Why Greece should be allowed to default

realitykeeper

The Greek people have decided to reject the latest deal from the rest of the Eurozone. Now, Europe can either offer them a better deal or it can let them default. The problem with offering them a better deal is that all the other PIIGS will then want their own far left parties to get elected so that they can get a better deal too.

If however, Europe decide to respect the Greek people and just leave them alone to sort their country out without these pesky deals with austerity strings attached, then the Greeks would only have themselves to blame when their economy implodes.

Unfortunately, the German politicians have dug a hole for themselves by the loans and write downs they have already given Greece. The political pressure on them to salvage the situation will probably cause them to repeat their mistakes by giving more loans and debt write downs to Greece.

Should this unprincipled madness come to pass, then I predict Sinn Fein will be the largest party in Ireland after the next election.

NorthStars

realitykeeper wrote: »

The Greek people have decided to reject the latest deal from the rest of the Eurozone. Now, Europe can either offer them a better deal or it can let them default. The problem with offering them a better deal is that all the other PIIGS will then want their own far left parties to get elected so that they can get a better deal too.

If however, Europe decide to respect the Greek people and just leave them alone to sort their country out without these pesky deals with austerity strings attached, then the Greeks would only have themselves to blame when their economy implodes.

Unfortunately, the German politicians have dug a hole for themselves by the loans and write downs they have already given Greece. The political pressure on them to salvage the situation will probably cause them to repeat their mistakes by giving more loans and debt write downs to Greece.

Should this unprincipled madness come to pass, then I predict Sinn Fein will be the largest party in Ireland after the next election.

If Greece get a substantial writedown of the debt, and easier terms for the remainder, then Enda, FG and their supporters are finished.

threeiron

Seems like only a matter of time before Greece exits the euro: now; this year; next year.

Godge

NorthStars wrote: »

If Greece get a substantial writedown of the debt, and easier terms for the remainder, then Enda, FG and their supporters are finished.

So now that Greece got zero writedown of debt, has been comprehenisvely humiliated into adopting more reforms than ever, I take it you are converting to FG?

Godge

Godge wrote: »

So now that Greece got zero writedown of debt...

Eh perhaps we should wait until a bailout is agreed—or bailout negotiations have even commenced—before we make such rash statements.

No doubt you will be equally vocal about any debt sustainability deal that is reached... I'm sure.

The Bishop Basher

Future debt restructuring is factored into the deal.

They will get a write down eventually.

Why ?

Because they have to. The debt is not sustainable.

Regardless of what happens with Greece, we were absolutely failed by the retired teachers we let run our country. The fact that we never even asked for a writedown was in itself, a failure on the part of these "politicians" to get the best deal possible for the Irish Tax Payer.

lochderg

can anyone tell me why the Greeks got a worse deal after the referendum?

NorthStars

Godge wrote: »

So now that Greece got zero writedown of debt, has been comprehenisvely humiliated into adopting more reforms than ever, I take it you are converting to FG?

The IMF/EU will be revisiting the Greek situation in 6 months time.
Writedown of debt will come, eventually.
The goons in the EU, headed by the German dictators, will be put in their place.
The sooner, the better.
As for FG, I detest them as much, more even, than you detest 'the shinners'.
Although I'm not obsessed by them.

lochderg

lochderg wrote: »

can anyone tell me why the Greeks got a worse deal after the referendum?

We don't know what deal will be struck, because all that has been agreed is a basis for a new deal.

However to answer your question, the institutions' previous proposals only related to the release of the final €7bn tranche due to Greece under the second "bailout".

The new proposals relate to a third "bailout": 3-year programme worth €82bn-€86bn euro, so that explains why the reforms will be more wide-ranging or severe.

lochderg

A Tyrant Named Miltiades! wrote: »

We don't know what deal will be struck, because all that has been agreed is a basis for a new deal.

However to answer your question, the institutions' previous proposals only related to the release of the final €7bn tranche due to Greece under the second "bailout".

The new proposals relate to a third "bailout": 3-year programme worth €82bn-€86bn euro, so that explains why the reforms will be more wide-ranging or severe.

thanks-got the impression that it was some kind of exercise in punishment

Eric Cartman

don't you worry, new bailout, no bailout, tspiras would default on an esb bill given half a chance. Greece will be at the bottom of the credit table for a long while more.

nice_guy80

the IMF usually call the shots because the USA is the biggest donor

sarumite

nice_guy80 wrote: »

the IMF usually call the shots because the USA is the biggest donor

cumulatively EU member contribute more than the US.

FreudianSlippers

Eric Cartman wrote: »

don't you worry, new bailout, no bailout, tspiras would default on an esb bill given half a chance. Greece will be at the bottom of the credit table for a long while more.

Their 10Y bonds went up to something incredible like 46%.

Figures like that mean nothing anymore, because trading volumes are so thin. Only €4 million has been traded on the Greek trading platform since April. That's why there are wild swings in every direction; they're caused by relatively negligible sums of money; it means nothing.

FreudianSlippers

A Tyrant Named Miltiades! wrote: »

Figures like that mean nothing anymore, because trading volumes are so thin. Only €4 million has been traded on the Greek trading platform since April. That's why there are wild swings in every direction; they're caused by relatively negligible sums of money; it means nothing.

Agreed, however that's from the comfort (relative) of there being no necessity to go to the markets. It's a fair indicator (without much else to go on) of the perceived "health" of their credit standing; if Greece attempted to go it alone, that 10Y yield would become relevant fairly quickly.

If Greece attempted to go it alone, it would have to default on its external debt and run primary surpluses, since it would have absolutely no market access. You could blow your nose with the price of its ten-year debt, it wouldn't be relevant at all.

Godge

A Tyrant Named Miltiades! wrote: »

If Greece attempted to go it alone, it would have to default on its external debt and run primary surpluses, since it would have absolutely no market access. You could blow your nose with the price of its ten-year debt, it wouldn't be relevant at all.

One of the big things that people who advocate go-it-alone policies for Greece completely forget is a familiar one for business people - working capital. It is one of the reasons why I believe the advocates of a Greek default have no clue as to how to run a business.

Like most governments, Greece's expenditure is mostly steady - social welfare and public service pay, which form the vast bulk of expenditure occur at regular intervals (weekly, fortnightly or monthly). I don't know if they still have the thirteenth or fourteenth month, but they would be the biggest blips if they still have them.

On the other hand, revenue would not be as steady, and that gives rise to the potential of a working capital issue, i.e. not having enough money in June to pay social welfare even if you know you will have the money by September. So even a country that completely defaults needs access to printing its own money or short-term working capital from the markets if it is to continue to pay welfare and public servants. Defaulting and staying within the Euro is therefore not an option. Even leaving the Euro is not an option unless you have the capacity to start the money printing process straight away.

Godge

Godge wrote: »

One of the big things that people who advocate go-it-alone policies for Greece completely forget is a familiar one for business people - working capital. It is one of the reasons why I believe the advocates of a Greek default have no clue as to how to run a business.

And I think people who compare sovereign governments to two-bit shopkeepers haven't the foggiest about political economy, but don't let's exchange prejudices.

In fact, the concepts of limited liability, bad debts and bankruptcy are the very lubricants of commercial intercourse. In the "real world" where shopkeepers and farmers' merchants fumble in greasy tills, all creditors and debtors, in their lewd entanglements, share the risk of mutual disgrace.

It is perfectly imaginable that Greece could "default" within the eurozone; it has done so at least twice already since 2010, arguably five or six times. It is perfectly imaginable that Greece could exit the eurozone, default on its external debt, devalue, maintain primary surpluses, and emerge in a far better position than it can ever achieve within the eurozone. All of these outcomes are imaginable, but for now, they all reside in the realm of daydreams.

Jim2007

A Tyrant Named Miltiades! wrote: »

It is perfectly imaginable that Greece could "default" within the eurozone; it has done so at least twice already since 2010, arguably five or six times. It is perfectly imaginable that Greece could exit the eurozone, default on its external debt, devalue, maintain primary surpluses, and emerge in a far better position than it can ever achieve within the eurozone. All of these outcomes are imaginable, but for now, they all reside in the realm of daydreams.

Only in the world of dreams I'm afraid. The level of corruption is truly frightening, I was just reading about university education and the government's intention to roll back what little reform that has been achieved. Here is the magic in it - everything is based on registered students, not attending students, so universities never remove drop outs even after 10 years. There are about 500k registered students and this is figure the government funds in fees, free books, catering and what not. And here is the kicker published get paid based on registered students not on books delivered, but the computer ordering system only shows about 220k active deliveries - so we got as much as 300k ghost students being funded!

Then this morning I read about a tax audit on the islands were as many as 200 out 500 businesses were found to have issues.

The whole country seems to be rotten to the core and without a major cultural change it is hard to see how this cannot finish badly no matter what they do.

SeanW

Jim2007 wrote: »

The whole country seems to be rotten to the core and without a major cultural change it is hard to see how this cannot finish badly no matter what they do.

Greece didn't suddenly get like this, they've were presumably doing the same stuff in the 90s and before. Only their interest rates reflected it (17-21%), and that provided an essential "brake". They should never, ever, ever have joined the Euro, they've had a hopelessly imcompetent government for decades, they "partied" and are now in a 7+ year hangover.

The culture you refer to is an irreconcilable cultural difference between the North and the South of Europe, a currency union between Greece and Germany was complete madness, and it still is.

Jim2007

SeanW wrote: »

The culture you refer to is an irreconcilable cultural difference between the North and the South of Europe, a currency union between Greece and Germany was complete madness, and it still is.

Don't agree the currency is not the problem. There are poor states, regions etc.. in the US and the dollar works for them.

Amirani

Jim2007 wrote: »

Don't agree the currency is not the problem. There are poor states, regions etc.. in the US and the dollar works for them.

It's a lot easier for labour and capital to move around within the US than in Europe. Europe has and is improving in this sense, but there's still some large barriers.

This makes a difference when you have economic regions performing differently, with surpluses and deficits of labour and capital.

Jim2007

Diego Simeone wrote: »

This makes a difference when you have economic regions performing differently, with surpluses and deficits of labour and capital.

But that is not caused by the currency!