Greece debt crisis: Eurozone summit strikes deal
bbc.com
bbc.com
They just exercise some creativity by making sure they don't meet the requirements.
The main thing is that you can't tax by printing currency anymore which is a really easy way to levy taxes. That means you have to have an efficient taxation apparatus, tax the rich and poor equitably and be very careful with borrowing.
Greek's problem is that it isn't particularly strong in any of those and thus isn't really suited for being part of the Eurozone yet.
This I think is the main difference with the USA. The USA also has richer and poorer stats, but because of the shared language, history and culture, people in both the richer and the poorer states feel like a US citizen.
as the latter: Greece benefitted quite a bit from EU subsidies since joining. you can argue about if the same holds true for joining the eurozone.
> The terms of the deal for Greece have been pretty onerous, you lose control of your currency with no equivalent upside.
No upside? What do you call a decade of easy access to super cheap credit? Also, these terms are not unique to Greece, no other Euro-zone country has control over it's currency.
A poison pill. It's like giving free booze to an alcoholic. It's certainly not kindness.
Maybe you can have both?
I hope that was supposed to be marches and it auto-corrected
Besides, without trust in the new currency it won't be worth anything. That trust has to come from the backing of a foreign institution.
A new full blown currency, yes. A new temporary currency can be done in days, or weeks at most - East Germany did it. Slovakia did it. The process involves your current currency and a stamp.
For businesses and institutions, it's much easier, everything is electronic anyway. Your bank accounts just switch over from EUR to XGD.
> it won't be worth anything
That's pretty much the point. Exports and tourism will be boosted and the debt will be re-denominated in the new currency (at a fraction of its EUR value) or outright defaulted on.
My "at least a year" claim is based on this:
http://www.theguardian.com/commentisfree/2015/jul/10/germany...
> My "at least a year" claim is based on this:
Now, why would a politician exaggerate how painful a solution he doesn't like is? Does he really think that post-grexit Greece and Iraq in 2003 are completely comparable in terms of security and infrastructure? Does he know that Iraq's economy was almost entirely cash-based whereas Greece's is based on a fairly modern banking system?
I base my claim on actual history that actually happened: http://uk.reuters.com/article/2011/12/08/uk-eurozone-lessons...
If I put on my conspiracy cap, I wouldn't be surprised if a helpful soul decided to discreetly have a transition-currency printed up, ready-packed on pallets in a basement somewhere in Frankfurt.
I also agree that your skepticism is justified. However, you're mistaken that Varoufakis wrote that because he doesn't want an exit. In fact he's been arguing that Greece should have started preparations for a new currency years ago. Varoufakis even got fired because Tsipras wasn't willing to gamble with a possible grexit. Of course it's possible that Syriza did make preparations for the new Drachma and all claims to the contrary are just misdirection. I don't believe that, though.
As a Dutch citizen, I'm not particularly proud of the way my government (and Germany, etc.) handled this. Silver lining is that it includes a 12.5b investment in the Greek economy, if invested well will boost economic recovery.
I ask myself, would Greece be able to improve government spending and reduce corruption without this pain?
I think Tsipras was naive: he probably hoped Germany would be lenient because the alternative was so unthinkable.
In theory it's great to force a country to make productive reforms that politicians would otherwise refuse. In practice, the reforms demanded here are largely punitive and pointless.
The focus on corruption is a cheap way to claim to moral high ground, and to justify antidemocratic "parental oversight". If Greece allowed the equivalent of A Dutch Sandwich tax arrangement it would be called fraud and corruption. But when the Dutch do this it's somehow OK. Clamping down on corruption in Greece would certainly be a good thing, but the hysteria about corruption in the media is absurd.
Central Bank of Russia. That's its self descriptive name.
Now that I've pointed out there are more than binary alternatives WRT euro or drachma, I'm not about to start claiming this 3rd alternative is the only other possible alternative. But it sure is a good idea!
From the Greek perspective they're "all equal under the law" in theory but in practice they're gonna be debt slaves until they finally break completely free. There are alternative short term plans but NO alternative long term plans. Better sooner than later. What I mean is something like revolution now and be back to normal in 2020, or five years of grinding poverty (if they're lucky enough to have it that good) followed by revolution in 2020 and back to normal in 2025. The Russians are big enough to take care of greek issues, are somewhat more financially competent than the greeks, and are reasonably nearby.
From the Russian perspective this would be a "cheap" way to gain a friendly client state in Europe. Aid business is corrupt as heck so some fraction of the "aid" would just get recycled into Russian arms industries, like every other foreign aid package. Russia has natgas and resources in general. Greece has ports and Russia always likes ports... Greece has land that would hold a Russian military base or airfield or naval base.
Politically?
Even if ignoring the EU side of it (which is nontrivial for various reasons not limited to defense, the vision of the EU, etc), is there a magic wand that would make the Greek government not be populist and wasteful with their own currency?
The problem with this is that Europe is not united. We have different languages, culture and histories. This is also what make Europe a beautiful, culturally rich place. The political elites are trying to impose a one size fits all model across Europe which won't work because we are not really all that united.
We don't have a common European demos that means that individual countries are fighting for their own interest and their is no overall strategy for Europe because the electorate doesn't really care about Europe, just what they get from being a part of it.
We really need to go back to being a trading block and to remove all of the political dictact and interference. If we really must have political unions, then they need to be between countries that share a common language so that the people can challenge their political masters collectively. This would mean Britian and Ireland, Germany and Austria, France and Belgium.
Euro as a common currency makes travel super convenient for example, not to mention the Schengen area and open borders.
Same could be said for certain regulations in health and sanitation for example, knowing you could rely on some forms of standards existing (however poorly implemented or not).
Also why would you make artificial barriers based on language, shouldn't the lines be formed based on culture and common understanding instead? Language is not what is preventing common people from participating in politics.
Language is preventing me from watching Austrian TV and phoning into their radio debates. That is, the population of Europe is silo'd whilst their political masters are attempting to work together. This is fractured because the electorate that place these politicians into positions of power cannot unite together to challenge them.
If there was a political union between the UK and Ireland then language wouldn't prevent me from calling an RTE show. We even already have a political party operating both in Westminster and Dublin - Sinn Féin.
This might seem sensible to many in Northern Europe, but I imagine that in the Mediterranean this is almost an attack on their culture. If countries like Britain and Germany want higher hygiene levels on the olive oil served in their restaurants then they can do that themselves but they shouldn't be imposing that onto Spain and Italy.
Part of the excitement on travelling to other countries is the differences; the longer the EU goes on with it's powertrip the more homogenised we will become.
Sometimes things go too far and then it's time to back off, but at the same time knowing that there's a good chance obviously dangerous things are banned is a good thing.
Perhaps the various recommendations made in the late 80s and early 90s would be useful to reconsider. Hayek, for example, often suggested that the EEC could make every member nation's currency legal tender in all the others, to create a free market of currencies. He was a big fan of denationalising currencies anyway, and of having currencies compete against each other.
Another proposal on the table for many years was the idea of launching the Euro as a parallel currency to every nation's own currency. So, you could still pay your restaurant bills accross Europe with a single currency if you wanted to, but nations would still be able to fluctuate against it in case of trade surplus or deficit, the very thing that has been putting so much stress on the Euro's frequent deficit members (i.e. Greece, Portugal and Spain), and stress on the Euro itself.
Dude may be a great economist, but he clearly has no idea about ergonomics.
Like what, every store has to have twenty different cash drawers? This idea is _spectacularly_ poorly thought out.
Or does anybody believe France or Italy will accept cut downs like Greek or being treated like them.
Italy is having their own EU vs Greece moment internally with North vs South.
With the devalued drachma restored, the tourist sector will boom, and their exports will improve drastically. Subsequently their GDP will rise and they'll be in a better position to make repayments to its creditors. Without exposing further risk to surrounding Med member states who are not much stronger at the moment.
Individuals should convert their euro's into bitcoins or other, more stable, flexible assets to use whilst this happens and until the Drachma stabilises.
At this point either path will be a long and difficult one, but I think there's light at the end of the #Grexit path.
I think they are ruining the Euro project because they are creating a lot of animosity between peoples. Greece will survive but it will be remembered for a long time that in their worst crisis they were being bullied by their bigger brothers. Right or wrong, that's how it is seen.
They should have defaulted on the debt they owed to the private sector banks but instead EU/IMF etc. convinced them to borrow money from them to pay off the banks.
Many of them make sense to me in terms of removing clientelist structures (e.g. removing "protected" jobs, early retirement incentives, bringing collective bargaining laws in line with the rest of the EU).
However, I don't really understand how increasing VAT or requiring advance payments on corporation tax is going to help in an already suffering economy. I presume this is all about increasing revenue by curbing tax avoidance and closing loopholes, but I can't really find a good source on this.
Effectively there's not much point in the existing VAT regime because it is so opaque, so if you're going to keep it at all you need to simplify somehow.
Not denying it's likely to have a negative impact on consumption.
Yes, it affects the poor the hardest, but at least you can actually budget an increase in aid programs.
If it were to hope on plans to increase tax collection efforts it would then become a very unpredictable and lengthy setup.
Plus, there are already Eastern European countries (see Romania, a country in the proximity of Greece) that applied the VAT increase measure starting with 2010 when it went up to 25% VAT. At the time, Romanian State workers had to also accept a pay cut of 30% of their salary. What I mean to say is that the austerity plan Greece is embarking on right now has been tried already and it will work. The problem is the political will of the Greek elite to give up their privileges.
From a Der Spiegel article, five years ago:
His staff have become very creative when it comes to
tracking down tax offenders: They use police helicopters
to fly over Athens' affluent suburbs and make films of
homes owned by doctors, lawyers and businesspeople. They
use satellite pictures by Google Earth to locate country
villas, swimming pools and properties. And these tactics
have revealed that the suburbs didn't have 324 swimming
pools, as was reported, but rather 16,974.
Tax fraud investigators spent a number of weeks on
nightclub parking lots in Athens and noted down the
registration numbers of luxury sedans. Their
investigation revealed that approximately 6,000 car
owners have vehicles worth €100,000, but only reported
to the tax authorities that they have an annual income
of €10,000.[1]
http://www.spiegel.de/international/europe/finding-swimming-...
Relevant: Romania does not use the Euro, so it can run its own monetary policy.
Those countries did not want Greece to leave as would then place them on the front line and focus and attention upon them in much the same way that the press will interview and talk with those at the front of any queue, be that Apple or any other reason. This is a queue that nobody wants to be at the front.
But the sad part is, this whole process is self-fulfilling and talent leaves Greece and with all the uncertainty and worry put upon them, jobs kinda suffer and only snowballs the situation.
Yet all the focus is upon churning that debt mountain and little or no focus upon rebuilding and aiding the country beyond the standard - sell this and that off without any regard for it is is right for Greece.
In short this whole drama focuses upon mopping up a leaking water main and no focus at all upon resolving that water main and making sure it does not break. Yes the loaners made suggestions and some come about, many have not and all the diverging just only hurts the people more.
FOr the Eurozone and the Euro currency if Greece leaves then the knock on effect could be very detrimental, but that is only because currently Greece is on the front line and those ripples and impact upon the Euro currency not negligible and I do wonder if the amount lost on the Euro and the volume of Euro's in circulation that that amount is greater than all the money Greece has ever owed.
That nobody has worked out I can see and certainly a larger consideration that is being mooted. The Euro has lost around 18% against the American Dollar (USD) in the past year and 10% against the British Pound(GBP).
Still not all atributable to Greece but when the UK/Britain is part the Euroland though not the currency then the impact and amount involved make it clear that the sooner the Greek problem is made a non-problem then the better. Though had they just written of the debt, the actual cost to the Euro-zone countries would perhaps been far less than it has been. Certainly would have had better news in that period and focus upon more productive things.
MARY is the proprietor of a bar in Dublin. She realises that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronise her bar – she will go broke.
To solve this problem, she comes up with a new marketing plan that allows her customers to drink now, but pay later.
She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).
Word gets around about Mary's 'drink now, pay later' marketing strategy and, as a result, increasing numbers of customers flood into Mary's bar.
Soon she has the largest sales volume for any bar in Dublin — all is starting to look rosy.
By providing her customers freedom from immediate payment demands Mary gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages.
Consequently, Mary's gross sales volume increases massively.
A young and dynamic vice-president at the local bank recognises that these customer debts constitute valuable future assets and increases Mary's borrowing limit.
He sees no reason for any undue concern, since he has the debts of the unemployed alcoholics as collateral.
At the bank's corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into Drinkbonds and Alkibonds. These securities are then bundled and traded on international security markets.
The new investors don't really understand that the securities being sold to them as 'AAA' secured bonds are really the debts of unemployed alcoholics. They have had a 'rating house' certify they are of good quality.
Nevertheless, the bond prices continuously climb, and the securities soon become the hottest-selling items for some of the nation's leading brokerage houses.
One day, even though the bond prices are still climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Mary's bar. He so informs Mary.
Mary then demands payment from her alcoholic patrons, but, being unemployed alcoholics, they cannot pay back their drinking debts.
Since Mary cannot fulfil her loan obligations she is forced into bankruptcy. So she now is broke.
The bar closes and the 11 employees lose their jobs.
Overnight, Drinkbonds and Alkibonds drop in price by 90%.
The collapsed bond asset value destroys the bank's liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.
The suppliers of Mary's bar had granted her generous payment extensions and had invested their firms' pension funds in the various Bond securities. They find they are now faced with having to write-off her bad debt and with losing over 90% of the presumed value of the bonds.
Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations. Her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.
Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multi-billion euro, no-stringsattached cash infusion from their cronies in government.
The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who have never been in Mary's bar.
Pragmatism is a scarce resource in our time.
Still, assuming it was the case, Greece would just take more time to 'become a second Argentina'.
http://dealbook.nytimes.com/2014/07/30/in-hedge-fund-argenti...
Moreover, the outcome of the Argentinian crisis, after the "corralito", was not so extremely bad for Argentinian economy. This is the annual GDP growth of Argentina in the year of the crisis (2001) and the 6 years after:
-4.4, -10.9, +8.8, +9.0, +9.2, +8.4, +8.0. Average: +4.01.
This is the equivalent data for Greece starting in 2008:
-0.4, -4.4, -5.4, -8.9, -6.6, -3.9, +0.8. Average: -4.1.
I guess I don't need to comment further.
Source: http://data.worldbank.org/indicator/NY.GDP.MKTP.KD.ZG
This seems to be the worst deal offered to any Greek government yet, including the deal previously offered to Tsipras.
edit: Thanks for the explanations.
http://www.vanityfair.com/news/2010/10/greeks-bearing-bonds-...
Sample quotes:
>"How in the hell is it possible for a member of the euro area to say the deficit was 3 percent of G.D.P. when it was really 15 percent?” a senior I.M.F. official asks. “How could you possibly do something like that?”
>In just the past decade the wage bill of the Greek public sector has doubled, in real terms—and that number doesn’t take into account the bribes collected by public officials. The average government job pays almost three times the average private-sector job.
> The average state railroad employee earns 65,000 euros a year. Twenty years ago a successful businessman turned minister of finance named Stefanos Manos pointed out that it would be cheaper to put all Greece’s rail passengers into taxicabs: it’s still true. “We have a railroad company which is bankrupt beyond comprehension,”
Now actual reality might be one-sided but I've sort of come to the view that how the Greeks got into this mess is almost irrelevant at this point and the focus should be on what concrete measures can be done to save Greece as a functioning country while giving the best possible deal to their creditors.
Spending too much time on digging over the mistakes both sides made just leads to name calling and extreme polarization of arguments - look at previous discussion on HN on this topic.
I think the austerity inflicted on Greece is kind of dumb. They should try to keep up the aggregate spending so the economy doesn't crater. But by encouraging new business etc to provide jobs for the 50% unemployed young people rather than paying huge salaries and pensions to incumbent government employees.
In Greek crisis the government is the main actor and the Greek banks were actually fairly well behaved.
> "during the 1980s, Greece experienced the rise of irresponsible populism, unrestrained patronage politics, and a powerful culture of ethnocentrism that worked against the country’s full europeanization."
https://www.opendemocracy.net/openeconomy/takis-s-pappas/cau...
Bloomberg: "Greece Capitulates to Creditors’ Demands to Cling to Euro" euobserver: "Greece capitulates at EU summit"