Greek Banks, Stock Exchange to Remain Closed From Monday
bloomberg.com
bloomberg.com
For Greece the gains from defaulting would be slight, and the costs potentially vast. True, the country could walk away from debts of €317 billion, or almost 180% of GDP. But that is worth less to Greeks than it sounds. Although the debt is huge, it is at bargain-basement interest rates and repayable over decades. Interest payments until the early 2020s are just 3% of GDP a year. Even for Greece, that is manageable. Nor would leaving the euro do much good. In theory, with a new drachma and its own central bank, Greece could devalue and gain competitiveness. But Greece’s trade is modest. And it has already lowered nominal wages by 16% without a boom in exports.
The costs of Grexit still outweigh the benefits By contrast, the cost of Grexit would be exorbitant: bust banks, slashed savings, broken contracts and shattered confidence (see article). Politics could be devastated. Syriza, Mr Tsipras’s hard-left party, is anti-market and anti-enterprise. Neo-fascist Golden Dawn and the Communists, with a combined 12% of the vote, would thrive. Most of the parties in the middle, already discredited, would struggle. This week Mr Tsipras was due to play footsie with Vladimir Putin in Russia. Ejected from the euro, and possibly the EU, a country with a history of coups would risk becoming violent and even more corrupt.
http://www.economist.com/news/leaders/21654598-greece-and-eu...
Their own electorate.
This is a long, old crisis, many years. There is a famous graph I can't find (the world needs a graph search startup?) of the future promises of post-austerity growth vs actual results and the separation is staggering, like 30+ percent difference between promises and reality. Given the trends during the crisis the article seems to miss the point that trying year number eight, or whatever it'll be exactly, of even more austerity absolutely guarantees Golden Dawn taking over, despite that being a claimed result solely of grexit. Obviously continuing with the failed BAU strategies is a total non-starter. It is also possible that trying "anything else", which is finally a political necessity, will somehow make things even worse.
The fundamental problem is you can't have a partial union. Everything else, the root cause of the crisis, the attempts to fix it, the politics, all follow from that fundamental problem.
You can have a partial union. That's what EU members who aren't part of the Eurozone have. Greece defaulting will be damaging for its trade prospects, but they don't need to leave the EU to recover.
Look at the origin of the crisis, the union is simultaneously strong enough for international debt to be accumulated, but too weak to control the situation to keep the accumulation to survivable levels and too weak to keep humanitarian services operating regardless of financial market issues. A weaker (no?) union would have never accumulated the debt due to lack of procedure or trust, a stronger union would have regulated the loans and cut off the flow before Greece committed debt suicide years and years ago.
Or look at midgame. The weak union had to decide if it should make German banks suffer or the Greek people suffer, the union was strong enough for them to enforce their decision, at least for several years... A weaker union would still have decided for the banks but the Greeks would have told them to pound sand and this would have been water under the bridge years and years ago. A stronger union would have sent in the tanks and troops and taken it out of their hide, pretty rough stuff but it would have all been over years ago and we'd be talking about the recovery that started years ago etc. The weak union doesn't really have any idea what to do.
Looking at the endgame, a weak union has the possibility of creating a generational depression instead of getting it over with quickly like either alternative, basically the midgame argument but emphasizing the length of the crisis, like a weak union is optimally designed to maximize human suffering.
http://krugman.blogs.nytimes.com/2015/06/25/breaking-greece/
I imagine you're talking about the monetary union, because it is of course possible to have partial unions in the EU (many EU countries are not in the Eurozone, and many non-EU countries are in the EEA or in the Schenghen zone, enabling free trade and free movement of their citizens in and out of the other Schenghen countries).
But even in a monetary union, you can absolutely have a common currency without a common fiscal policy. A currency is just a measure of account, a medium of exchange and a store of wealth. We've had centuries of common currency in the form of gold equivalence (i.e. a hard gold standard). The moments we got into trouble with gold currencies are not inherent in the gold standard itself, but in the attempts by sovereigns to jiggle around with it (seigneurage, mixing gold with other metals, creating pretend gold-standards that allow them to create more paper currency than there is gold backing it up, etc.)
Fact is, no one can prove that his stategy is the best alternative.
http://www.faz.net/aktuell/wirtschaft/eurokrise/griechenland...
My crystal ball says, if that's going to happen, the EU or at least the Euro will be toast.
And it proves Krugman wrong so I guess since that 2 year old article with its disingenuous graph (sneakily shifting the y-axis to make the up tick look insignificant), he'll never mention Ireland again.
Irish GDP grew 4.8% last year - one of the highest in the EU. Unemployment is 30/40% less than peak (although still high at 9.5% but it's falling). The government deficit is falling faster than expected. So despite the fact that apparently "austerity doesn't work", it did for Ireland (and it looks like it's starting to work for Spain and maybe even Portugal and Italy).
Here are some more up-to-date economic numbers: http://www.rte.ie/news/business/2015/0312/686549-cso-gdp-gro...
http://krugman.blogs.nytimes.com/2013/03/22/ireland-recovers...
What would happen if Greece defaulted on western debt and aligned with Russia and China is certainly not a repeat of the fascist military dictatorship they had back then.
They most likely would have social-democratic governments in the next decades, exorbitant financial investment from both Russia and China and lots of Russian military bases on their territory.
This would most likely be the end of the EU (and NATO) as we know it, because from there Russia and Turkey would work on pushing the EU out of the Balkans, which would most likely work considering that all of the populations there have a strong preference and historic ties to either Russia or Turkey, depending on what country you look at.
Even in Bulgaria, which is currently in the EU and has a pro-EU government, about 80% of the population have pro-Russian sentiments regarding the conflict in the Ukraine.
This is why the EU and US will do whatever it takes to keep Greece in the EU, even if it means that they have to orchestrate a military coup in Greece or that they will have to print trillions to cover for the debt.
We view each other as brotherly nations and there's not much that can change this, just as the Muslim populations on the Balkans view Turkey as their brotherly nation.
The only reason they all signed up for the EU is because of the promise of a better economic future, not because they want to be part of western culture.
During the last years it has become apparent that these promises will not materialize and that's why I expect that the EU will massively contract in the next years.
Bulgaria is today Orthodox Christian and has kept the culture of their "arch-enemy". If the majority of Bulgarians really viewed this as their arch enemy then they probably would have rejected this culture the same way that they have rejected the culture of the Turks (by the way in a extremely cruel way) after they regained their freedom.
When they saw it didn't work they basically started to control the church from within with their KGB.
EU polls: http://www.ecfr.eu/article/public_opinion_poll311520
Bulgarians are pro EU as long as the majority still believes that they will have a better economic future. I dispute that will continue for very long considering the socio-economic collapse Bulgaria has experienced since they joined the EU.
There is no shared culture or historic ties to the West that will keep Bulgarians tied to the West once the EU starts to disintegrate.
Also, fearing Russia and loving Russia is not exactly the same thing.
But last time I heard of Hungary their government was seeking stronger ties to Russia and McCain called the PM a Nazi and compared his policies to those of Hitler.
I can't imagine that anyone would currently see Hungary as tightly integrated and focused on a future in the EU.
Edit: I believe the future of Hungary will be sovereign and block-free.
If you don't believe me ask an Argentinian.
But not every country is equally valuable to the great powers.
China needs a strong commercial foothold in the mediterranean sea (ports) to control economic trade with the EU. (which is enormous compared to the trade with Argentina)
Russia could want to fracture the EU and NATO if the standoff with the EU & US continues and wants military cooperation and bases in the mediterranean sea.
Turkey wants to reestablish its influence over the muslim countries in the Balkans and since they are now EU candidate for almost 30 years (meaning: they will never be allowed to join) they will try to find an alternative. Even worse for them, the EU and US appears to be actively working on fracturing the turkish nation via the Kurds. For them it might be a question of life and death to push the West out of the balkans and the middle east.
China has shown no real interest in countries that don't have significant mineral or natural resources.
Your stats on Bulgaria are also completely backwards. Bulgaria has a very pro-west citizenship.
Translation: FUD.
>True, the country could walk away from debts of €317 billion, or almost 180% of GDP. But that is worth less to Greeks than it sounds.
Translation: pretty please don't.
>Although the debt is huge, it is at bargain-basement interest rates and repayable over decades. Interest payments until the early 2020s are just 3% of GDP a year. Even for Greece, that is manageable.
Translation: You may have had to do with massive unemployment and without life saving drugs by kowtowing to creditor demands ( http://www.digitaljournal.com/article/325955 ), but you'll "manage" if you continue doing it.
>Nor would leaving the euro do much good. In theory, with a new drachma and its own central bank, Greece could devalue and gain competitiveness. But Greece’s trade is modest. And it has already lowered nominal wages by 16% without a boom in exports.
Translation: we believe so fervently in the power of suppressing wages to improve economic performance, that the idea of trying anything else is literally unthinkable.
>The costs of Grexit still outweigh the benefits By contrast, the cost of Grexit would be exorbitant: bust banks, slashed savings, broken contracts and shattered confidence (see article). Politics could be devastated. Syriza, Mr Tsipras’s hard-left party, is anti-market and anti-enterprise.
Translation : Attention target readers of the Economist - elites, captains of industry, rapacious financiers - Mr Tsipras is your masked villain.
>Neo-fascist Golden Dawn and the Communists, with a combined 12% of the vote, would thrive.
Translation : please ignore the fact that they already are thriving thanks to the Economist-stamp-of-approval austerity measures.
The Greeks have always been perfectly free to stop paying their existing debts, at the cost of not being able to borrow any more money. The only reason they've been negotiating with the Troika and agreeing to the austerity measures you disagree with is that they believed that defaulting would be _even worse_. Even if default is currently the best option, there is plenty of actual uncertainty, and some amount of fear seems justified.
After years of enormous unemployment and the country's slow decline into near-3rd world status, even having your savings seized and forcibly devalued loses its sting.
2. If The Economist is too capitalist for you, the current Greek finance minister also thinks (thought?) default would be very bad: http://yanisvaroufakis.eu/2012/05/16/weisbrot-and-krugman-ar....
"Does this mean that Greece ought to grin and bear the massive and misanthropic idiocy of the bailout-austerity package imposed upon it by the troika (EU-ECB-IMF)? Of course not. We should certainly default."
Defaulting could lead to further negotiations if Greece stays in the Eurozone, like slashing a big part of a loan handed out when projections showed Greece would not be able to pay it.
Why do you loan to a country when projections show the country can't pay? Is it to keep the country economically enslaved for years?
That's probably why the second-to-top-level comment translated the following as FUD. The gains for Greece from defaulting would be better than accepting the austerity measures.
>For Greece the gains from defaulting would be slight, and
the costs potentially vast.
Translation: FUD.2. This article was written three years ago, when the rest of Europe was in worse shape. It's not clear how a Greek default would affect the rest of the continent right now.
3. I have nothing against a reasoned argument that default is Greece's best remaining option (like yours, thanks!). What I object to is the semantic stopsign "FUD" in response to a situation that is legitimately uncertain and scary.
"if Grexit happens it will be because the creditors, or at least the IMF, wanted it to happen."
http://krugman.blogs.nytimes.com/2015/06/25/breaking-greece/...
I think Greece is more like the friend that keeps raking up debt rather than the person that gets pummeled by medical bills.
Translation : please ignore the fact that they already are thriving thanks to the Economist-stamp-of-approval austerity measures."
No, it just means Greeks gonna Greek. If you think most of this has anything to do with logic, I invite you to spend a week with my in-laws. 90% wild emotion and knee-jerk responses with 10% self pity.
> Syriza, Mr Tsipras’s hard-left party, is anti-market and anti-enterprise.
Only if by "market" you mean no social security and zero-hour contracts, and by "enterprise" you mean a fire-sale privatisation of state assets.
Greece is the most enticing tourist destination in the world. It has everything .. history, culture, beaches, food etc. A devalued Drachma would draw an increasing portion of an industry that is poised for dramatic growth as more Indians & Chinese become rich enough to catch the tourist bug.
It's world-class shipping industry would also become more competitive against Korea, Scandinavia and Japan.
Syriza is not as "far left" as portrayed, and they are not as corrupt as previous Greek governments. Their finance minister, though he has described himself as a "libertarian marxist", has received strong praise from free-market institutions for various proposals.
https://en.wikipedia.org/wiki/Yanis_Varoufakis
The big problem for establishment magazines like the Economist has become, is that he dares to think for himself.
On the other hand, Greece imports energy, food, medicine and technology and those things will all have to be paid for with hard cash. The result of a 50% devaluation of the new Drachma will be a doubling in prices for basic life necessities.
It's clear to me that Syriza's policies have been and will be absolutely disastrous for the ordinary Greek person. Things may have been bad last year but at least there was a small uptick in GDP and employment and seemingly a small improvement in government finances. With a busted bank system, capital controls and no cash to pay for essential imports, I can see Syriza turning Greece into a fully failed state.
Some of those things, particularly medicine & food, are artificially high priced because you are in the EU:
http://www.firstwordpharma.com/node/1065529#axzz3ePfuiLQG
I grant it will be difficult for a year or two, but I predict you will be better off in the long run.
I live in Europe now, and most people in this part of the world does not understand the idea and consecuencies of an economic issue like this.
My hope is that the greek government, in some way, find a new agreement soon.
edit: would be interested in your experience if you feel comfortable giving it. Interested if new mediums of exchange took place and just generally how it played out as I am not familiar with the Argentinean crisis at all.
Teachers don't get paid : need to fabricate and sell souvenirs to tourists on the beach. Every day. Large black markets are created, adhoc currencies get created, lots of crime ( burglaries, robberies ), people living of collecting waste paper etc.
Remember that day Google shut down Reader, and ready or not it was demo day for every competing rss feed reader?
This is demo day for bitcoin or dogecoin or whatever other digital currency you can think of. Now I'm not claiming any will succeed, but I am claiming its going to be demo day, ready or not.
My gut level guess is the next Greek currency is far more likely to be the Ruble than BTC, but whatever, its still gonna be demo day for BTC even if it fails.
The next quarter or so will be an exciting time to work at a place like Coinbase.
https://en.wikipedia.org/?title=December_2001_riots_in_Argen...
Capital controls were imposed, but as it's predictable in this kind of situations, people with the right connections, banks and big investors, got the news before the controls were imposed. Banks closed for a few days, then, people could only extract a certain amount per week from ATMs (just enough to live). Sending money outside the country had to be authorized (and generally rejected)... Of course, they said that this would only be for a few weeks or months... (a lie)
Then, they devaluated the Peso (ARS). from 1 ARS = 1 USD, to 1.4 ARS = 1 USD.
Every bank account in USD was converted to ARS, with the new valuation.
For a few months, they let the ARS to float freely, and it devaluated heavily. So, people who had a few months before USD deposited in their bank accounts, now had ARS that were quickly loosing its value. And they couldn't get it out of their accounts, so it was terrible for them to see their life savings evaporating, without being able to do anything. Some reports indicate that suicides, hearth attacks and strokes peaked at the time.
A lot of companies, who had acquired credits (in USD) from foreign institutions during the previous years, were no longer able to pay them back, and had to close, letting lots of people unemployed. One interesting thing that appeared (from a social-experiment perspective) was the following: In some cases, the workers joined and formed cooperatives, took control of the facilities, and continued working without the approval of the former owners, distributing equally the gains of their production (it didn't matter what was the position, either manager or janitor, everybody earned the same), as a means to keep their jobs, increase morale and reduce costs. They kept paying their providers, so, from outside, those factories kept working as always. Some may argue that even better, because they were more motivated...
The exchange rate reached 4 ARS = USD, and of course, inflation went up. Having the same salaries, but with prices going up quickly, a lot of people (especially the most vulnerable sectors of society) were no longer able to survive.
So, reverting to the most basic form of exchange, some people started what was called "Club del Trueque" (barter clubs). People made food, pasties, handicrafts, and exchanged them with other people. Eventually, those clubs grew up, and they started using pseudo-currencies, only valid inside their own clubs, to make trading easier. Of course, the government deemed that activity illegal, because they could not collect taxes... That worked for a time (several months, the most critical), but eventually, fake pseudo-currencies started to appear. It was always suspected that the government was behind the printing of those fake papers as a means of ending that... but anyway, it ended up eroding the trust in the members of those clubs.
But every Crisis can also be an opportunity:
As people was not able to extract their money from their bank accounts, (and believe it or not, most real state operations here are done in cash... big piles of cash), the real state market went down. And If you happened to have money (in foreign currencies) saved in a strong box, suddenly, your money had more value. I have friends who bought their first apartment back then. Others took credit in pesos at the beginning of the crisis (before indexation), and after a few years, the can say that they bought their house for 1/5 of their current value. (because the indexation they had was much much lower than inflation).
At a country level, it was a reboot. Which can be bad, and it can also be good. Having most of the indebted companies closed, new stronger companies had space to flourish. Given that now Argentina was a "NO-NO" place to invest for foreign companies, local companies had more chance to grow and expand. During the previouse years, most factories were not able to compete with Asian competitors, because of their cheaper prices. But having devaluated, and imposing imports restrictions (to avoid loosing foreign currency), factories had a new chance to increase regain the local market, with cheaper labor costs.
And being defaulted and bankrupted, the country was able to renegotiate most of the debts, reducing heavily the external debt.
All of this, worked for a few years. GDP Growth was high (>8). Unemployment descended. Social stability started to come back. Capital controls were relaxed. Central Bank's currency reserves went up year after year.
But eventually, that fast growth ended up being poison in the long term. As new industries started to work, it turns out that we didn't have the infrastructure to support them (and what's worse, we didn't make plans and started to invest with time). Power shortages came back (something that became uncommon since the privatizations). Roads were collapsed. And our cargo train lines were almost destroyed. But the real deadly bullet came with oil. As petrol prices started to go up, transport became expensive (this is a big country, mainly connected by roads). And with our new energy requirements, (to fuel our power plants) we passed from being a net oil exporter to beign a net oil importer... And with oil imports, currency reserves started to go down again.
So, here starts the story again: heavier import controls, it's harder to send money out of the country, very hard again to buy foreign currencies... but at least, this time around, it's not a financial crisis. Banks are not at risk, and people and local companies are not indebted in foreign currencies. So, it's bothersome, but not nearly as bad this time around as it was in 2001. There's simply no comparison.
But of course, Argentina is not comparable with Greece. Argentina is MUCH larger (8th, vs 97th), bigger population, and lots of natural resources (gas, oil, mining, agriculture, fishing, uranium). So, if forced, Argentina can survive totally on its own. But sadly, I don't think Greece can do the same.
Phew!. that was a large post...
> It was always suspected that the government was behind the printing of those fake papers as a means of ending that
This was one of the more ruthless and unexpected things about your post. I would have suspected the rise of a barter economy, obv currency devaluation and a run on the banks, but I didn't think the government would undermine a small barter economy.
To contrast with Greece, they just do not have the resources Arg. does. This was insightful, thanks again.
Consider that at its peak, 1 out of 7 citizens was involved in a barter club.
There is not doubt about the govenment involment in the falsification of pseudo-currencies, because some were even printed in the same paper used to print bank checks, money paper, same ink, same printers.... it was a coordinated attack to undermine the confidence on the system. And it worked much more efficiently that whatever they could do with the use of force...
I'm really short on quality, direct feedback about what Tsipras is doing. All I can read about the topic is politics influenced.
http://marginalrevolution.com/marginalrevolution/2015/06/the...
"Better deal" meaning "a deal which doesn't involve breaking promises they made to the electorate".
Clearly such a deal wasn't possible, hence here we are.
The idea that this is somehow blackmail is ludicrous.
I think that if the successive government also reneged upon its promise, that would signal the true end of democracy is Greece.
The main difference is, of course, that it wasn't clear that it would be impossible to end austerity, with some thinking that the Troika would give in. But that doesn't mean the end of democracy.
It basically signaled that the Troika will cajole, threaten, blackmail and generally do everything in their power to keep the austerity train going.
Ultimately, though, that's the way to destroy the currency union. An economic policy based upon wage suppression and privatization of monopoly industries is nice for some people, but it isn't sustainable.
Given the way that the negotiations are going, they were essentially faced with a choice of slashing pensions and wages to the bone (wouldn't have helped with paying the debt back, incidentally) or... plan B.
Right now, Greece is stuck between a rock and a hard place: agreeing to the Troika’s demands for continued austerity and see another 5 years of economic depression with no end in sight in a way that sells out their campaign promises, vs. leave the Eurozone and see possibly immediate even more dramatic economic collapse but with a potential way out of the mess through a currency under Greek control more appropriate exchange rates.
Summarizing in a post the Greek problem is almost impossible, but I would say that the referendum is a terrible idea, especially at this moment.
(greek student/developer)
This ("shameful populism!") is kind of just another way of saying "I don't like this democracy thing. Stop it!"
Which is strange because those who will have to endure the consequences of the decision will be the Greek people, so I don't understand what is so negative about involving them in the choice.
The bad thing is, both ways will probably mean hell to the Greeks so it's not like there is a good answer. Trying to pay an unpayable debt by destroying the economy will never work, and changing back to the drachma and devaluating the coin won't probably do much good in an economy like Greece where there are very limited exports.
I am not sure what was the underlying expectations of the austerity route, the official narrative of eventually paying the debt is obviously not going to happen, so I suppose that the underlying message was to play along for X more years until the EU decides to solve the mess at some point. But playing along any longer was not something that politicians could sell to the Greek electorate anymore. And the EU intervening and solving the mess is probably impossible to sell to the electorate of the strong economies of Europe like Germany, specially after so many years of "lazy greeks" headlines. So some sort of scenario like the current one was bound to happen sooner or later.
There is a strong trend towards the Yes vote in the referendum and most people I’ve talked to view it as a consensus towards Euro regardless of how the government will try to put it. And there is still hope that even in the last minute a deal will be made for the sake of everyone involved.
You have to understand that to most people in the tech industry or any other person with some kind of liberal thinking, Tsipras is like an alien. An idealist of a communist era that was never popular in Greece and whose decisions and actions seem insane. We don’t understand what his strategy is and whether he’s bluffing or really want to take us out of the euro.
Would the Greek economy even be strong enough to support the latter?
As for leaving the Eurozone, I seriously doubt whether we could default on all our debt. We can’t default on IMF’s debt for example. Or ECB’s. Because once we leave we’ll still need the support of the ECB otherwise our banks will collapse in a matter of weeks. Our economy is still very fragile, exports are less than 20% of GDP. Tourism might flourish because of the devaluation of the local currency but it still won’t be enough.
This is wishful thinking. It won't happen anytime soon, if ever. For example, German politicians are scared of their voters who are completely unwilling to go along with this, which is exactly the reason why they have rejected such proposals for five years now.
> the debt isn’t our real problem because we pay a very low interest (less than 3%) [...] our problems are structural ones
Indeed the problem is not the debt, but for now it is also not structural reforms. Structural reforms are required in the long term, but they won't fix anything now and in any case, you can't change a country in a few years. This will take a long time.
The main issue is simply that the economy has tanked, unemployment is high, etc. and this won't change by imposing more austerity. The last five years have proven this beyond a shred of doubt.
> I seriously doubt whether we could default on all our debt. We can’t default on IMF’s debt for example. Or ECB’s.
Yes you can. There is no reason why your banks would collapse, if you have a new currency.
Also, The problem with creating a new currency is that no one will have any reason to trust that the government will be able to back it with real economic value. If Greece were to come out with a new brand of money, say the "Greco", I would be extremely suspicious of holding any for fear of hyperinflation/a new currency coming out in 3 years to replace the debts taken on in Greco.
Well, investors are already wary. In any case, I'm not convinced that foreign investment is the most important factor here. Exports would surely go up and similarly tourism could flourish if the currency devalues.
edit: from ft.com: "Credit rating agencies already have said they will not consider non-payment to the IMF a proper default, since they only care about debts owed to private creditors."
> Also, The problem with creating a new currency is that no one will have any reason to trust that the government will be able to back it with real economic value.
It will take on a value, just much less than the euro currently has. If they control the supply, why would it not have value?
Once again, the situation is bad, but once things have recovered a bit (say after two or three years) the future should look better than it currently looks within the euro.
Which currency are you talking about? If Greece defaults and institutes a new currency, there would be no devaluation within the economy, rather a complete shift from the Euro to some new currency.
Also, exports (especially in the long run) are not driven so much by currency fluctuation as they are by the cost of inputs. So unless Greece suddenly finds a huge deposit of natural resources or drastically reduces the minimum wage and pushes down manufacturing wages, then exports really won't change much.
Check out this graph: https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=...
If the value of the euro and total exports are inversely related, we would expect to see the lines moving in opposite directions. Thus exports would be rising as the exchange rate declines and vice versa. We actually see the opposite happening over the past 10 years, and we see that the relationship has especially broken down in recent months.
Now check out this graph: https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=...
We see that there truly is an (lagging) inverse relationship of exports and the value of the euro for Germany. Why? I have no idea. It probably has to do with the different type of exports coming out Germany vs. Greece.
It would be naively optimistic to hope that devaluations of the currency would lead to more than a few percentage points of increase to the overall Greek GDP, and that the (supposed) growth in NE and tourism would be enough to fund vast structural reforms within Greece.
>It will take on a value, just much less than the euro currently has. If they control the supply, why would it not have value?
I control the supply of "Roynotes", aka squares of toilet paper that I have signed and guaranteed to be redeemable for $100USD in 3 year's time. I'll purchase $50 worth of goods from you today with one note, and you'll make a profit of $50USD over 3 years for a nominal 100% return - not bad! What do you say, partner?
Joking aside, supply is only 1/2 of the value equation, and wary investors + annihilated credibility = no demand for new currency = no value of new currency.
It’s already happening. ECB issued a QE program in January for buying out national bonds for one trillion Euros.
Indeed the problem is not the debt, but for now it is also not structural reforms. Structural reforms are required in the long term, but they won't fix anything now and in any case, you can't change a country in a few years. This will take a long time.
The main issue is simply that the economy has tanked, unemployment is high, etc. and this won't change by imposing more austerity. The last five years have proven this beyond a shred of doubt.
Sure, the economy has tanked but the main reason that happened is that pretty much all the economy was state funded. Once the state run out of money businesses started collapsing. That’s why we had a 30% drop in GDP while other EU countries that issued similar austerity programs faced far less GDP drop.
If you take a look at the top 10 biggest companies in Greece for example, most are either state owned or subsidiaries of multinational corporations. There isn’t a single privately owned company in Greece that makes more than a billion in sales annually.
I’m not a great fan of the austerity measures but I won’t argue that it’s the root of all our problems. The root of our problems is the model of our economy and there’s better chances we solve it inside EU than on our own.
That's a measure to adjust the inflation rate, nothing else. Greek bonds are excluded. The ECB has made it very clear that it will buy no weak bonds that give the impression it finances government spending. Furthermore, since they are still normal government bonds and just ownership changes from banks to the ECB, they will eventually have to be payed back by the countries that issued them, as far as I understand.
> I’m not a great fun of the austerity measures but I won’t argue that it’s the root of all our problems.
I agree that it's not the root of your problems. But it is what has prolonged the current crisis and will prevent a solution.
> The root of our problems is the model of our economy and there’s better chances we solve it inside EU than on our own.
If Greece gets a real chance to do that within the EU, yes. That would imply getting out of the crisis first and it would also imply a serious haircut. And on a reasonable timescale, say within the next five years. But it seems clear to me that the Eurogroup does not have the necessary courage to make that happen. I hope the change their mind, but if they do not, getting out looks better to me than just kicking the can down the road.
I'm a big fan of Friedrich Hayek, who argued against the absurdity of creating the EU from the beginning:
"Though I strongly sympathise with the desire to complete the economic unification of Western Europe by completely free-ing the flow of money between them, I have grave doubts about the desirability of doing so by creating a new European currency managed by any sort of supra-national authority. Quite apart from the extreme unlikelihood that the member countries would agree on the policy to be pursued in practice by a common monetary authority (and the practical inevitability of some countries getting a worse currency than they have now), it seems highly unlikely, even in the most favourable circumstances, that it would be administered better than the present national currencies. Moreover, in many respects a single international currency is not better but worse than a national currency if it is not better run. It would leave a country with a financially more sophisticated public not even the chance of escaping from the consequences of the crude prejudices governing the decisions of the others. The advantage of an international authority should be mainly to protect a member state from the harmful measures of others, not to force it to join in their follies."
1. To get future investment, it's more important that Greece starts growing again than that it pays off existing debt. While socialist policies can stifle growth, it seems in the current situation growth is stifled more by a strong Euro than by tax evasion, corruption or overspending.
2. Greece was the fastest growing state in Europe before the Euro. With all its natural advantages, there's no reason why it couldn't return to fast growth w/a devalued currency.
3. Syriza doesn't seem as "far left" as described. I certainly don't think they will go down the totalitarian communist route, vs becoming a democratic welfare state like the Nordic states.
4. As constituted, the Euro favors exporting economies over tourist/shipping economies like Greece. Switzerland is in many ways similar to Greece structurally .. a tourist mecca of about 10 million people and a service oriented economy. It does export a lot, but mainly specialty items (watches, cheese, chocolate etc). Greece would seem to be better off as a Switzerland on the sea, with strong EU relations but independent monetary policies.
Could you elaborate more on the structural similarity to Greece?
Yes, Switzerland has tourism but - unlike Greece - I doubt that they depend on it. Also, watches and cheese are only the tip of the iceberg. Switzerland's wealth probably derives from mega-banks like UBS and the not well-known, but enormous industrial sector (e.g., Nestlé, Novartis, Roche, ABB).
Before I moved here, I thought Switzerland is only about cheese and chocolate, but it really is an oasis of wealth unparalleled in Europe due to various reasons; here is my medium blog post about how it is living and working here: https://medium.com/@iwaninzurich/eight-reasons-why-i-moved-t....
I meant that it is a strategically situated, naturally beautiful, culturally strong state of about 10 million people.
Greece shares all of these traits, and can build up industries like Switzerland has if it has a more independent state and implements Swiss-like policies.
They won't be the exact same industries .. they both attractiveness for tourists, but people come to Switzerland to ski and trek, and go to Greece to sail and relax on the beach. Similarly Switzerland might make drugs, chocolate and watches, while Greece excels in shipping & shipbuilding.
Certainly Switzerland is far ahead of where Greece is now. But it's proof that a similar state can become a economic powerhouse without the Euro. With a devalued currency, in addition to boosting existing industries, Greece will become an attractive place for foreign multinationals to setup factories, so it can grow new industries from scratch as well.
To put it mildly you're completely wrong. Switzerland is an exporting powerhouse (watches, cheese and chocolate? - the bulk is phara, precision electronics, chemicals, technology, banking services, etc.). Greece is em.. not.
While the rest of Europe had to clean up the rubble and rebuild everything periodically, the Swiss could incrementally build up their wealth.
a) Most Greeks feel that they have been wronged or cheated. Their anger is usually against 1) other Greeks (i.e. public sector employees against freelancers for not paying taxes, or private sector employees against public for being lazy) 2) against Germany, for austerity, the WWII and the loans they haven't repaid 3) against large multinational interests, etc.
b) All (recent) governments, including this one (so far), have fallen victim to voting in policies that benefit special interests, large or small, instead of making a few basic reforms that are necessary. What is necessary and what is just is debatable, of course. It's a constant battle between different social groups, where everyone is right.
c) There are a lot more and deeper problems in Greece that I can't go into, that fuel an endless feeling of injustice. Things that are taken for granted in other European countries do not work like that over here. This is why some of the analogies made when criticizing Greeks are false.
Now, about the referendum. One side, the government, is saying that a "No" will give them more power to continue the negotiations and bring in a better agreement. They are trying to reduce the issue to democracy in the EU, national pride and independence. Other sides say that the government's proposal and troika's proposal are very similar and this is a false dilemma that only serves the ruling party's interests, and some vague Drachma lobby. The previous prime minister even went out and said that the deal offered by Troika is "unacceptable" (while the one they had made was better but they were forced out) but we have to accept it.
One important point I would like to make is that no one seems to know what either deal really says, but no one bothers to explain it to the people. The news only report the "bad" and everyone is spreading FUD.
I don't know what's best. I have an opinion but I'm afraid there are things in play that I do not understand. One thing I do know is that many of our youth want more Europe and less Greece, and a very large number have already left.
The stock exchange will also remain closed according to Reuters: http://www.cnbc.com/id/102793367
As a sidenote, this doesn't have to be a huge deal necessarily. Recall the US closed every bank for 8 days in March 1933. Life goes on.
Life goes on, but as many can attest having gone through the crisis worldwide at varying levels from 2008 -> 2013/2014/present, it's not always pleasant.
Whatever they decide, they should have decided it long ago. Go bankrupt, or get a (sensibly sized) haircut from the creditors. But decide before everyone's life is ruined living in a zombie economy.
It literally portrays Greek people as drinking grappa on the beach while hardworking Germans pay for their lifestyle. Greek people as immoral, Germans as respectable and responsible. That kind of cultural stereotyping is toxic.
It's also analytically bad. It argues the problem is fiscal irresponsibility, even though Spain had a budget surplus before the crisis hit. Spain was a model of fiscal responsibility (and was lauded as such), and yet they too went into a deep depression with 50% youth unemployment.
The video doesn't even mention the most important cause of the crisis: balance of payments between the north and south.
Their total government spending went from $280 billion Euros in 2002, to $450 billion Euros just six years later in 2008. That's a 60% increase in government spending in six years.
The government premised their spending on the real estate bubble, which was floating their growth for years prior to the crash. The fall-out from that behavior of course was a tripling of their debt to GDP ratio in just seven years when the crash hit.
Their household debt to income ratio went from about 70% in 2000, to 125% by 2007.
Spain was living far beyond its means for years, with the bubble temporarily holding off the consequences of that behavior. They weren't being fiscally prudent, they were being fiscally irresponsible by spending as though the bubble would go on forever.
Spain's gov't spending to GDP ratio developed in the same way as the Netherlands:
Spain had a housing bubble, of course. And the housing bubble was the primary cause of the crisis. But there was a bubble in the responsible northern countries too. And in the USA. So it's not the case that Spain was an outlier in terms of fiscal responsibility.
Don't forget that Spain had a lower debt to GDP ratio than Germany at the start of the crisis:
http://krugman.blogs.nytimes.com/2012/03/07/finally-spain/
If Spain was irresponsible, then Germany and the Netherlands moreso. Private and commercial borrowing in Spain was a big part of the problem, but because the Eurozone has no trade barriers the government in Spain can't stop it. I'm not saying Spain isn't partially to blame for the mess, but it's not a case of fiscal irresponsibility.
Spain's total government spending increased by 60% from 2002, to 2008. That is a fact [1].
Spain's household debt to income ratio, increased from 70% to 125% from 2000 to 2007, another fact. [2]
Both are clear indications of fiscal irresponsibility. How could increasing total government spending by 60% in six years, be anything but? How could households taking on so much leverage so quickly, be anything but?
You reference the Netherlands, which has the most indebted households in the Euro zone, and is in the midst of a debt disaster. That's a really bad example [3]. Their GDP hasn't increased in nearly eight years.
[1] http://i.imgur.com/tSu2htA.jpg
Spain's household borrowing was unwise/irresponsible, no question about it. No good comes from a housing bubble like that. Of course, this housing bubble was funded by foreign banks. When people see an opportunity to live in a big house for cheap they just sign on the dotted line. That's human nature for ya.
Household debt in the Netherlands also way too high, although it's unclear whether it will become a disaster in any meaningful sense. Stagnant GDP caused by austerity. No surprise there. I specifically mentioned the Netherlands because they're portrayed as a responsible country, in contrast to GIPS countries.
Spain's labor costs also increased by 50% during the boom (http://i.imgur.com/pdHgmf4.png), so gov't spending had to go way up just to provide the same services. Besides, spending a lot of money for a couple of years is no big deal when the country doesn't have a big national debt, and Spain didn't. Doesn't mean Spain's fiscal policy was beyond reproach, of course. Ideally speaking a government should have anti-cyclical fiscal policy.
Bubbles followed by recessions happen all the time in Western Europe and the US, but the consequences are usually pretty manageable. When it comes to Spain the government was no more irresponsible, but because of the Euro they got pulled into a crushing depression.
If you want to argue that every modern government is irresponsible, fine. But if you want to demonstrate that Spain was fiscally irresponsible compared to the rest of Europe or the US you're going to need better stats.
From the story:
"This brings us back to that fundamental division of monetary policy and fiscal policy. Ultimately, the euro area requires a fiscal union to match its monetary union, or neither. That is, there must be a political organization with authority to set fiscal policy within every euro area country. It must have the power to cut spending, raise taxes and set laws."
The authors of the story clearly believe that a fiscal union will solve all problems of deficit across the European union, but plainly fail to articulate why beyond presenting an animated hand which is cutting state spending.
We as a society (all of us including the rich and the poor, the bright and the dumb) need to rethink how we allow the banks to (be it accidentally or not) destabilize a financial system only by the volume of its debt.
Some say capital controls are only of temporary measures but still, I feel that this is something which must be avoided by future rules and regulations.
In Europe, there is little compassion for this country though, due to their reputation for laziness and huge tax evasion schemes. I actually remember my holidays there some years ago (beautiful country btw) - most things were paid in cash and in many grocieries I didn't even see a cash register.
But yes, your other points sure are valid remarks and I bet those questions are being posed nonstop within .gr.
when you have the ruling party actively campaigning for a No vote, that could be seen as throwing good money after bad, and at the end of the day the other member states will ahve to pick up the tab for any money that is lost if Greece defaults on their debts.
To me this looks like either an attempt to stall for time or an attempt to shift the blame for to the EU, no matter what happens.
Why should the EU play along and extend the bailout any longer, throwing more good money after bad?
http://www.reuters.com/article/2015/06/16/us-eurozone-greece...
GREEK PM TSIPRAS SAYS ECB'S ACTIONS HAVE FORCED THE CENTRAL BANK TO RECOMMEND A BANK HOLIDAY AND CAPITAL CONTROLS
Why Greece Should Not Switch To Bitcoin http://techcrunch.com/2015/02/28/why-greece-should-not-switc...
And I don't think the EU should interfere in how Greece wants to raise their state's income. If they think it is better to raise corporate taxes rather than decrease pensions, the ECB can't just say that's wrong and if you don't do as we say you won't get any money.
The problem with not "caving in" to the demands of their creditors is that if Greece defaults, it's likely to have serious consequences for the affordability of their pension arangements. Whether those are more, or less, serious than the consequences of acceding to the requirements of their creditors is unknown.
What's their reasoning behind this?
The US has a high productivity rate. So does Japan, Australia, Canada, South Korea and the UK - all work long hours, all have high per hour output
It is something that Greek officials joke about: http://www.reuters.com/article/2015/06/05/us-digital-currenc...
One of the major recurring themes of the greek economic problem, has been tax avoidance/evasion which has reduced the amount of money that the government have to support themselves.
With bitcoin's less traceable nature, it seems likely that it's introduction would make the job of efficient tax collection even harder, which would in turn cause even more problems for the greek economy.
MtGox was a bank that closed and never reopened.