Greek Debt Crisis Deal Is Reached, but Long Road Remains

http://www.nytimes.com/2015/07/14/world/europe/greece-debt-plan.html?_r=0

by drchiu • 11 years ago

19 98 11 years ago

Ignorance alert: I'm no economist nor an European.

Since Greece's economy has been in the doldrums for a while, I'm wondering why don't European powerhouses (like Germany) move some manufacturing there? Greece is a popular tourist destination; so how come I'm not hearing of lots of outside money moving in to buy hotels, resorts, etc.?

hartator2• 11 years ago

Corruption.

It's not a coincidence that money had vanished. German manufactures will face extortion that will draw away any perks provided by low cost of living.

zaf• 11 years ago

so how come I'm not hearing of lots of outside money moving in to buy hotels, resorts, etc.?

In the leisure industry that'e been happening big time on the Premium level for the last 10 years and now slowly at the Luxury level.

As for European/Global industrial powerhouses it's always been the red tape and government agency middle men that has been the main friction for moving in.

Whats happening is that these hassles are being removed as Greece gets more in line with European regulations.

derriz2• 11 years ago

Greece is quite corrupt by western standards. Their previous minister for defense is serving jail time for bribery. Politics and society are based on clientism and patronage rather than rules and an independent legal system. This is why tax compliance is so low. Even the ownership of land is murky (they've spent 20 years and 100m of EU grant money attempting to build a basic land registry with little to show for the money). So without connections it's quite a hostile environment to operate a business.

Edit: seems I'm getting downvoted for some reason. So here are some links: http://openeurope.org.uk/blog/reforming-greece-easier-said-d... http://www.nytimes.com/2013/03/05/world/europe/former-greek-... http://www.transparency.org/cpi2014/results

grey-area5• 11 years ago

The current minister of finance in Germany had to resign after accepting 100,000 DM from an arms dealer, and is director of The Institution for Growth which he suggested 50B in Greek assets be transferred to. More blatant corruption would be hard to find. Yet somehow he has the chutzpah to lecture Greece on financial probity.

https://www.kfw.de/KfW-Group/About-KfW/Vorstand-und-Gremien/...

paulhauggis• 11 years ago

You are getting downvoted because you hurt the feelings of many HNers by saying something truthful.

return0• 11 years ago

1) It's expensive. Greek industry itself has moved to the balkans, and china. Many greek businesses run through cyprus to survive (low tax).

2) laws not being enforced in places where they should.

3) lets just say, the greeks have been spoiled by a decade of easy lending and dont have the greatest work ethic.

4) Many hotel chains have been sold in the past decade. Tourism doesn't make as much as you think.

nugget• 11 years ago

All they did was kick the can down the road for the 32nd time. This is the most boring sovereign default in history.

hartator2• 11 years ago

Yes, I feel it will never end. Detroit is almost the size of the greek economy (~ 200 billions USD vs ~ 242 billions USD) and had gone bankrupt without any major waves.

dotnetchris• 11 years ago

other than it is now a complete and utter wasteland in comparison to the rest of the US?

tptacek9• 11 years ago

Detroit's insolvency is backstopped by the state of Michigan and the federal government.

PaulHoule• 11 years ago

Yep, the problem with the greeks is that there is never a crisis. Three months from now we are going to be hearing about this all over again.

outside12342• 11 years ago

This is why Germany and the baltics wanted reform up front - it prevents Greece from screwing around for another 3 years and not making any changes that get it healthy over the long run.

nextw33k2• 11 years ago

It is in the creditors interest to only provide a short term solution. They want to see reforms actually put in place to ensure the money is going to where it is needed.

If Greece were given enough to tide them over for 10 years how do you think the government would spend it?

Debt management is about a partnership, where financial responsibility is learned but both sides. The creditors are learning to be more cautious and Greece is/has learnt to control its spending.

civilian2• 11 years ago

Greece really needs to get rid of their occupational licenses. It's great for the people who are already licensed, but it's just a drag on the economy: http://www.nytimes.com/2010/10/15/world/europe/15greece.html

guelo2• 11 years ago

25% of German workers require an occupational license.

peterfirefly17• 11 years ago

And Germany would be much better off without that.

civilian2• 11 years ago

To compare, roughly 30% of the US require an occupational license. Germany's more free-market than the US in this regard. Weird, right?

I couldn't find good numbers on what % of jobs in Greece require a professional license.

radu_floricica2• 11 years ago

As a matter of principle, there is a difference between:

- you need expertise in order to be able to safely do X: take these exams and you're certified

- the state sells a limited number of licenses in order to create artificial shortage, usually combined with guaranteed profits, like the 35% profit in the link. The certification is just a piece of paper and only loosely related to a set of exams.

ZenoArrow15• 11 years ago

This is really reckless, I hope the Greek government rejects this deal. The debt is already beyond what Greece can pay, unemployment is very high, and yet the plan is to combine more debt and more austerity. This is nothing less than a power grab, there's no interest in a strong Greek economy before its public infrastructure has been sold off.

I hope the Greek government has the guts to go bankrupt. It'd be a short term loss with a long term gain. It's not like the creditors have to lose out, Argentina showed that by paying off its debts after their currency issues. Similarly, savings could be protected by freezing their value and offering to pay the equivalent in the new currency (assuming Greece would be required to leave the Euro).

neokya3• 11 years ago

It isn't that black and white.

While exiting might be good in the long run, you make it sound like it will be all right. If they exit, Greece will suffer worst and will need humanitarian help to save it's citizens.

Remember, Argentina still can't raise capital from market even after more than a decade.

Daishiman• 11 years ago

Remember, Argentina still can't raise capital from market even after more than a decade.

Argentina was quite capable of doing that just right before their legal case with a few predatory holdouts made life for the government difficult again.

To be fair, it was an incredibly mismanaged trial (both by the defending lawyers and Cristina's insane and confusing statements), and the holdouts in question are essentially the scum of planet Earth, purposely speculating on junk bonds and always going to trial for profit.

Despite that, both national and local governments have been raising capital to the tune of several billion dollars. Of course, the interest rate is insane, but that's more of a question of the government's disastrous capital control policies; serious private investors were not convinced that the default over the holdouts' bonds is too relevant.

blumkvist3• 11 years ago

You've been drinking a lot of cool aid, it seems. This is a popular propanda statement on a lot of TVs in the region.

The greek governments and people had many, many years to reform and they simply refused. They have jaw dropping social spending and corruption. They elected a populist party and voted OXI to the last proposal, which was better than this one.

Also, Argentina is in a terrible situation, don't know why you even bring it up. Probably more kool aid you drank from some politician you saw on TV.

mikeash2• 11 years ago

I think you make some good points, but unfortunately your first paragraph and last sentence destroy the value of your comment.

neokya3• 11 years ago

This is my thought as well.

Countries which recognised the problem and took charge of it are doing good now, eg Ireland.

Greek politics looks quite bad. They need a market friendly government who can indeed do reforms. Sadly, left parties have the majority.

Only way forward I guess is to force reform down their throat by IMF/EU first and then hope they realize it then continue it. That's what happened in India in 1991 https://en.wikipedia.org/wiki/Economic_liberalisation_in_Ind...

grey-area5• 11 years ago

You're both talking past each other by adopting extreme positions and making sweeping moral judgments about entire nations.

My issue with this new bailout is that it presents yet more debt as the solution to crushing debts which Greece can't even afford the interest payments on.

As the IMF admitted, it's not a sustainable solution, the many politicians and reporters talking about it probably know this but they just don't care because they can more easily sell a simple morality tale about Greek profligacy or German imperialism to their constituents.

peterfirefly17• 11 years ago

They elected a populist party and voted OXI to the last proposal, which was better than this one.

It was nicer and softer but not better -- with this agreement, they have three days to finally, finally!, pass some much needed reforms, many of which were already promised as part of previous relief packages. If they actually do pass them, they will be much, much better off.

Shame that the "Greuhandanstalt" will be in Athens under Greek management instead of in Northern Europe under adult control. Maybe they will fix that if Greece doesn't meet the deadline and they get a chance to renegotiate.

This is what happens when you try to play chicken with a brick wall.

ZenoArrow15• 11 years ago

I'll leave aside the ad hominems, and address the core of your arguments.

From what I've read there appears to be consensus across the board that the Greeks approach to taxation is currently too complex, and reform of this tax system would be sensible.

With that said, there's a fundamental misunderstanding of what's happening with these loans. Read this...

http://jubileedebt.org.uk/reports-briefings/briefing/six-key...

"When the IMF, European and ECB bailouts began in 2010, €310 billion had been lent to the Greek government by reckless banks and the wider European financial sector. Since then, the ‘Troika’ of the IMF, EU and European Central Bank have lent €252 billion to the Greek government.[1] Of this, €34.5 billion of the bailout money was used to pay for various ‘sweeteners’ to get the private sector to accept the 2012 debt restructuring. €48.2 billion was used to bailout Greek banks following the restructuring, which did not discriminate between Greek and foreign private lenders. €149.2 billion has been spent on paying the original debts and interest from reckless lenders. This means less than 10% of the money has reached the people of Greece."

Furthermore, there's a common misconception that the Greeks are lazy, but the statistics show that they have the longest average working hours in Europe, and their average retirement age is not that different from the rest of Europe.

As for Argentina, yes they're not out of the woods yet, but since their economic crash they've had impressive growth. IIRC it's been the fastest growing economy in South America recently, I'm sure I could find the stats if you disputed this.

So, with all this in mind, why do you think more loans is the answer?

elorant3• 11 years ago

The debt is already beyond what Greece can pay, unemployment is very high, and yet the plan is to combine more debt and more austerity.

These are the bad news. The good news is that now Greece will participate in ECB's QE program that will relief some of the debt burden and is also promised a 35bn five-year program to finance growth, as part of Juncker's 315bn investment plan. [1]

All things considered this isn't a bad deal after all, if we could leave aside all the unpleasantness and the bad blood of the negotiation process.

As a Greek I'm happy we avoided bankruptcy because exiting the Eurozone would bring us back to the stone age. And of course if we haven't been fooling around for five months we could probably get a much better deal.

[1] http://www.euractiv.com/sections/eu-priorities-2020/junckers...

outside12342• 11 years ago

I'm so happy to hear someone from Greece say that. I think the alternatives were all worse and this is the best of a lot of bad options.

ZenoArrow15• 11 years ago

Reading the details of Juncker's €315bn investment, it just sounds like a new loan package, what makes this particular loan package good for economic growth?

rsync• 11 years ago

"I hope the Greek government has the guts to go bankrupt. It'd be a short term loss with a long term gain. It's not like the creditors have to lose out, Argentina showed that by paying off its debts after their currency issues."

The confusing part is that there is a very recent, very relevant precedent that was set by Iceland and for some reason that course of action is completely off the table.

I don't know why. It appears to have worked very well for Iceland.

tptacek9• 11 years ago

Iceland isn't part of the Eurozone, is it?

radu_floricica2• 11 years ago

I don't think Iceland's government defaulted. AFAIK, they simply let their own banks fail and made no move to support them. UK was pretty pissed off because their citizens lost cash in those banks, and they expected Iceland's citizens to cover for them.

Greece is in a completely different pot of hot water. Their incomes (taxes) keep being lower than expenditures, aka salaries, pensions etc. Not getting any more EU help means they will start paying their doctors and firefighters with monopoly money.

drjesusphd• 11 years ago

Can someone answer this simple question: why do Greek banks have no money? They are private companies and are not the ones that defaulted.

revelation• 11 years ago

The ECB has been keeping Greek banks alive for many months now. If you missed the news, there are long lines at ATMs and plenty of Greeks moving money anywhere but Greece - no bank can survive a bank run.

cmurf2• 11 years ago

Read fractional-reserve banking. They only have a small fraction of deposits in the form of cash. Since the bulk of the Greek economy depends on imports, it means they are constantly importing stuff and exporting cash.

And their dependency on actual physical paper money in the day to day economy has really hurt their economy more in the last two weeks than anything that's happened since the 2nd bailout; it may turn out this current period injures the Greek economy worse than any of the austerity measures.

bradleyjg• 11 years ago

The big danger inherent in a bank is a liquidity crisis-- their loans can't be called in all at once and their assets generally can't be sold all at once without losing a lot of value, but their liabilities in the form of demand deposits can be withdrawn at any time. So in the modern era central banks generally stand as a lender of last resort, if all the depositors want their money out at the same time then the central bank will lend individual banks cash against their assets to give to depositors. This promise, if made credibly, has the effect of preventing bank runs.

The Greek banks have a different problem, a solvency crisis. They have made investments and loans that have not done well, in part because the economy as a whole has not done well. That includes lending money to the Greek government in the form of bond purchases. So it is simply the case that their liabilities (including money owned to depositors) are greater than their assets (including the risk discounted value of outstanding loans).

peterfirefly17• 11 years ago

This promise, if made credibly, has the effect of preventing bank runs.

That, and the depositor's insurance, which is supposed to be for the first 100,000€ in the EU. The insurance is funded and legislated at a country level and the Greek insurance fund is simply way too small.

They have made investments and loans that have not done well, in part because the economy as a whole has not done well.

Don't forget bad loans to connected people/companies.

peterfirefly17• 11 years ago

Partly because the Greek state forced them to buy Greek treasury bills (until the ECB put a stop to it). They are worthless at the current CCC- rating.

That's one of the reasons why they are most likely insolvent.

They are illiquid (have no cash money) because too much cash money has been withdrawn (and the ECB stopped raising the Emergency Liquidity Assistance debt ceiling at 89G€).

If they are actually insolvent, then it was most likely illegal for the ECB to continue the ELA for so long, but they (along with everybody else but the Greeks) did their utmost to keep the situation from getting worse.

guelo2• 11 years ago

When Greece finally leaves the Euro I hope they deny travel visas to Germans.

neokya3• 11 years ago

LOL - that would be funny cause tourism is only proven way Greece makes money.

peterfirefly17• 11 years ago

That and EU subsidies.

johnsea• 11 years ago

I hope and wish that they are able to reform their country. And limit the influence of the extreme right/left wishful thinkings.

kazinator• 11 years ago

Can the homeland of Archimedes return to buoyancy?

Edit: I am satisfied with zero points (a circle!) for this comment, which seems fair. I therefore implore you good people, "noli turbare circulus meus!"

vessenes2• 11 years ago

I'm a Greek immigrant kid, so I have some emotional attachment, and lots of family in Greece, but little actual knowledge of life on the streets in Greece since they joined the Eurozone.

That said, it has seemed to me for some time that exiting the Eurozone would be far preferable to this sort of solution, e.g. one that leaves the debt high and lets Germany force austerity measures down into the local economy.

Isn't precisely what is required right now massive currency inflation, leading to far cheapened Greek exports (tourism and olive oil?). I would love to buy a villa in Greece, if I had the cash. And, if the new drachma is issued, and inflates heavily, it will become much less expensive to do so.

It seems like the Eurozone has locked in these smaller countries with an import friendly lifestyle; they get Germany-quality goods in without tariffs, and it's emotionally very hard to think about going back.

_rpd2• 11 years ago

Currency devaluation is usually preferred to inflation - that's why exiting the Euro is under consideration, so that there is a local currency to devalue. High inflation erodes savings and discourages investment - it can be socially destabilizing.

vessenes2• 11 years ago

Yes, you said it better. I was imagining devaluation. The interviews with Varoufakis are interesting this week; they indicate he had a "don't leave eurozone, but get leverage" plan which involved nationalizing banks and issuing their own 'ious', presumably senior in some ways to their existing debt. Seems like the administration didn't have the stomach for it.

I don't think this ends well for Greece, frankly. This kind of authoritarian punishment is what drove Germany into WWII at some level; crushing debt and 'punishing' as a thing you do to countries just isn't a great plan.

vamur• 11 years ago

Syriza government is laughably incompetent. They had 6 months to introduce a cryptocurrency and remove reliance on ECB for running internal economy and exports. They also had 6 months to start reforms to reduce bloated government spending and invest to reduce food imports.

Instead, they let ECB take Greek deposits as hostage, wasted 6 months on negotiations before imposing capital controls, did not get anything in return for not vetoing the Russian sanctions and signed a deal that is worse than any worst case scenario from the default. After the deal, they will give ECB direct control of Greek economic sovereignity. And 50 billion of state assets as a repayment for interest on the debt that is essentially permanent! With only vague promises of haircuts sometime in the future.

In 3 years after this new deal, Greece will likely lose 20% of its GDP and 10% of its population, as anyone with a brain will try to emigrate. That is if Greek people do not object to this deal, which seems highly unlikely.

Greek Debt Crisis Deal Is Reached, but Long Road Remains

Related Stories