets me. Such is the cosiness between banks and government that this happens. Banks essentially win big time by buying bonds with absurdly high interest rates (that require herculean sacrifices by the citizens of the affected countries to even attempt to repay), all the while completely bypassing the risk that made the interest rates s high in the first place!

Mikeb854• 11 years ago

Honestly Greece needs to default if only for their citizens to have to own up to the mess their politicians have made and continue to make.

That's not the whole story. The reason Greece is where it is today is because of the cruel austerity package imposed upon them by their European creditors. Here's a chart of their GDP: http://www.tradingeconomics.com/greece/gdp

Now of course there are other reasons as well - Greek manufacturing is non-existent, partly because they outsourced their manufacturing to Europe, who went to Greece en-masse for vacations, but then didn't when the global financial crisis hit.

And of course, having an integrated currency but separate government structures isn't the best idea when you have multiple economies that are at disparate levels of wealth. In an ideal world, Greece would have been able to manage their currency and exchange levels (ie. print money), but of course they couldn't.

As part of the EU, Greece essentially got the worst of both worlds - high import costs, lower (relative) income from tourism. And no control over their own currency. And to make matters worse, they got shit treatment from their creditors - their GDP has plunged since the onset of austerity measures, as has government income.

While perhaps Greece could have done more, they did what they were expected to as part of the EU, and it backfired horribly. Now they're finally doing what needs to be done, and the EU cries foul...

drzaiusapelord10• 11 years ago

That's not the whole story. The reason Greece is where it is today is because of the cruel austerity package imposed upon them by their European creditors.

History doesn't start in 2010. Greece pretty much lied to get into the EU and is a badly run country, at best, and a corrupt hell-hole at worst. Low retirement ages, low taxation due to fraud, government being the largest employer, lack of diversification, etc.

Its easy to take this hip anti-EU position for upvotes here, but you're defending a shittily run country in almost every respect.

computer• 11 years ago

Regarding that GDP: it's important to note that borrowing money (and spending it) pretty much directly increases GDP. So saying that austerity is causing a decline in GDP is only half the story: Greece borrowing too much money was one reason it was high in the first place.

sergiosgc3• 11 years ago

The EU was never meant to be a transfer union.

The EU maybe not. The Eurozone, on the other hand, must have a compensation mechanism to allow for the inclusion of countries as different as the Netherlands and Portugal (to use examples far from the polarized Germany<->Greece spectrum).

Whenever a country has a chronic balance of goods surplus, its currency will gain in value. This keeps the surplus from accumulating, by making imports cheaper and exports more expensive. However, combine chronic surplus and chronic deficit in the same monetary zone, and they cancel out. Neither the surplus nor the deficit get corrected automatically by the market.

Now, you can't have a chronic surplus, not any more than you can have a chronic deficit. Either you compensate through other channels of monetary transfer (investment, differential taxation, redistribution), or you are letting the system go in freewheel mode.

If you don't compensate, something is gotta give.

ExpiredLink• 11 years ago

But the Greek gave us so many felicitous words: hubris, chaos, idiot, ...

gesman2• 11 years ago

I use to watch the price of bitcoin and gold to judge the impact level of such news on the world's economy:

https://markets.blockchain.info/

Apparently not that of a big deal.

aqme28• 11 years ago

Bitcoin is not super affected because people are fleeing to the Euro.

eastbayjake2• 11 years ago

There was a spike in Bitcoin prices when Cyprus, another EU member state, imposed capital controls during a potential default and driving Bitcoin prices up 400%. Greece is following almost the exact same path, limiting bank withdrawals to €60 per day.

jorisvh• 11 years ago

Also maybe the move was anticipated.

gesman2• 11 years ago

That's my take too and all risks were already estimated and priced in.

Unfortunately that does not takes into account the risks to well being for the people of Greece.

brobinson• 11 years ago

The movements happened about 24 hours ago as far, as far as I can tell.

http://i.imgur.com/11Zt5xf.png

laichzeit03• 11 years ago

What recourse do the creditors have when Greece defaults? Invade the country and physically reposes assets?

How is this different from borrowing money from a bank and not paying, except being a country and all.

doktrin• 11 years ago

https://en.wikipedia.org/wiki/Sovereign_default

drzaiusapelord10• 11 years ago

They can kick them out of the EU/Eurozone and implement tariffs that will pay off these debts. It'll take decades but its doable if the Greek economy doesn't completely collapse.

beat3• 11 years ago

And there's the rub... the best way to get the debt repaid is to help the Greek economy recover, but prioritizing debt repayment over economic recovery drives the economy even farther downhill. And turning Greece into an economic pariah state with tariffs and other punitive measures is definitely a step in that direction. How are they supposed to recover if they can't engage in free trade?

They could pull a Cuba and create a completely introverted economy - poor, but independent. But if they're doing that, why the hell should they kowtow to the EU or anyone else?

sgift2• 11 years ago

No, they cannot. I have no idea where this lie started, but repeating it won't make it true: There is NO mechanism to kick Greece out of the EU/Eurozone and when the other governments try to do it the european courts will stop them.

sergiosgc3• 11 years ago

This is completely false. Formally, there are no provisions for expelling a country from the EU or the Eurozone.

beat3• 11 years ago

For a recent case study, look at Argentina's default and the restructuring of its debt - 12 years running now, from 2002 to 2005 and most recently 2014.

Part of the issue with Argentina - and I suspect there are similar issues with Greece - is that a significant chunk of the debt (7%) was held by US-based hedge funds that then used the US government to undermine the 2005 restructuring and force payments that Argentina couldn't afford.

Just think about the sort of financial leeches that a situation like this attracts. It really puts the whinging about commies here in perspective.

evanpw2• 11 years ago

Something to note: Argentina issued those bonds under New York law because they could get better terms on debt enforced by the US judicial system than on debt enforced by Argentinian courts.

Also "used the US government" makes things sound worse than they are. What the hedge funds actually did was sue Argentina in the jurisdiction in which the bonds were issued, and win. (Though the ruling is widely criticized.)

afterburner4• 11 years ago

When people or companies go bankrupt, creditors often get little to nothing back. That's the the risk part of risk/reward.

Invasions are illegal.

msandford6• 11 years ago

Invasions are illegal per EU law, or international law, or what? Because I think there have been some big wars in the last 100 years.

Remember that you're talking about institutions that have the MONOPOLY ON VIOLENCE in their respective lands. Those are the kinds of institutions that tend not to take "no" for an answer; they're used to being the final word on something.

That's what a war is, two institutions that have respective monopolies on violence figuring out through violence which one is going to be in charge.

smackfu• 11 years ago

Similar to a person going bankrupt: it's really hard to get loans in the future.

msandford6• 11 years ago

Not really. Russia defaulted in 1998 and had no trouble raising more debt. After they defaulted they suddenly had some free cash flow with which to be able to pay their new debts, and so they looked like a much better risk.

https://en.wikipedia.org/wiki/1998_Russian_financial_crisis

At the government level people are mostly just looking for ability to service. When you're spending 50% of tax revenue on existing debt payments, you don't look like a good risk. When you're spending 0% of tax revenue on existing debt payments, you look like an excellent risk.

It's super wacky, but that's seemingly how it works.

netcan7• 11 years ago

I've sort of turned around in my opinion o Greece.

I started out by seeing this as the Greek Government being cynical, corrupt or incompetent and running public finances into a wall. I still think that's true. That happened and the greek government including the electorate are to blame.

But that is not the main story here. The main story here is what happens when a government does go bust. Sovereign debt doesn't come with these kinds of strings attached. If your debtor can't repay, you don't get to run the country. I think there are two bigs aspects to this whole greek story.

First, is that taking away national currency is taking away the ability to print and devalue your way out of trouble, which really increases the risk of government insolvency.

Second (this is where I've kind of turned around), I do think Germany and the EU are in the wrong. First, is the very german/west european idea that instead of a contingency plan, you need to make sure nothing goes wrong. Regulations and controls. This may work for germany, but it will not work everywhere. Other EU governments will go bust in the future. It's inevitable.

Third, banks run the world. Governments were already very cosy with banks. All the big markets and big fortunes go up and down with the slightest hint of bank health. Everyone is paranoid of banking issues causing wider collapse. Since the banking collapse, bank health has become completely equivalent to economic health. The economies are being nudged and designed to suit them. Central banks and finance ministries top priority is bank health. They are the favoured child.

Backing up a little, Greece's no strings soveriegn debt was converted into EU, Germany & IMF debt with strings in the panic phase of the crisis. Private banks were granted immunity from their bad debts to Greece and the IMF/EU is now acting like a leg-breaker loan shark demanding impossible payments or else. They are tying EU membership to repayment. That is not fair.

The EU needs a bankruptcy procedure. A way for insolvency to be resolved and a way for bad loans to absorb their due share. Greece's government did run the country into insolvency. But equally, these banks did a bad job valuing risk and making loans. Who says sovereign bonds need to be risk free anyway?

enraged_camel• 11 years ago

>First, is that taking away national currency is taking away the ability to print and devalue your way out of trouble, which really increases the risk of government insolvency.

You basically summarized why the entire concept of Euro has been fundamentally flawed to begin with.

tosseraccount6• 11 years ago

The Greek people are responsible.

Greeks overspent and did not want to stop. So they kept spending. It's their own fault.

They can default, start printing their own money and go the way of Argentina.

Ask Argentines how that went.

Or ... they can cut spending and live within their means.

The narrative of "Greeks as victims" is "okay" as long as you point out that they are also the victimizers.

Evil outsiders did not force them to not collect taxes.

People can get public pensions before age 50, for heaven's sake. [ source : http://greece.greekreporter.com/2014/12/04/75-of-greek-pensi... ]

gonvaled4• 11 years ago

They overspent. Their economy is dysfunctional. They share a big part of the blame.

But they have been following the Troika's plan for over 7 years now, they have reduced spending, they have done a huge effort, and still their GDP has collapsed. It seems that the Troika's plan is not working.

That is what Tsipras is saying: we can not continue doing this, and the rest of Europe/Troika has to recognize part of the blame. Not only that: it seems it has the support of his people (we'll see on Sunday)

If Greece had defaulted (or restructured the debt) at the beginning of this crisis, as Iceland did, the situation would be much better. But nobody was interested, since big banks where holding big chunks of high-paying Greek debt, and they needed some time to unload it.

I still remember how the Iceland success story was completely ignored by European media - and still is.

rasz_pl• 11 years ago

Germans were pretty happy lending them more and more money.

codyb• 11 years ago

I'm not sure if this is accurate or not, but didn't Argentina get fucked by the IMF? I know a lot of those South American countries were essentially hollowed out by IMF and forced to privatize a lot of their natural resources resulting in tremendous amounts of wealth inequality and a shrinking of their middle classes.

Of course, this is along with US Military backed coups happening left and right to any country which didn't privatize their countries resources so that American and Western European corporations could get "their share" (i.e. Nestle which still controls something like 90% of the bottled water market in South and Central America).

Gotta love Friedman and his Chicago boys! "If no one will elect us to power, we'll just support dictators! Free market principles at their finest!" - My made up quote for Milton Friedman, Jack Lew, and all the rest of those cronies.

Anyways, I'm at work, so I can't look up sources, but "Shock Doctrine" by Naomi Klein is a great read about this sort of thing.

andrepd3• 11 years ago

They are to blame for the mistakes committed up until the bailout. The destructive IMF/ECB mandated policies, that held down Greece's economy from any possibility of meaningful recovery all the while making the citizens poorer and poorer, all so that the big banks could effectively have the risk from their investments offloaded to the taxpayers, is totally not Greece's fault.

yequalsx2• 11 years ago

Do you believe the banks share any responsibility for lending so much to such a dysfunctional country?

netcan7• 11 years ago

I agree and I said as much.

The question is what now. They have cut spending. They still can't pay on their loans. They can run their government, but not pay back the debt.

If you care mostly about just dues or moral hazards, there are two sides to a bad loan: borrowers and lenders. When things go bad, the borrower suffers bankruptcy and the lender suffers a default. The lenders need to get their dues too. The German government decided to bail them out (with the EU & IMF), so they won't. That part isn't Greece's fault.

hessenwolf3• 11 years ago

Who says sovereign bonds need to be risk free anyway?

Absolutely! Default, and we'll just charge more next time. Whatever. Move on.

The motivation for this extremely anti-default push has not been clearly enough laid out, methinks. Bonds, government or not, are an investment. You think I am 100% the stocks I bought in a Ukrainian egg farm will not go bust? Hell no. All who invested in Greek government bonds should have done their homework.

solve• 11 years ago

Imagine if we used the word "investments" instead of "loans" for these government bonds. One word change and everyone's perceptions would drastically change.

andrepd3• 11 years ago

Precisely! This sort of mentality that the system has a duty to protect investors from being burned is completely upside-down in my eyes. It's the investors that must take the fall when the entity they invested in goes bust, definitely not the gov'ts at the expense of the taxpayers.

nisa• 11 years ago

This was the problem in 2010 and as far as I understood it a lot of e.g. German banks would say: We are done if they default... that's why they shifted the debt to the IMF/European countries.

paulojreis2• 11 years ago

All who invested in Greek government bonds should have done their homework.

In the end and unfortunately, I think we'll have to admit that they did. Nice interest rates and the "whole world" making sure it's paid back.

rogeryu• 11 years ago

Greece will not leave the EU over this, and doesn't have to. Really nobody wants this. The Greek don't want that, and no EU country wants that. This is not going to happen.

I'm a EU citizen - from a rich country, without much corruption, and I don't see how we can change the Greek society within a reasonable period. I don't know what will happen, but I hope the EU will help Greece with many billions to help local people to survive.

This is a hard lesson for the Euro countries. They shouldn't have Greece let in, as well as several other countries. That's hindsite, but as we let them in, it's our responsibility as well. If you invite a country in which has a corrupt system, where not paying taxes is allowed on a massive scale, then you invite problems.

iaskwhy2• 11 years ago

You seem to be confusing the eurozone with the European Union.

paganel• 11 years ago

First, is that taking away national currency is taking away the ability to print and devalue your way out of trouble,

This is only true for the United States and, partially, for the UK, any other nation on this planet cannot just print their own paper-money and convince lots of foreign investors to buy local-currency-denominated debt. It pains me whenever I see this opinion posted whenever the Greek crisis is mentioned, because I grew up in a country where inflation was running in the high-double-digits for an entire decade, and trust me, there were lots of "trouble" for the Government and for us, normal citizens.

Nevertheless, I think you're spot on with the rest of your comment, I never quite understood how come the Governments are so enamored with the banking system (to this day I think that the 2008 financial crisis could have been a lot less worse had Bear Stearns been allowed to go bust with no strings attached in the early spring of 2008, and its creditors to accept the haircuts). I also believe that no-one knows where this is all going.

digi_owl2• 11 years ago

Its a bit tricky but thing is that "money printing" can be used to buy domestic goods and services, that in turn help pay down business and personal debt.

This while also devaluing the currency vs foreign ones, benefiting exporters while giving the population a incentive to spend domestically.

But it has to be performed while there is otherwise a slump in the overall economy. I think term is countercyclical spending.

And it has to be used on domestically produced goods and services. Otherwise one is just asking for trouble.

kamaal2• 11 years ago

This might be a newbie question. But why can some countries simply "print money" while others can't and have to earn it?

ChuckMcM2• 11 years ago

I was wondering the same thing. One of the original challenges to the shared currency question was its implicit subjugating of sovereignty to the currency oversite committee. Back during the voting I recall an editorial asking people if they would let their neighbors balance their checkbook, why would they let Brussels run their currency. And of course if you can make the government do what ever you want to its people in order to keep it solvent, is it really in charge?

Europe went for a much looser union than the union of the United States. It has never been clear to me how you could have an economic federal government but not a military nor social federal government. Greece is putting that question to the test and the outcome will have a big impact on the future of the EU.

netcan7• 11 years ago

I don't think a central currency necessarily means no sovereignty. Does using gold make a country lose their sovereignty?

It just means you can't print money.

What is violating greek sovereignty is debt, in this case. The EU is basically saying that until they get paid, they write the Greek budget.

jfoutz• 11 years ago

I like the somewhat glib cliche, "If i owe you a thousand dollars, I have a problem. If i owe you a billion dollars, you have a problem"

It captures so much of the essence of the relationship. With small debt, a person or a corporation or a government can generally work something out. Skip some unnecessary spending, scale back a bit, and things all work out.

But debt chokes off options. Too much debt, and growth stalls. It's a really vicious circle. If we upgrade the factory machines, we can sell more, but we can't afford to. If we move closer to work, we'd save some expenses, but we can't afford to. Opportunity becomes rare, and it's demoralizing.

I totally understand creditors need their money back. Presumably there was something magical about Greece, some golden egg it was producing that enticed the lenders. I don't see how they can get their money back without killing the goose though.

drjesusphd2• 11 years ago

I totally understand creditors need their money back.

No they don't. They took a risk and lost. Other times, they get paid handsomely for taking the same risk. That's how it's supposed to work.

mcv5• 11 years ago

I don't see how they can get their money back without killing the goose though.

And that's the problem. They seem to be willing to kill the goose, uncaring that this involves real lives of real people.

If the Eurogroup really doesn't want a deal that Greece can live with, then Greece has no option but to default. And as far as I'm concerned, they may as well default on their entire national debt. Start with a clean slate. Reform the economy, and convince investors that this time you will be able to pay all the new loans back. And try to avoid getting so deep in debt this time.

paulojreis2• 11 years ago

I totally understand creditors need their money back.

You wouldn't invest if you really needed the money. At least, you wouldn't invest in high risk investment options.

anovikov• 11 years ago

EU needs a way to press debtors into paying their debts. Like, aerial mining of ports will be a nice first steps for a country so dependent on shipping. After all, the problem is solvable, they CAN pay - by simply taking away part of their national territory and annexing it to say, Germany, with Germany then repaying other creditors.

robomartin2• 11 years ago

The only reason you have this opinion is because perhaps you have mentally disconnected from the basic idea of money. Imagine we were all still using salt to trade for goods and services. Then things might start to make sense.

If a country produces nothing (or not enough) and counts on borrowed salt to survive, failure is guaranteed. If a country gives away salt to people who do nothing in exchange for it, failure is guaranteed. If a country does not develop financial discipline, failure is guaranteed. If a country elects people to government who are only there to enrich themselves and don't do what's right, failure is guaranteed. If a country manufactures starts to use devalued sand that no other country will accept instead of salt, failure is guaranteed.

etc.

On a global market a country IS a business. In order to be successful it has to operate at a profit. Period. This understanding is what seems to be lacking in many electorates. They vote with emotion and out of selfish positions at the cost of completely ignoring that the national balance sheet is, perhaps, the single most important determinant of how well they, their children and future generations will live.

Banks have nothing to do with it. They can't force you to consume or produce salt. How responsible you are with salt is what determines the outcome. Banks just hold it and loan it.

Yes, brutally oversimplified. Yet sometimes oversimplification can sometimes help someone think and understand something. Yes, reality is far more complex than you and I walking around with little sacks of salt. And yet sometimes it isn't much more complex than just that.

seliopou• 11 years ago

On a global market a country IS a business. In order to be successful it has to operate at a profit. Period. This understanding is what seems to be lacking in many electorates.

So if countries are businesses, and they all have to operate at a profit, and one country's revenue is another country's expenditure, where are all the deficits that balance out all the surpluses? The fact of the matter is that it is impossible, like squaring the circle is impossible, for every country in the world to be surplus country as you propose.

Also, as an aside, using a barter metaphor to describe a global, industrialized economy is overly simplistic to the point of being useless, as you pointed out. It's useless the point of being misleading and leading to no more of an understanding of a very complex system.

rayiner• 11 years ago

Third, banks run the world. Governments were already very cosy with banks.

That is nothing new. For centuries, European monarchs were beholden to their banks to finance their wars against each other.

evanpw2• 11 years ago

I agree with a lot of what you're saying here. Greece should never have joined the Euro. There needs to be a procedure for an orderly default within the Euro. A lot of the bailout conditions were counterproductive.

But I disagree with the "strings" argument. If Greece defaults, the troika is threatening to do nothing more than stop loaning money to Greece and its banks. That's it. No leg-breaking.

The issue that Greece's banks are utterly dependent on constant and increasing loans from the ECB in order to stay in business. This has been especially clear in the last few days: the ECB stopped increasing the amount of money Greek banks are allowed to borrow, and in response, all of the country's banks are closed and the ATMs have been limited.

I think you also have the wrong impression about banks. I agree that people overreact to something like the collapse of Lehman Brothers (an investment bank). But this is something different. The Greek banks aren't just sitting on a hoard of their own money that they're afraid of losing. The money in those banks are deposits from the Greek people. When people say they are worried about the banks failing, they aren't concerned for rich people who run the banks, they're worried for the regular people whose life savings are deposited in those banks.

naveen99• 11 years ago

Who keeps their life savings in currency accounts in the bank ? Isn't most wealth / life savings in hard assets like land and businesses ?

gshubert17• 11 years ago

Who holds Greek debt? Private banks, governments, individuals?

Isn't part of the problem that some creditors went chasing after yield and hoped there wasn't much risk to these bonds?

mcv5• 11 years ago

My impression is that Germany and the Eurogroup are obsessed with punishing Greece for exposing this weakness in the Eurozone. They explicitly say they want to make an example of Greece to discourage other countries from voting for left-wing parties like Syriza with economic ideas that don't fit into the destructive "austerity" dogma.

The Greek economy has never been very strong, but the austerity measures imposed on it by Germany and the Eurogroup are really running it into the ground. Greece has paid off part of the debt, and yet the debt has grown in relation to the GDP, because the GDP has gone down that much.

Ruining an economy is not a good way to save that economy, and certainly not a good way to get it to pay back the debt. But they're not interested in helping, they're interested in punishing. To keep the voters of other countries in line and supporting their destructive neo-liberal policies.

digi_owl2• 11 years ago

Government debt is a smokescreen.

the origin of the crisis was private debt, as in loans issued to businesses and individuals.

That debt, while boosting consumption in the short term, end up restricting consumption in the long term.

What then happens, depending on government action, is either a deflationary depression, or a increase in government debt.

The latter by having the government buy domestic products and services that would otherwise be laid fallow as the private sector instead focus on managing their debt.

This is what is happening not only in Greece, but also Ireland, Spain and Italy.

In all of those places euro-zone banks were offering cheap loans. This could be observed by way of building booms and similar.

So in effect what the ECB, IMF and others are doing are bailing out French, German and other private banks, and that is where the majority of the payments to Greece etc end up.

This while Greece etc are burdened by a domestic recession/depression as local industry etc go bankrupt from debt burdens. This in turn lead to masses of unemployed that the government is pledged to take care off via various support systems.

lucaspiller• 11 years ago

For anyone who hasn't seen it yet, there is a crowdfunding campaign on Indiegogo to pay-off the debt. If everyone in Europe contributed, it would be around €3 each. The campaign has raised over €150,000 today:

https://www.indiegogo.com/projects/greek-bailout-fund/x/1873...

miralabs• 11 years ago

that is definitely some sort of trolling.

aquark• 11 years ago

It's a nice thought ... but €3 each covers the immediate payment needed.

Total Greek debt is €323 B [1] and there are 503 million inhabitants in the EU, making 'pay-off the debt' more like €642 per inhabitant

For context total EU sovereign debt [2] is €24,415 per inhabitant

[1] http://www.bbc.com/news/world-europe-33325886 [2] http://www.eudebtclock.org/

mikeash2• 11 years ago

That really puts the scale of the problem in a new perspective for me. That's $715 (at the current exchange rate) for every person on the continent just for the debt of one tiny little corner of it.

Trufa• 11 years ago

Oh man, would this be even possible? That is a lot of money. I'm gonna pitch in but this needs some serious traction.

Wouldn't it be amazing though? Imagine what a breakthrough it would be, this sort of worldwide collaboration, it would be very empowering to common people.

I'm not sure why I'm getting so down-voted, maybe a little bit naive, but I thought I made clear I know it's a long shot, that much is clear, but given that, what isn't true about the rest of my statement?

drzaiusapelord10• 11 years ago

Err, Greece is in the hole for a THIRD OF A TRILLION euros. That's 1.5 years of their entire GDP. This fund is just for the immediate payment. That's on top of running in the red budget-wise sans austerity.

toolsadmin• 11 years ago

All this spending was basically German and French money recycling through Greece, where previous German loans were paid with new ones. Default like Argentina and Iceland did, and start of a fresh slate, keeping this bloodsucking parasite called Brussels on the body of Greece is a travesty - 5 years of ruined lives already.

foliveira• 11 years ago

Isn't the correct term entering into arrears instead of default? Doesn't the Greek government have a couple of weeks to regularise their debts before going into default?

Also someone needs to keep tabs on this: http://isgreeceindefaultyet.com/

hessenwolf3• 11 years ago

Under discussion.

"June 30, 2015 5:05 am Greece’s IMF payment: When is a default not a default?"

http://www.ft.com/cms/s/0/3344581e-1eda-11e5-aa5a-398b2169cf...

sp4ke• 11 years ago

I need to register to read this article, can we please stop sharing locked out content on the internet. Thank you

tummybug• 11 years ago

Search for the link in google and click the result for it.

hackuser• 11 years ago

A few considerations:

1) Many arguments stem from assinging moral responsibility to the Greek people. The people who will suffer most are and will be the poor in Greece, including those on fixed incomes such as pensioners. Yet these are the people with the least power over what their government does. Drive through a poor neighborhood in your town; how responsible are those people for their national government's economic policies? It's cruel and frankly evil to impose the costs on them.

2) Making people suffer is not nearly enough of a response. Nor is saying 'their suffering is not our problem'. Those are non-responses and, I think, moral failure. The people of Germany may need other Europeans' help some day -- they got it after WWII and, for example, they expect their NATO allies to defend them, with the U.S. bearing most of the burden -- they may want to set a better precedent. EDIT: "You’ll never guess which hardline euro zone country has had its debts repeatedly forgiven"[1]

3) This is a leadership failure of the entire EU. There is no way something this critical should have gotten to this point. Part of it, I think, is the failure of EU leaders to stand up for the EU's importance. The nationalistic and xenophobic right-wing, along with Ayn Randian economic policies, are ascendent and nobody is challenging them. Thus the public sees little reason to protect the EU or those suffering in Greece.

[1] http://qz.com/441187/youll-never-guess-which-hardline-euro-z...

Greece to Default on $1.73B IMF Payment

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