Greeks having a referendum on bailout

murphaph

oscarBravo wrote: »

This is a meme that seems to have quiet currency - that somehow the choice is between long-term austerity, or some other unspecified but vastly superior choice.

Can you explain how exactly ten days of austerity is going to work? Greece defaults on its debts, and in less than two weeks the markets are queueing up to lend them the money to pay for a generous welfare state without bothering to collect taxes? I don't get it.

Greece has fundamentally the same problem we've had - an unsustainable current deficit. That has to be fixed. Whether they actually start making people pay taxes or cut their public sector pay bill and social welfare, it has to happen.

Unless I'm missing something.

I don't think Sand was stating that the austerity would actually be over in 10 days and Greece would be back borrowing on the bond markets. His point seemed mainly that both alternatives for Greece are rather stark but having let the people choose the one they didn't want the least, it (Greece) might have had a chance of implementing it.

The deal isn't about saving Greece (though it may make life their better than default-I really don't know) but rather it's about building a firebreak to try to contain the disease from taking down the Euro itself. That's pretty clear at this stage I believe.

I think Papandreou basically cracked under the strain of running such a basket case of a country with unrealistic expectations from his people, an opposition (who largely caused the mess when they were in government) squawking at him but not offering any real alternatives and of course massive pressure from his EU "colleagues". I wouldn't take that job for all the tea in China!

Sand

@Oscar Bravo

This is a meme that seems to have quiet currency - that somehow the choice is between long-term austerity, or some other unspecified but vastly superior choice.

You wouldnt have had a reply if I hadnt inserted that single sentence I guess, so we must agree on everything else.

Well - apart from that - most people would agree that the current Greek situation is unsustainable. Plus, here we are, three years on from 2008 and still the growth fairy hasnt arrived to make the unsustainable, sustainable. Even by Irish standards (growth rates cuts, austerity measures increased today btw...). So youre question seems more to be "Why should we face reality, when we can continue in a bubble of unreality for a few days/weeks/months longer".

If a given situation is considered to be unsustainable, what exactly is gained by trying to sustain it artificially by borrowing - at interest? Remember, we have already buried the growth fairy.

If we accept theres nothing to be gained except more time to transfer Greek deposits to German banks (and there isnt...) then the only alternative is that more time would give us the opportunity to come up with a better plan to deal with the inevitable fallout - however, here we are, three years on from 2008 and we still dont have a plan to deal with the 2008 banking crisis, let alone the 2010 - 2011 sovereign crisis. The current gameplan is that if everything goes *fantastically* well, that the Greeks will wind up with 120% GDP debt by 2020. Thats a ludicrous plan, as Italy is drowning at 120% GDP debt. The Greek plan will simply. not. work. Not too surprising given it was brought to you by the same morons who swore blind that Greece would never, ever, ever, ever default in any shape or form.

So whats to be gained from playing for time? Perhaps a lot for particular people close to power, but not for the wider majority of people.

The Greek situation is unsustainable. It is unsustainable now. It will be unsustainable in 2020. We can continue the pretend and extend nonsense, bury the European project, and waste all our time with an adversarial relationship between core and periphery or we can get on with the inevitable.

The real question is why should our efforts be directed to sustaining an unsustainable situation when we should be focused on picking up the pieces? Remember, we are here because people were terrified of the consequences of letting some banks fail and insisted on trying to sustain what was unsustainable.

Regardless of all the above Oscar - theres a certain reality. Its entirely within the rational self interest of the Germans to pay whatever it takes to bailout the Greeks. The Euro has been great for Germany, locking the rest of Europe into a completely unequal death match with their export sector. However, no matter how much you point out its in their rational interest, its not politically popular with them. As the Luxembourg PM Junker pointed out, Europes leaders know exactly what needs to be done. They just dont know how to get re-elected after they have done it.

That political/rational dichotomy works both ways - the rational view is that if Option A offered a 0.01 Euro better return than Option B, then Option A should be selected. However, Option A and Option B also have political costs, costs in terms of national identity and self respect. The Greeks might rather pay the economic costs associated with Option B rather than the political/self-respect costs associated with Option A.

Luckily, those who are paid out of borrowed money have decided not to ask them for their view.

Can you explain how exactly ten days of austerity is going to work? Greece defaults on its debts, and in less than two weeks the markets are queueing up to lend them the money to pay for a generous welfare state without bothering to collect taxes? I don't get it.

They wont. But thats the choice. The Greeks might have chosen it, they might not have.

beeftotheheels

oscarBravo wrote: »

This is a meme that seems to have quiet currency - that somehow the choice is between long-term austerity, or some other unspecified but vastly superior choice.

Can you explain how exactly ten days of austerity is going to work? Greece defaults on its debts, and in less than two weeks the markets are queueing up to lend them the money to pay for a generous welfare state without bothering to collect taxes? I don't get it.

Greece has fundamentally the same problem we've had - an unsustainable current deficit. That has to be fixed. Whether they actually start making people pay taxes or cut their public sector pay bill and social welfare, it has to happen.

Unless I'm missing something.

Of course it will be over in 10 days and then they'll all go out for jelly and ice-cream together. In fact the Greek banks can all be turned into ice-cream parlors, what with there being no cash in the vaults and no cash to import oil to generate power, the vaults could be used to keep the ice-cream cold.

oscarBravo

Sand, maybe I missed your point in the first place, and I'm likely still missing it now, but is there anyone who doesn't believe that Greece is heading into at least ten years of severe austerity no matter what choices they make?

It's similar to our own situation: amid all the talk of burning the bondholders rabble rabble, the point that's all too often missed is that we didn't have a sustainable economy, and there was never going to be a way out of that other than years of severe budgets. Similarly, the Greeks are going to have to wake up to the fact that the party is over and the hangover is going to last a good long time.

The question marks seem to be over how much damage they're going to do to the rest of Europe in the process - and if that's what the question is, I don't really see a compelling reason why the answer should be Greece's alone.

The_Conductor

oscarBravo wrote: »

Sand, maybe I missed your point in the first place, and I'm likely still missing it now, but is there anyone who doesn't believe that Greece is heading into at least ten years of severe austerity no matter what choices they make?
It's similar to our own situation: amid all the talk of burning the bondholders rabble rabble, the point that's all too often missed is that we didn't have a sustainable economy, and there was never going to be a way out of that other than years of severe budgets. Similarly, the Greeks are going to have to wake up to the fact that the party is over and the hangover is going to last a good long time.
The question marks seem to be over how much damage they're going to do to the rest of Europe in the process - and if that's what the question is, I don't really see a compelling reason why the answer should be Greece's alone.

The compelling reason that Greece deserves to be treated in a different manner to Irelad or Portugal- is because Ireland and Portugal met the criterion for joining the single currency, Greece did not. They lied spectacularly, and as there was an honour system in place, no-one examined what they were doing too closely. They even managed to leverage the international money markets in such a way that it didn't officially feature in their national debt. Ireland and Portugal may have had unsustainable economies, however in both cases it was more that the prevailing economic cycle in the bigger economies was far removed from where Portugal or Ireland were at, and the low interest rate regime was akin to pouring petrol on a fire and then standing back and marvellling about how well the blaze was going.

Ireland, Portugal, Spain and to a lesser extent Belgium and a few others, started their road of economic profligateracy back in the early 90s- however we never lied to anyone in the manner the Greek finances were a national conspiracy...

Sand

@Beef

Of course it will be over in 10 days and then they'll all go out for jelly and ice-cream together. In fact the Greek banks can all be turned into ice-cream parlors, what with there being no cash in the vaults and no cash to import oil to generate power, the vaults could be used to keep the ice-cream cold.

Your ignore button still seems to be broken. You should really raise a ticket about it. BTW - hows the Greek CDS death star going?

@oscarBravo

Sand, maybe I missed your point in the first place, and I'm likely still missing it now, but is there anyone who doesn't believe that Greece is heading into at least ten years of severe austerity no matter what choices they make?

It's similar to our own situation: amid all the talk of burning the bondholders rabble rabble, the point that's all too often missed is that we didn't have a sustainable economy, and there was never going to be a way out of that other than years of severe budgets. Similarly, the Greeks are going to have to wake up to the fact that the party is over and the hangover is going to last a good long time.

The question marks seem to be over how much damage they're going to do to the rest of Europe in the process - and if that's what the question is, I don't really see a compelling reason why the answer should be Greece's alone.

The Greeks are facing into a period of austerity - the only question is timescale. Do it over 10 years or do it over 10 days, or whatever either/or options work for the purposes of example.

There is absolutely no magical escape hatch where they can continue to spend in excess of the revenue they raise. All borrowing to sustain that sort of situation does is make the final reckoning worse.

The question marks seem to be over how much damage they're going to do to the rest of Europe in the process - and if that's what the question is, I don't really see a compelling reason why the answer should be Greece's alone.

Much of the damage the Greeks can do to the Eurozone is essentially damage the Eurozone inflicted on itself by poor design and poor lending decisions and the gambling of their own poorly regulated banks. Given Greece is being landed with the bills, its their answer to give. If anyone else wants a say they need to buy a voice. The Eurozone cant simply write the cheques and expect the Greeks to cash them all anymore than the Greeks can expect the reverse.

oscarBravo

Sand wrote: »

The Greeks are facing into a period of austerity - the only question is timescale. Do it over 10 years or do it over 10 days, or whatever either/or options work for the purposes of example.

I'm still lost. If I had a choice of ten years of austerity or ten days, I'd pick ten days. I'm completely failing to see how ten days is on offer. The Greek economy is a black hole; a complete vacuum. It has been for decades. No matter what happens, taxes have to be levied and/or (almost certainly "and") public spending cut - for years to come.

I'm not arguing with you out of deliberate obtuseness; I genuinely haven't a clue what you're getting at.

There is absolutely no magical escape hatch where they can continue to spend in excess of the revenue they raise. All borrowing to sustain that sort of situation does is make the final reckoning worse.

Hm, maybe this gives me some idea of what your argument is: the "scorched earth" approach. Stop borrowing money immediately, and don't try the phased approach to deficit reduction that Ireland is dragging itself through.

If that's what you're advocating, then it's naive to describe it as ten days of austerity - it's still going to involve years. It would require laying off practically the entire public service and creating a viable tax collection mechanism overnight. It could work - in the same way my analogy earlier about firebombing slums could work - but it's hard to see a compelling case for it being the more attractive option.

Much of the damage the Greeks can do to the Eurozone is essentially damage the Eurozone inflicted on itself by poor design and poor lending decisions and the gambling of their own poorly regulated banks. Given Greece is being landed with the bills, its their answer to give. If anyone else wants a say they need to buy a voice.

Isn't that a little like saying that if someone robs my house, it's largely my fault for not securing it well enough, so I should do as much jail time as the burglar?

Greece is being landed with the bills for its own borrowing. Nobody held a gun to their heads and forced them to lie to the EU about their economy.

Duke Leonal Felmet

oscarBravo wrote: »

I'm not arguing with you out of deliberate obtuseness; I genuinely haven't a clue what you're getting at.

If it's any consolation, I don't get it either. It would appear that Sand has a magic solution to solve Greece's economic malaise in ten days.

If he does, he should share it, and collect his Nobel Prize next year.

carveone

I know everyone knows already but I feel like posting it:

Papandreou has won the confidence motion. By 153 votes to 145.

It is interesting to draw parallels between Greece and Ireland. Given that Greece was essentially a nuclear button for the US banks, my personal opinion is that they would have given Greece the 8 billion rather than accept the losses that activating a half trillion dollars of default swaps would have entailed. There's a separate argument for saying that it was ridiculous to be in that situation in the first place, but Goldman Sachs are twats...

I don't think Ireland has that kind of button shape about it. Given the talk about the treaties and exiting the euro equalling exiting the EU, one might be forgiven for thinking that any talk about Ireland defaulting or going back to the Punt is just that, talk. Can you imagine all Irish citizens suddenly being outside the EU? It's just ... unspeakable. You'd need a work permit to work in France! A visa to enter Spain!

Am I wrong? Maybe I am wrong. But that's what exiting the EU actually means in reality as far as I know...

Scofflaw

Sand wrote:

The Greeks are facing into a period of austerity - the only question is timescale. Do it over 10 years or do it over 10 days, or whatever either/or options work for the purposes of example.

I can't see this one either. Where on earth is the option to have just 10 days of austerity? Wouldn't that require that the austerity over 10 days produces enough money not only to run a surplus, but big enough to reduce their national debt significantly? Unless Sand means 10 days in which all austerity measures are introduced - something which shouldn't really be described as "10 days of austerity".

baffled,
Scofflaw

Scofflaw

carveone wrote: »

I know everyone knows already but I feel like posting it:

Papandreou has won the confidence motion. By 153 votes to 145.

It is interesting to draw parallels between Greece and Ireland. Given that Greece was essentially a nuclear button for the US banks, my personal opinion is that they would have given Greece the 8 billion rather than accept the losses that activating a half trillion dollars of default swaps would have entailed. There's a separate argument for saying that it was ridiculous to be in that situation in the first place, but Goldman Sachs are twats...

I don't think Ireland has that kind of button shape about it. Given the talk about the treaties and exiting the euro equalling exiting the EU, one might be forgiven for thinking that any talk about Ireland defaulting or going back to the Punt is just that, talk. Can you imagine all Irish citizens suddenly being outside the EU? It's just ... unspeakable. You'd need a work permit to work in France! A visa to enter Spain!

Am I wrong? Maybe I am wrong. But that's what exiting the EU actually means in reality as far as I know...

That and suddenly facing quite steep import tariffs. I can't really see the Irish ever voting to leave the EU in any form where such a vote is meaningful, because leaving the EU doesn't solve any Irish problems. The EU provides us not only with the practical benefits you allude to, but is also the only arena in which we have any form of equality with the larger European nations.

The idea that if we left, France and Germany would mysteriously cease to be many times larger than us and more relevant to everyone else than us, and that we would somehow cease to be affected by their actions, is an incredibly silly one - the only real excuse for anyone holding it is that membership of the EU has managed to create a situation where by and large we are able to ignore that vast disparity most of the time.

At times like this, when Europe operates intergovernmentally, we're suddenly reminded of how important the Franco-German axis is, and the moaning level goes up about being in the EU with them - something that completely ignores the fact that what we're seeing is how Europe operates when the EU is mostly taken out of the picture. The EFSF - Europe's bailout fund - isn't an EU fund, so decision-making on it bears no relation to the EU decision-making we're used to. Bizarrely, though, some people seem to leap from the observation that in such a situation we're relegated to more or less insignificance to the idea that what would be nice is if things were like this all the time. As they say, it takes all kinds to make a world.

cordially,
Scofflaw

carveone

It's late for this, but Sand has some valid points. Dunno if I'm about to help but I typed this in a fit of pique so I'm posting it.

First, austerity doesn't generally lead to growth. Growing your way out of debt isn't going to happen. Inflation, however, is. Anyone preparing for that?

Second, we're three years on from 2008. Indeed. And we're repeating the history of the 30s nicely - the iBanks (as I like to call them - the Wall Street Investment Banks) are still at it.

They broke banking with CDSs on CDOs (aren't acronyms great) causing the biggest crash since 1929. So rather than fix that and make sure you couldn't bet on someone else's house burning down (ie: make sure you could only have a default swap if you had a direct interest in the underlying debt), the US government decided to pretend it was fixing the problem. So GS, DB, JPM and rest of the messers went and underwrote $500bn of CDS on EU debt.

In other words, they did it again! I've been watching this for the last 6 months as they chase the sheep investors in and out of the market - Greece is Fixed! No wait, it's broken! No, it's OK! No wait, Italy might be broken! Chase Oil up to $113. Down to $75! Up to $95. These guys actually have tankers anchored offshore of the US to make playing oil games easier. It's in their interest to make Greece almost, but not quite, default. Jesus, make it stop...

If I was a more suspicious type, I'd consider this was all prearranged. Especially given that it was Goldman Sachs who helped Greece cook its books in the first place,

You try this in China and they shoot you. Now that's hardball financial regulation.

But Greece was never in a situation where bankruptcy was an option. For one thing, I don't believe it would have been let. For another, exiting the EU would have been a nightmare. Outside the EU they would have become like Syria or Tunisia - a country near the EU but not in it. I cannot imagine anybody rational (except the equivalent of Sinn Fein) actually voting for this in a referendum.

(You start typing and all this pours out).

As to the 10 days - there is the feeling that you could declare bankruptcy and it would all be over quickly and happiness would reign and you wouldn't owe anyone any money. In reality I think, without being too facetious, that it would be like being stripped naked and airdropped into Bolivian jungle. I don't think your life just got better. And you'd still have bills to pay if you made it out alive...

carveone

Scofflaw wrote: »

That and suddenly facing quite steep import tariffs.

Oh yes, and them too. Thanks Scofflaw. So US foreign direct investment goes away too probably. I wonder would the border go back up or would our relationship with the UK survive. Anyway, it's like guessing what would happen if aliens landed. Not happening

My last post is mostly a big waffly rant. Just the last two paragraphs are relevant really!

opo

Scofflaw wrote: »

The EU provides us not only with the practical benefits you allude to, but is also the only arena in which we have any form of equality with the larger European nations.

That's one opinion, I think the core and fundamental inequality of European nations trying to play USA has f**ked every one of us up. And that's on a economic front alone.

Scofflaw

opo wrote: »

That's one opinion, I think the core and fundamental inequality of European nations trying to play USA has f**ked every one of us up. And that's on a economic front alone.

OK - allow me to justify my claim that the EU has provided a more level playing field, and then you can justify what you're claiming there, and maybe explain it a bit more, too?

I say the EU gives Ireland with a framework for existence in Europe that provides the following:

1. equality for Ireland before the law: Germany and Ireland are subject to the same body of law, and where that requires adjudication, are equal before the court that adjudicates those disputes (the ECJ)

2. an equal voice on the Commission to Germany

3. where voting is weighted according to population, Germany's vote is much less per person than Ireland - true in both the Council and the Parliament

4. the only place where the relative size of economies counts is in the considerations of the ECB - and even there the needs of the smaller eurozone countries are factored in

5. a ready-made framework for alliances of interest with other small countries

6. the backing of a very much larger currency than our domestic economy provides

7. Ireland has an input into nearly all legislation that affects us in Europe

8. the disallowing of state aids to companies means that richer nations can't outfund their national companies compared to ours

Now, any alternative to the EU has to take into account Ireland is part of Europe, because that's unavoidable. So I can't see an alternative system that provides a better deal for Ireland in Europe than the EU (if we leave off fantasies of a greater Irish Reich or the like). All I can see as an alternative is a system in which Ireland possesses none of those equalities and gets the weight of the tiny peripheral economy it actually is - one where we get along by being a mouse scurrying amongst the feet of monsters. As a trading nation, we would in any case have to follow standards set by our trading partners, but without the input we now have.

cordially,
Scofflaw

opo

Scofflaw wrote: »

So I can't see an alternative system that provides a better deal for Ireland in Europe than the EU (if we leave off fantasies of a greater Irish Reich or the like).

Intriguing. Please divulge your fantasies of what an "Irish Reich" might actually entail.

An "Irish Reich" might, for example have decided some years ago that the interest rates here were far too low and the economy or even property prices were exploding and unsustainable, maybe saving the banks and the rest of us.

Would that have been a bad thing? Would that have been "anti-European"?

I accept your arguments along broader European lines and integration ideals, but that is still not dealing with the wholesale economic destruction of nation states we bear witness to, or the core and fundamental inequalities that preceded events as I originally suggested.

Scofflaw

opo wrote: »

Intriguing. Please divulge your fantasies of what an "Irish Reich" might actually entail.

Actually, I was referring rather derisively to the idea of a Europe in which Ireland's weight is larger than Germany's. It's a fantasy that need not detail us long!

opo wrote: »

An "Irish Reich" might, for example have decided some years ago that the interest rates here were far too low and the economy or even property prices were exploding and unsustainable, maybe saving the banks and the rest of us.

Would that have been a bad thing? Would that have been "anti-European"?

No, but on the other hand, it would have been quite possible without control of interest rates. Not as easy as wielding that particular blunt weapon, but had the government chosen to gear its strategy towards tax breaks for business borrowing rather than property, and had it regulated the banks properly to ensure they were lending prudently, the outcome might well have been different. As it was, every tool in the government's toolbox was aimed at fostering and exacerbating the property bubble rather than containing it - making it impossible for me to accept any scenario in which they would have, had they had control of interest rates, done anything with them bar more of the same.

On top of that, the evidence that property bubbles followed the euro in small economies is pretty poor. Some small euro countries had bubbles, others didn't - and those that did were characterised by slack banking regulation and pro-bubble policies like ours. On the other hand, countries like Iceland had property bubbles at the same time as us, as did other non-euro countries - and again the common theme was a slack or 'light-touch' regulatory environment for the banks.

So while "the euro caused the property bubble" is a very common mantra, I don't think it holds up, because it doesn't explain how different small euro economies had different outcomes, despite having the same interest rates. To me, it seems more likely that the interest rates being the same was something the different countries handled differently - we went on a private credit spree that produced a property bubble with the enthusiastic support of government policy, the Greeks went on a public credit spree that didn't produce a property bubble.

To be honest, it looks to me like one of those "explanations" that Fianna Fáil benefits from - if it was the euro that did it, then it wasn't their fault - and that always makes me suspicious, particularly given the way it's peddled by FF-associated economic pundits like David McWilliams.

Could we have controlled the private credit splurge that fuelled the property bubble without control of interest rates? Yes, we could have done - enforcing prudential lending would have largely done it. Look at the situation now - the ECB has interest rates on the floor, but you'd be lucky to get a mortgage, and the rates would be high. You certainly won't get a 100% mortgage for many multiples of your salary now, and the bank won't help you fudge your income - instead, they'll put you through the wrnger, and lend you as little as they can. So clearly low ECB rates don't actually dictate furious lending and minimal mortgage rates!

opo wrote: »

I accept your arguments along broader European lines and integration ideals, but that is still not dealing with the wholesale economic destruction of nation states we bear witness to.

Well, my view is that the nation states did it to themselves. The euro is coping with the resulting crisis very badly, but that's not the same as having been the villain of the piece to start off with. That charge I would lay at the door of the individual nations, some of whom took the implied backing of their debts by the major eurozone economies as a simple licence to go on government borrowing sprees, while others like ourselves took "business-friendly" to ludicrous levels and deregulated our consumer and commercial credit environment to a point which allowed the banks to swell to multiples of GDP.

cordially,
Scofflaw

cyberhog

Arfan wrote: »

That's an excellent summary of what didn't happen.

Scofflaw wrote: »

But the narrative requires it to happen directly - Sarkozy & Merkel bully Papandreou into withdrawing his referendum. It didn't happen that way, ....

You guys need to get over your infatuation with our EU overlords because your ability to see the big picture is sorely lacking!

Papandreou blinks first in euro poker game


ATHENS - The last 24 hours have seen all manner of political gyrations here. If one had to sum up what it has all meant, it is that the government of George Papandreou has felt the heat from Europe's most powerful players and realised that it cannot take it.

...

the prime minister seems to have realised that either he, or his plan to put the European Union's bail out package to a national referendum, will have to go.

German Chancellor Angela Merkel on Wednesday characterised Mr Papandreou's proposed vote as a game of poker, and she was evidently determined that he should blink first.


...


The linkage between a possible No vote and continuing membership of the union proved too much for many of Mr Papandreou's supporters, including his Finance Minister Evangelos Venizelos, who this morning withdrew his support from the referendum plan.


...


Speaking to his party in parliament on Thursday evening, the Greek leader said he had been told during those Cannes talks that not only would a "no" in the referendum mean leaving the euro, but that the question of rejoining would be off the agenda for at least a decade.


...


A decision by Mr Papandreou to backtrack on the referendum plan would suggest that Mrs Merkel has won her poker game.

http://www.bbc.co.uk/news/business-15584091

Scofflaw

cyberhog wrote: »

You guys need to get over your infatuation with our EU overlords because your ability to see the big picture is sorely lacking!

http://www.bbc.co.uk/news/business-15584091

Yes, but then it was pretty obvious that a No at the referendum would mean a Greek exit - you'll find it on this thread, amongst other places. If you want to characterise pointing that out as 'bullying', that's up to you (and it would hardly be the first time someone has characterised facts as bullying!).

I'd agree, though, that if Papandreou believed it wouldn't, I've been giving him a little too much credit - not a lot too much, though, because the decision to call a referendum was still a good one and a brave one.

cordially,
Scofflaw

cyberhog

Scofflaw wrote: »

Yes, but then it was pretty obvious that a No at the referendum would mean a Greek exit - you'll find it on this thread. If you want to characterise pointing that out as 'bullying', that's up to you.

Jesus now you're rewriting history.

Jonathan Loynes, chief European economist at the thinktank Capital Economics, commented: ‘‘The fact that a Greek exit has been so openly discussed among the euro-zone elite is a seismic shift from the previous position in which it was widely argued ... a country could not possibly leave because of insurmountable hurdles. The cat, it would seem, is well and truly out of the bag.’’

But, while it has been possible to bully a weak Greek government into accepting reform in return for funding, it’s rather harder to make credible threats elsewhere.

http://www.smh.com.au/business/world-business/it-was-the-greeks-who-blinked-20111104-1mz98.html

No matter how much you try to deny it, it remains evident Papandreou was bullied into scrapping the referendum.

Scofflaw

cyberhog wrote: »

Jesus now you're rewriting history.

http://www.smh.com.au/business/world-business/it-was-the-greeks-who-blinked-20111104-1mz98.html

No matter how much you try to deny it, it remains evident Papandreou was bullied into scrapping the referendum.

And no matter how much you try to claim nobody could have seen that a No would lead to a eurozone/EU exit, the evidence is there in the first couple of pages of this thread:

31.10.2011

Boskowski wrote:

I don't think it will be a disaster for the eurozone? Why would it be?
Greece will simply have to leave the Euro. Disaster for Greece if anything.
Mad kind of move anyway. Apparently the Greek constitution specifically forbids referendums on financial matters?!?

01.11.2011

bauderline wrote:

At long last we enter the end game, this should have happened two years IMHO, it has caused untold damage by dragging on this long simply so that Germany and France could shield their banks from the hit.

They all now need to face reality and take preemptive action rather than wait for a greek vote, letting this drag on to the new year would be utter madness, time to reach for the eject button....

Goodbye and good luck Greece...

bmaxi wrote:

I think Papandreou is taking a huge risk and not just with his own future or the future of Greece. I don't see what Greece has to gain from leaving the Euro as will surely be the case but I can imagine it will only be bad for those weaker countries remaining in it. Not being a financial expert, I'm not even sure how leaving the Euro would affect, in legal terms, their sovereign debt, presumably the debt would then be owed in drachmas, which would be a worthless currency.

murphaph wrote:

Imagine the dilemna though of the Greek electorate. They know (at least I hope they do) that without EU/IMF cash, the atms will run empty and it is then really time to exit the Euro for them.

Like I said - you tend to interpret people pointing out consequences as 'bullying'.

cordially,
Scofflaw

cyberhog

Scofflaw wrote: »

And no matter how much you try to claim nobody could have seen that a No would lead to a eurozone/EU exit,

Actually that's not what I'm claiming. All I disagree with is your contention that it is "pretty obvious that a No at the referendum would mean a Greek exit "

It doesn't appear to have been "pretty obvious" to the Greeks.

Briefing from European Central Bank and EU officials that failure in the referendum would force Greece out of the euro and, some suggested, of the EU itself has startled many people here.

Nor does the linkage between a No vote and a Greek exit match the pre-referendum position where " it was widely argued ... a country could not possibly leave because of insurmountable hurdles."


Nor does the linkage between a No vote and a Greek exit match Sarkozy and Merkel's pre-referendum conviction “ that the future of Greece is in the euro zone,”.

http://www.businessweek.com/news/2011-09-15/sarkozy-merkel-say-greece-s-future-is-in-the-euro-region.html

The only reason it has become "pretty obvious" now that a No vote would mean a Greek exit is because of the threats Merkel and Sarkozy made when Papandreou was summonded to Cannes.

If one had to sum up what it has all meant, it is that the government of George Papandreou has felt the heat from Europe's most powerful players and realised that it cannot take it.

K-9

cyberhog wrote: »

Actually that's not what I'm claiming. All I disagree with is your contention that it is "pretty obvious that a No at the referendum would mean a Greek exit "

It doesn't appear to have been "pretty obvious" to the Greeks.



Nor does the linkage between a No vote and a Greek exit match the pre-referendum position where " it was widely argued ... a country could not possibly leave because of insurmountable hurdles."

The No vote would be a game changer, it would mean a rejection of the bail out by the Greeks.

Nor does the linkage between a No vote and a Greek exit match Sarkozy and Merkel's pre-referendum conviction “ that the future of Greece is in the euro zone,”.

http://www.businessweek.com/news/2011-09-15/sarkozy-merkel-say-greece-s-future-is-in-the-euro-region.html

The only reason it has become "pretty obvious" now that a No vote would mean a Greek exit is because of the threats Merkel and Sarkozy made when Papandreou was summonded to Cannes.

The future would be in the Euro if they agree to the bailout terms, a No vote makes things uncertain as to what exactly the Greeks want, renegotiation, default or exit.

beeftotheheels

cyberhog wrote: »

Actually that's not what I'm claiming. All I disagree with is your contention that it is "pretty obvious that a No at the referendum would mean a Greek exit "

It doesn't appear to have been "pretty obvious" to the Greeks.

Some context. There is no treaty provision for being forced out of the euro or being forced out of the EU. The ECB has a paper on this http://www.ecb.int/pub/pdf/scplps/ecblwp10.pdf which was actually drawn up in response to us failing to ratify Nice.

However, J-CT had a look at the paper and disagreed with it, he put his thinking hat on and figured out how to do it, and it seems that we were his first test case but our government had the good sense not to call his bluff. Since then, it has been blindingly obvious to anyone who is remotely interested in this stuff that while Merkozy cannot force Greece out, the Member States cannot do it (per the ECB paper) J-CT and now super Mario can create a situation where a Member State has no option but to leave (their banking sector destroyed, all credit dried up means they need a printing press and fast).

So, faced with the possibility that Greece would refuse to participate in the programme the Troika laid out for them, and remembering that one of the troika is the ECB it has been obvious since our bail out that continuing membership of the Euro and indeed the EU carries rights and obligations and is not to be taken for granted.

If the general Greek populace didn't get this then I'm sorry for them, but some Greeks must have. I was in fact taught EU law as an undergraduate by a Greek and I have no doubt but that he could grasp this (he teaches in Oxford these days).

cyberhog wrote: »

Nor does the linkage between a No vote and a Greek exit match the pre-referendum position where " it was widely argued ... a country could not possibly leave because of insurmountable hurdles."


Nor does the linkage between a No vote and a Greek exit match Sarkozy and Merkel's pre-referendum conviction “ that the future of Greece is in the euro zone,”.

http://www.businessweek.com/news/2011-09-15/sarkozy-merkel-say-greece-s-future-is-in-the-euro-region.html

The only reason it has become "pretty obvious" now that a No vote would mean a Greek exit is because of the threats Merkel and Sarkozy made when Papandreou was summonded to Cannes.

With all due respect this is politics. The Member States do not have the power to expel Greece, they never wanted that power so never reserved it for themselves. They wanted to create the view that the euro would last forever and was stable and so to the world they could point to their lack of power. Just like I can point to Santy visiting boys and girls up and down Ireland every Christmas as evidence that the great man exists.

If no one in Greece thought to question the evidence, if no one in Greece paid any attention as to how we ended up in the programme then more fool them. I just don't think that that was the case, not least because Greek people write for, and read, the Financial Times and Reuters and Bloomberg. A Greek was the former vice president of the ECB and another Greek sits on the board as Governor of the National Bank of Greece.

There are very many fine educated Greek people who are more than capable of understanding this without it being spelled out for them. That it wasn't obvious to you does not mean that it wasn't obvious.

ei.sdraob

If ECB does anything to try to "expel" or "punish" a member it would result in the collapse of the currency, the moment they attempt any stunt like that the markets would question who is next and the whole house of cards falls apart

beeftotheheels

ei.sdraob wrote: »

If ECB does anything to try to "expel" or "punish" a member it would result in the collapse of the currency, the moment they attempt any stunt like that the markets would question who is next and the whole house of cards falls apart

Eh?

Firstly they can only do it to Member States already on the brink, the ECB could not, for example, collapse Germany's banking sector in the morning.

Secondly, why do you think they have not done it to date? But times have changed, markets are already in panic, in fact equity markets rallied at the thought that the Greek Government was to fall. There comes a time when there is no more that the EU can do to help Greece without any Greek buy-in. We may not be at that time yet, but it is coming in the not too distant future. The fact that euro exit is now being openly discussed as an option is telling.

The ECB's job relates to the whole of the Eurozone and the point will come (has come) where protecting Greek banks is just too expensive for the rest of the club.

I don't for one moment think that any reasonable person would see a Greek exit as necessitating an Irish exit, we're compliant, we're cleaning up our mess. Portugal (Maderia aside) are compliant, Spain and Italy and trying to get their houses in order. You can distinguish Greece and that is what every one is currently trying to do, to ensure that any action relating to a Greek default is not seen as the first step on a slippery slope.

But to clarify, there needs to be a tangible Greek failure to adhere to the programme which the ECB can hang their hat on. Given their apparent failure to create a genuine national unity government because the opposition want to create one for just long enough to get the next tranche of cash and then create more uncertainty, it is looking more and more likely. A lack of political stability in Greece justifies not giving them further EU/ IMF cash, they default on the December bonds and the ECB collapses the system. The ECB is not being fickle, or punishing them, the ECB is simply doing its job in the face of a non-compliant programme State.

But I do realise that this is painful reading for any one who would like to think that we should have told the ECB to stuff it last year, and uncomfortable reading for any one who would like to believe that we didn't need ECB permission to burn the Anglo bondholders, because I suspect a lot of people who hold such positions really think we need to stay in the EU so appreciating that the ECB has the power to render that otherwise must be a little uncomfortable. If we're in a club with benefits there are also obligations, and obligations which we are complying with so we're pretty safe.

carveone

Thank you to beeftotheheels for clarifying a lot of points for me. It would be nice if the media could do this...

It's rather interesting to see the disparity between the politics and the reality. It's also rather discomforting to realise that people on TV really don't know the first thing about the EU structures.

People have been blaming Merkel and Sarkozy for "bullying" the Greeks but it's obvious that the member states really have no power to bully anyone. Just because there is an emergency meeting doesn't mean anyone is "summoning" anyone else to kneel before them. This is all politics - it suits the politicians to blame the messenger rather than read the message. And it suits the media to ignore the message entirely and just make things up.

It seems to me that a situation could arise where Greece defaults and refuses to leave the EU. The Treaties specify that it has to voluntarily do so.

But beeftotheheels says that Jean-Claude Trichet could do it as head of the ECB - do you have any more details? (sorry - I'm posting before googling!) I can see that credit would be suspended, and their banking system would implode but would that create a smoking zombie country or would they be able to hang on in there...?

I'm thinking I should start selling my financial stocks...

beeftotheheels

carveone wrote: »

Thank you to beeftotheheels for clarifying a lot of points for me. It would be nice if the media could do this...

It's rather interesting to see the disparity between the politics and the reality. It's also rather discomforting to realise that people on TV really don't know the first thing about the EU structures.

People have been blaming Merkel and Sarkozy for "bullying" the Greeks but it's obvious that the member states really have no power to bully anyone. Just because there is an emergency meeting doesn't mean anyone is "summoning" anyone else to kneel before them. This is all politics - it suits the politicians to blame the messenger rather than read the message. And it suits the media to ignore the message entirely and just make things up.

It seems to me that a situation could arise where Greece defaults and refuses to leave the EU. The Treaties specify that it has to voluntarily do so.

But beeftotheheels says that Jean-Claude Trichet could do it as head of the ECB - do you have any more details? (sorry - I'm posting before googling!) I can see that credit would be suspended, and their banking system would implode but would that create a smoking zombie country or would they be able to hang on in there...?

I'm thinking I should start selling my financial stocks...

It is not a question of whether they "can" hang on in there, they would be mad to even try.

Lets say that Greece doesn't get the next tranche of bailout cash so they "default" on the December bonds. The ECB states that it cannot accept bonds that are in default as collateral so the emergency funding which is currently being made available to Greek banks dries up over night. At its most basic this is just the ECB doing their job, no other bank would be accepting CCC rated bonds as collateral and the ECB is arguably breaking the rules to help Greece this far. Greek banks have no money, and only the ECB board can authorise the Greek National Bank to print euro which it won't do.

Their banks are insolvent because of the default (Greek banks holding a lot of Greek bonds) so every Greek person tries to get their cash out (which makes the banking insolvency worse). The Greek State cannot borrow to give money to their banks, and they have no cash, so their only option at that stage is to leave the Eurozone and start printing Drachma so that they have cash to recap the banks, and pay public sector salaries as they fall due.

Everyone appreciates that Greece is now going to print money so the new Drachma falls in value meaning Greek people still want to get their cash out of Greek banks and into German ones. So Greece needs to introduce capital controls and break all of the fundamental freedoms of the EU.

But EU law is not traditional international law, it confers rights on individuals so ever Greek person/ foreign business who lost out on the Greek default/ Eurozone exit can line up and sue Greece.

In addition to that, and potentially a bigger issue, is that the money Greece gave to her banks is a Sate Aid which is illegal under EU law, and absent the Commission blessing it up front the Greek banks actually cannot accept it because they can be forced to give it back with interest.

So, to my mind, Greece would be mad to try a unilateral default within the EU. When investors and others have no other choice some of them will sue, and if they sue in e.g. the UK they can set up a GLO (essentially a class action). If they sue in Greece then Greece can change her domestic laws a to make it more difficult. So Greece benefits by having litigation starting in as few foreign jurisdictions as possible.

Greece cannot be forced out, but if the ECB takes certain steps then Greece would be completely mad to try to stay, madder than we actually have any evidence of them being to date. To effect a unilateral default your hand is a whole lot stronger if you only have your own laws to deal with and not any supranational laws such as we find in the Treaties.

carveone

Thanks beeftotheheels. That's a very terrifying interesting post! Without the capital controls you mentioned, I guess the nearest parallel would be then with the Weimar Republic where money was destroyed through hyperinflation leading to very significant suffering.

Duke Leonal Felmet

Duke Leonal Felmet wrote: »

If it's any consolation, I don't get it either. It would appear that Sand has a magic solution to solve Greece's economic malaise in ten days.

If he does, he should share it, and collect his Nobel Prize next year.

I am absolutely salivating at the prospect of Sand's impending thesis.

Can't wait!