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Germany warns Greeks it won't be blackmailed in election
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Once Greece has its own currency, it has no need for external credit - though it does have a need for external trade.
Thats exactly what the Weimar republic thought too..0 -
That's what I said in my original post: It's effectively a default.Greece cannot demoninate existing bonds or loans in " new drachma" it has legal obligations to repay in euros.
What it would then be faced with is default. That brings massive implications
Greece needs access to the money markets , after a default it would find that hard to impossible , especially without eurozone support.
NOt to mention the fallout effect in the eurozone generally,
Nor does any party in greece really want to leave the Euro
Of course exiting the EU will have massive implications - that's rather obvious. This is one of those implications.
Nobody has said they're going to go for an exit either; this was answering a question from earlier.0 -
"it could easily happen that Greece may well fully recover within a decade"
Really? Since you have just told us that Europe is about to enter into a period of deflation how does an isolated greek economy which has just cut itself off from the countries to which it exports goods to manage this little miracle? Principle export destinations for Greek goods are EU and US, that all ends when they leave the club as tariffs will make it costly. Greece already exports way less than is average for a country of it's GDP size, that is only going one way once EU market incentives are removed.
How does Greece recover in a deflated Europe? Arguable they'll struggle even more than the rest.0 -
We're not likely to see 'real' Eurobonds; probably something named Eurobonds, that the Germans have stapled down so tightly, that it will be ineffective at bringing recovery.The germans are living with QE, thats a start, then well see Eurobonds in time, ultimately the germans need the eurozone and they just have to grow up and start living with the cousins cooking garlic,.
Any hope of the Germans agreeing to sensible recovery policies, is - after 6-7 years of this - a pipe dream really; they don't show any signs of changing course.0 -
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KomradeBishop wrote: »We're not likely to see 'real' Eurobonds; probably something named Eurobonds, that the Germans have stapled down so tightly, that it will be ineffective at bringing recovery.
Any hope of the Germans agreeing to sensible recovery policies, is - after 6-7 years of this - a pipe dream really; they don't show any signs of changing course.
I dont agree, if you look at the position of the germans today, its far removed from the no no no , even when ireland was in trouble.
slowly slowly cachchy monkey, thats how its done, The german economy is going into a period of retrenchment, nothing like needing bit of help yourself to make you see the light0 -
By not being in the Euro (the Euro is what will lock us into deflation). Once Greece have their own currency, they can easily avoid deflation.Magico Gonzalez wrote: »"it could easily happen that Greece may well fully recover within a decade"
Really? Since you have just told us that Europe is about to enter into a period of deflation how does an isolated greek economy which has just cut itself off from the countries to which it exports goods to manage this little miracle? Principle export destinations for Greek goods are EU and US, that all ends when they leave the club as tariffs will make it costly. Greece already exports way less than is average for a country of it's GDP size, that is only going one way once EU market incentives are removed.
How does Greece recover in a deflated Europe? Arguable they'll struggle even more than the rest.0 -
KomradeBishop wrote: »We're not likely to see 'real' Eurobonds; probably something named Eurobonds, that the Germans have stapled down so tightly, that it will be ineffective at bringing recovery.
Any hope of the Germans agreeing to sensible recovery policies, is - after 6-7 years of this - a pipe dream really; they don't show any signs of changing course.
Probably true, Germany has it's own internal populists to appease. Long term solutions are required, but without european political union it's not going to be possible for any German chancellor to do the necessary.0 -
KomradeBishop wrote: »Hmm, it isn't? They were forced to repay war reparations under the Versailles Treaty, and France occupied and gutted their industry in the Rhineland - severely impacting their industrial capacity.
The post first war german government, decided to pay for the war costs by borrowing, (* unlike the French , which imposed its first ever income tax) so they removed themselves from the gold standard and started printing money ( like was suggested for the greece, i.e. don't need external currency) .
Furthermore the also had to repay external debt in the increasingly devalued mark , which required even more printing of money. we know what the outcome was of all that.
fiat currencies are built on trust, once you remove that they are literally not worth the paper they are printed on.
greece would find this out horrifying fast0 -
KomradeBishop wrote: »By not being in the Euro (the Euro is what will lock us into deflation). Once Greece have their own currency, they can easily avoid deflation.
indeed, deflation will not be an issue at all, rampant unrestrained inflation however will destroy the earning power and savings ( whats left) of its population, subject it to penal interest rates and destroy what remaining standard of living exists.
Returning greece to the 50s and relying on Ryanair to rescue their economy is rather facile.0 -
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Magico Gonzalez wrote: »Goldman Sachs, i thought that was a matter of record?
Yes, otherwise known as the "great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money."0 -
KomradeBishop wrote: »By not being in the Euro (the Euro is what will lock us into deflation). Once Greece have their own currency, they can easily avoid deflation.
Greece will:
1. Have no access to money markets for borrowing (unless the repay in Euros)
2. Face collapsing exports to EU principally. Tariffs, issue with outstanding Euro debts not paid = reptutational damage. Classic symtpon of populism, they'll try and artificially create an internal market and reduce imports, exports can only go out if they replicate the internal market price (or more) otherwise any exporter with a brain will export out for hard currency.
3. By your own criteria have it's major export destination in a deflated state, result? Less exports.
So, exports down. Import restrictions, massive issues in accessing money markets. The Greek economy is currently running on loans, once we remove those loans were does the money come from? Internal market??
They can probably avoid deflation. Their reward for that will probably be unmanageable inflation, huge budget deficits, public sector pension and salary crisis and a collapse in production / manufacturing due to extremely unfavourable export conditions.0 -
No, they ran out of reserves of the currency they needed to pay reparations in, and were forced into printing-and-exchanging for that currency; that's why you don't want foreign-denominated debts (if you run out of reserves of foreign currency, you must default or risk print-and-exchange hyperinflation).The post first war german government, decided to pay for the war costs by borrowing, (* unlike the French , which imposed its first ever income tax) so they removed themselves from the gold standard and started printing money ( like was suggested for the greece, i.e. don't need external currency) .
Furthermore the also had to repay external debt in the increasingly devalued mark , which required even more printing of money. we know what the outcome was of all that.
fiat currencies are built on trust, once you remove that they are literally not worth the paper they are printed on.
greece would find this out horrifying fast
Fiat currencies are grounded in taxes, not trust - you have to pay taxes in whatever currency the government demands, and if they demand you pay it in New Drachma, that's going to underpin the demand for that currency.0 -
If they exit the Euro, the transition to New Drachma will be very very ugly, sure - though whether it will look like that, isn't known; there'll be huge short/medium-term damage, which is the tradeoff needed if they want eventual recovery in the long-term.indeed, deflation will not be an issue at all, rampant unrestrained inflation however will destroy the earning power and savings ( whats left) of its population, subject it to penal interest rates and destroy what remaining standard of living exists.
Returning greece to the 50s and relying on Ryanair to rescue their economy is rather facile.0 -
They won't need to borrow - who in the external markets is going to be lending them New Drachma's anyway, once the currency is newly established?Magico Gonzalez wrote: »Greece will:
1. Have no access to money markets for borrowing (unless the repay in Euros)
2. Face collapsing exports to EU principally. Tariffs, issue with outstanding Euro debts not paid = reptutational damage. Classic symtpon of populism, they'll try and artificially create an internal market and reduce imports, exports can only go out if they replicate the internal market price (or more) otherwise any exporter with a brain will export out for hard currency.
3. By your own criteria have it's major export destination in a deflated state, result? Less exports.
So, exports down. Import restrictions, massive issues in accessing money markets. The Greek economy is currently running on loans, once we remove those loans were does the money come from? Internal market??
They can probably avoid deflation. Their reward for that will probably be unmanageable inflation, huge budget deficits, public sector pension and salary crisis and a collapse in production / manufacturing due to extremely unfavourable export conditions.
If they exit - again, the short/medium-term results on trade and economic output are going to be hugely damaging - no dispute there. What form that will take exactly, is not known.0 -
if Greece defaults it does not automatically mean that they will drop the euro. Having no debt and a strong currency would surly put the Greeks in a better position. Converting their currency to drachma would be a nail in the coffin as it could easily be manipulated both internally and externally.
If the Greeks default it would be totally up to them as to which currency to adopt and if they choose to stay with the euro I don't see how the rest of europe can do anything about it.0 -
KomradeBishop wrote: »No, they ran out of reserves of the currency they needed to pay reparations in, and were forced into printing-and-exchanging for that currency; that's why you don't want foreign-denominated debts (if you run out of reserves of foreign currency, you must default or risk print-and-exchange hyperinflation).
Fiat currencies are grounded in taxes, not trust - you have to pay taxes in whatever currency the government demands, and if they demand you pay it in New Drachma, that's going to underpin the demand for that currency.
Sorry your historical knowledge is faulty. read John Maynard Keynes ,"The Economic Consequences of the Peace" Despite many warnings from experts the German government decided to finance its debts from almost exclusively borrowings ( much like the greeks) rather the increases taxes. In doing so it removed the gold standard and started printing money ( just like QE is doing now). The external trust in the currency collapsed and the economy was subject to hyper inflation and initially responded by printing more money.
IN the end the gov had to abandon the old mark, revalue a new currency ( the Renten mark) and tie it to the US dollar, ( and to promise to prepay its debts in the new higher value currency). It then effectively defaulted on its own people by subjecting them to a 25% valuation in their existing marks.
fiat currencies are based on a complex balance between supply and demand for that currency, print too much and like all surpluses it devalues, restrict it and it becomes more valuable. It has nothing to do with taxes per say see http://en.wikipedia.org/wiki/Fiat_money0 -
if Greece defaults it does not automatically mean that they will drop the euro. Having no debt and a strong currency would surly put the Greeks in a better position. Converting their currency to drachma would be a nail in the coffin as it could easily be manipulated both internally and externally.
If the Greeks default it would be totally up to them as to which currency to adopt and if they choose to stay with the euro I don't see how the rest of europe can do anything about it.
The ECB effectively controls the money supply in the Eurozone, A greek default and remaining in the Euro, would most likely be similar to might have happened in Irelands cases, had it not issued the guarantee.
The fact is that the effect would ripple through the eurozone, killing banks , especially german banks as it went. Greek default would also be sovereign default since the money it has been lent, was lent to the state.
The net effect would be an incredible reduction in ECB funding to Greece. Greece's money supply would dry up and almost certainly the next effect would be to force them out of the Euro anyway, with a then replaying of that scenario.0 -
So far this has been a fascinating thread, with very little of the usual over the top rhetoric which these kind of discussions so often descend into on AH. What's going on?0
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Philo Beddoe wrote: »So far this has been a fascinating thread, with very little of the usual over the top rhetoric which these kind of discussions so often descend into on AH. What's going on?
Hitler.0 -
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KomradeBishop wrote: »They won't need to borrow - who in the external markets is going to be lending them New Drachma's anyway, once the currency is newly established?
If they exit - again, the short/medium-term results on trade and economic output are going to be hugely damaging - no dispute there. What form that will take exactly, is not known.
Sorry you don't get it. How do they finance their state, a state that already runs a very substantial current deficit. How do they refinance their failed banks after a default.
Well if they can't get the money outside, they can only print it. The net effect is exactly what happened to the Weimar republic, massive inflation, especially in imported goods and services and energy. since Greece exports so little as a percentage the devaluation would have little benefit whereas imported inflation would be huge.
You simply cannot escape your responsibilities in the modern financial world, one way or the other you are forced to pay.0 -
Philo Beddoe wrote: »So far this has been a fascinating thread, with very little of the usual over the top rhetoric which these kind of discussions so often descend into on AH. What's going on?
it also illuminates why the " burn the bondholders" nonsense that is spouted in Ireland is plainly ridiculous, the only bondholders we could burn now is the irish tax payer. i.e. default on ourselves, we could have allowed commercial banks to default before the guarantee, but the results would not have been pretty and it would be hard to predict exactly where wed be now, ( not sipping lattes and buying houses anyway )0 -
I've been reading interesting essays claiming whether its more austerity or more credit doesn't matter. Both measures will only kick the real issue down the road. Capitalism is as failed a system as the other one and all this is just a symptom of the beginning of end game. 25 years max they say.
The ultimate problem apparently is - and I must say that sounds quite plausible - that you can't keep increasing productivity infinitely. At some stage you'll only need a few people to produce all the stuff but what are all the other guys going to do? Are they all going to be hairdressers and yoga trainers or shift virtual nothings around like they do on London all day long? And more importantly if they have nothing to do and consequently make no money, who is buying all the stuff then?
What do you say to that btw? Just another lefty loony crazy theory?0 -
Well, it's hard to say. As we all know, Ireland didn't come up with this "solution" unilaterally, so if Biffo's government had refused to turn bank debt into sovereign debt, I suspect the ECB would have waded in to prop up the banks with the same kind of mechanisms but on a European scale.we could have allowed commercial banks to default before the guarantee, but the results would not have been pretty and it would be hard to predict exactly where wed be now, ( not sipping lattes and buying houses anyway )
A collapse in the Irish banks had far wider implications than the Irish economy, to Europe, an Irish default was a secondary concern.
That said, there's a fair argument that the "hit" Ireland took on our banks led to the Troika's eagerness to dig us out of our economic hole, and the subsequent improvement in the overall bailout deal. Had we been more bullish about the bank problem, we could have found ourselves getting a colder reception from the Troika.0 -
I've been reading interesting essays claiming whether its more austerity or more credit doesn't matter. Both measures will only kick the real issue down the road. Capitalism is as failed a system as the other one and all this is just a symptom of the beginning of end game. 25 years max they say.
The ultimate problem apparently is - and I must say that sounds quite plausible - that you can't keep increasing productivity infinitely. At some stage you'll only need a few people to produce all the stuff but what are all the other guys going to do? Are they all going to be hairdressers and yoga trainers or shift virtual nothings around like they do on London all day long? And more importantly if they have nothing to do and consequently make no money, who is buying all the stuff then?
What do you say to that btw? Just another lefty loony crazy theory?
You might like to watch the series made in the seventies called " The mighty micro". it not only detailed both the massive technology changes but also the huge social changes it felt would be the legacy of such technology, the key one being , what are all the people displaced by this technology going to do.
Of course we know that 40 years later they got it wrong, cause they missed the huge numbers of people that the technology needed to employ to maintain itself. Much the same was said when the railways displaced the canals, what will we do with all the redundant workers, funnily the railway system and increased industrial output employed them dozens of times over.
The same will be true as we progress,
The capitalist system works primarily because its resets itself on a regular basis, crashes, depressions, etc are just that a correction.0 -
What do you say to that btw? Just another lefty loony crazy theory?
Where have I heard that before?
http://en.m.wikipedia.org/wiki/Luddite
Hmmm.0 -
You're citing a book by Keynes, written in 1919 - 2 years before the Weimar hyperinflation. Your historical timeline is faulty there.Sorry your historical knowledge is faulty. read John Maynard Keynes ,"The Economic Consequences of the Peace" Despite many warnings from experts the German government decided to finance its debts from almost exclusively borrowings ( much like the greeks) rather the increases taxes. In doing so it removed the gold standard and started printing money ( just like QE is doing now). The external trust in the currency collapsed and the economy was subject to hyper inflation and initially responded by printing more money.
IN the end the gov had to abandon the old mark, revalue a new currency ( the Renten mark) and tie it to the US dollar, ( and to promise to prepay its debts in the new higher value currency). It then effectively defaulted on its own people by subjecting them to a 25% valuation in their existing marks.
fiat currencies are based on a complex balance between supply and demand for that currency, print too much and like all surpluses it devalues, restrict it and it becomes more valuable. It has nothing to do with taxes per say see http://en.wikipedia.org/wiki/Fiat_money
The treaty of Versailles forced Weimar Germany to pay reparations denominated in a foreign currency, which - once reserves of that foreign currency ran out - led to 'print-and-exchange' hyperinflation; this was later exacerbated further, by France invading the Rhineland and confiscating a large amount of Germany's industrial capacity - further reducing their economic output and pushing hyperinflation even further.
Taxes create a guaranteed demand for a fiat currency - the currency a country accepts in taxes, determines the dominant currency of a country; demand for the currency is not solely based on faith in the currency (that doesn't mean the value of the currency, can't be undermined by excessive supply though).0 -
The capitalist system works primarily because its resets itself on a regular basis, crashes, depressions, etc are just that a correction.
Right those essays address that actually. They say the difference is that then we weren't all up to our eyeballs in debt. They say that those crashes or corrections will keep getting bigger and the participants more desperate and natural resource aren't exactly increasing either. They say the next shift will be the mother of all crashes and it won't be pretty.
Btw I'm not actually advocating this position. Just saying I read about it and these essays aren't exactly coming from conspiracy theory loons. Just wanted to throw it out there and this thread seemed as good a place as any.
Maybe Political Cafe would have been a better place for it?0 -
Using their new currency.Sorry you don't get it. How do they finance their state, a state that already runs a very substantial current deficit. How do they refinance their failed banks after a default.
Well if they can't get the money outside, they can only print it. The net effect is exactly what happened to the Weimar republic, massive inflation, especially in imported goods and services and energy. since Greece exports so little as a percentage the devaluation would have little benefit whereas imported inflation would be huge.
You simply cannot escape your responsibilities in the modern financial world, one way or the other you are forced to pay.
You've got the causation wrong there: It was foreign denominated debts and massive industrial output collapse, that caused the Weimar hyperinflation, and then triggered the money printing (which further exacerbated the hyperinflation).
However, Greece will still likely have significantly bad inflation if they opt for 'New Drachma' - because their exports will likely collapse if they are economically sanctioned for defaulting, and combined with the devaluation, will increase the cost of imports; they'll have very high inflation, but so long as they avoid foreign-denominated debt, they shouldn't risk hyperinflation.
It'd be part of the huge short/medium-term cost/destruction, of achieving long-term economic recovery - they won't get any recovery staying in Europe, on current terms (though the best of all worlds, would be Germany/EU softening of terms, to allow them a recovery while staying in the Euro).0 -
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KomradeBishop wrote: »You're citing a book by Keynes, written in 1919 - 2 years before the Weimar hyperinflation. Your historical timeline is faulty there.
The treaty of Versailles forced Weimar Germany to pay reparations denominated in a foreign currency, which - once reserves of that foreign currency ran out - led to 'print-and-exchange' hyperinflation; this was later exacerbated further, by France invading the Rhineland and confiscating a large amount of Germany's industrial capacity - further reducing their economic output and pushing hyperinflation even further.
Taxes create a guaranteed demand for a fiat currency - the currency a country accepts in taxes, determines the dominant currency of a country; demand for the currency is not solely based on faith in the currency (that doesn't mean the value of the currency, can't be undermined by excessive supply though).
I am afraid you are fundamentally mistaken in your understanding
Keynes in his book pointed out the mistakes that led Germany to experience the problems of currency devaluation.
I quote from a review of his book"Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some... Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose."
Keynes explicitly pointed out the relationship between governments printing money and inflation.
""The inflationism of the currency systems of Europe has proceeded to extraordinary lengths. The various belligerent Governments, unable, or too timid or too short-sighted to secure from loans or taxes the resources they required, have printed notes for the balance.
I quoted him in that he is widely accepted as having correctly forewarned leaders of the issues surrounding the Versailes agreement and its effect on Germany and furthermore he explicitly warned of what Germany then did.
You have provided no sources to back your arguments, what I was dealing with was a thread post that merely claimed that Greece could print it way out of trouble, The Weimar experience, albeit more severe , clearly points out the fallacy of that thinking,
All foreign debt is demented in the currency of the lender ( which perhaps the notable exceptions of two or three " reserve " currencies). Germany was no different, it had both huge internal and huge external creditors after the war. Unlike Britian after the Crimean war or France after the First war, it decided, against explicit advise, to fund the repayments by quantitative easing, i.e. printing money. Therin lies the risks of a paper currency.Taxes create a guaranteed demand for a fiat currency - the currency a country accepts in taxes, determines the dominant currency of a country; demand for the currency is not solely based on faith in the currency (that doesn't mean the value of the currency, can't be undermined by excessive supply though).
Taxes have nothing particular to do with currency. ,especially fiat currency. a fiat currency means that a state issue a "promise" that the value stated on the paper currency will be honoured. Promise = faith. Previous to that , a currency was backed by gold reserves , in that cases the paper money promise was backed by bullion in a vault. However the ability to manage credit and raise money in a fixed money supply system causes countries to abandon the gold standard.
lets leave this there, if you want to argue provide sources to back what you say.0
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