Why a Greece Deal Matters: A Visual Guide

The latest Greek bailout is just another example of them kicking the can down the road. No problems were solved, none of the underlying issues were addressed, it's going to be a problem again in a few months. On the other hand, it looks like everybody at the table knows that the current agreement is a joke. Did you see the timetable on the massive reforms Greece is supposed to implement? They've given themselves like 3 days to completely turn their economy around. And on the European side the agreement basically says "We'll maybe consider maybe extending the payback period if you succeed in completely reforming yourself by the end of the week." It's not even a funny joke.

I'm not personally convinced that a Greek exit from the Euro would be the disaster that the news outlets like to think it will be. I think it will suck for the Greeks and basically brand them as a third world country, but it is probably a better solution than a few years of crippling austerity followed by another default/bailout/more austerity.

On the other hand, a Greek exit would also mean that the Eurozone countries wouldn't be forced to examine the aggregate fiscal policy and figure out a way to prevent this sort of problem from happening elsewhere.

Banking is not risk free, nor should it be.

But not loans to governments, but loans to individuals, industry and finance.

What then happened was that the crash of '07-08 came and spooked the private banks issuing those loans. Only then did the various governments step in and underwrite the bad loans to effectively bail out the private banking system.

This, along with the number of companies etc that shut down, has put a massive economic burden on said governments.

Thing is that before the euro, Greece could have depreciated its currency to make its exports cheaper. But with the euro the currency is set to the export situation of Germany.

At a glance it seems that there is a big push for privatisation and more power for capital over labour to encourage business, which the cynic in me assumes will be for the rest of Europe to exploit.

(Nitpick: the Greeks are the debtors.)

Spanish debt is growing fast, having almost doubled since 2010 (http://www.tradingeconomics.com/spain/government-debt-to-gdp).

Some of the issues are that the IMF wants Greece to implement the austerity stuff on a different time scale than SYRIZA plans to, and that the population is very much against those systems (which I can understand).

If the greek government would improve their tax agency so they’d have 0 tax evasion (let’s just assume that), then with the next election, a party would get elected that changes that. The reason: Currently, greece has to pay back debts, but that means people have to pay a lot more taxes, and only see the infrastructure to become worse – leading to uproar.

Greece can’t just stop spending completely, they have to improve the situation in many places, while simultaneously improving tax collection slowly.

It is clearly meant according to the Maastricht criteria:

https://en.wikipedia.org/wiki/Euro_convergence_criteria

"2. Government budget deficit: The ratio of the annual general government deficit relative to gross domestic product (GDP) at market prices, must not exceed 3% at the end of the preceding fiscal year (based on notified measured data) and neither for any of the two subsequent years (based on the European Commission's published forecast data)."

"3. Government debt-to-GDP ratio: The ratio of gross government debt (measured at its nominal value outstanding at the end of the year, and consolidated between and within the sectors of general government) relative to GDP at market prices, must not exceed 60% at the end of the preceding fiscal year. Or if the debt-to-GDP ratio exceeds the 60% limit, the ratio shall at least be found to have "sufficiently diminished and must be approaching the reference value at a satisfactory pace"."

Or in easier words:

> https://en.wikipedia.org/wiki/Maastricht_Treaty

"2. Government finance:

Annual government deficit:

The ratio of the annual government deficit to gross domestic product (GDP) must not exceed 3% at the end of the preceding fiscal year. If not, it is at least required to reach a level close to 3%. Only exceptional and temporary excesses would be granted for exceptional cases.

Government debt: The ratio of gross government debt to GDP must not exceed 60% at the end of the preceding fiscal year. Even if the target cannot be achieved due to the specific conditions, the ratio must have sufficiently diminished and must be approaching the reference value at a satisfactory pace.".

Cynics and detractors have already pointed out the corruption, cronyism, the woeful state of pension reform and rampant tax evasion.

A highly favorited comment on a different NYT piece on the Greece deal sheds light on the indifference, there:

  I was at my local tax office this morning - I figured that since most people
  here have stopped paying taxes, the timing might be good. It took me half an 
  hour to do what normally would have taken a morning (most of which would have 
  involved waiting on line).

  In the office I was dealing with, both wickets were open, and I could see the 
  office beyond. Of the five people I could see, two were at the wickets, one was 
  entertaining a succession of visitors who were not conducting business, and two 
  were doing nothing. Just sitting there. Nothing.

  I was there because I have a new (British) passport. I have a password-protected
  file on the Tax Office site, but I cannot change my number myself, because every
  such transaction in Greece begins with the assumption that the client is lying, 
  and therefore this sort of trivial business has to be done in person and the 
  number verified. Fill in a two-page form and present the passport.

  The woman I dealt with - very courteous - entered the information in my file. 
  Then she printed everything as well - several pages, nine stamps, seven 
  signatures. 

  Greece has been promising (to its creditors) to simplify, cut the red tape, 
  reduce the Civil Service, for years, but things only get worse. Syriza re-hired
  the few that the previous government laid off, knowing they didn't have money to
  pay for them.

  This is a tiny example of why no one trusts the promises of successive 
  governments. 'Give us the money now, and we'll reform later.'[1]

I particularly want to know why certain southern European countries share this brand of indifference and fatalism about their affairs. I have observed this in Portugal too.

[1] Peter Bowen a British citizen in Crete, Greece shares his thoughts

http://www.nytimes.com/2015/07/14/world/europe/greece-debt-p...

But the US government is not a family. Neither is the Japanese government. This analogy is disingenuous and one that should be eradicated from all economic thinking.

When in debt, the rational thing for a family to do is always cut expenses to the greatest extent practicable (or to declare bankruptcy, I suppose.) This is decidedly not the most rational thing for the government to do in every situation, because it can crash the economy and actually worsen the relative debt load of the country.

The US is not in danger. Interest rates are very low, sometimes still trending into negative territory. [1] The US is a sovereign nation that issues its own currency. The US can inflate its debt away, just as it did with an almost equally large debt in the late 40s and 50s. Granted, the economy needs to be growing more than it does now; in part because of anemic growth, the Fed is struggling to meet target inflation rates of 2%.

http://www.treasury.gov/resource-center/data-chart-center/in...

From what I understand, the primary purpose of the EU is politics and security. It was created by the survivors of WWI and WWII. They needed a way to prevent another European war, and the solution was to bind together into "ever closer union". It worked amazingly well -- one of the most successful acts of international relations I can think of -- war between EU states, who had been fighting each other for hundreds of years and had devastated the continent twice in the first half of the century, is now unthinkable. We were born with it and assume it, but from the perspective of 1945 and centuries before that, it's a miracle.

Another way to think of it: Why not have a democratic mechanism to decide common issues? Democracy is what we believe in, and the alternative is the anarchy of the strong abusing the weak.

I, for one, am against a United States of Europe and theirfore Im against common debt.

If we want to attempted such a project we should start by democratically asking people if they want it, not just imposing it. That EU doing this now would essentially be taking away sovereignty in a undemocratic way, and theirfore it would be tyranny.