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Comment by ZenoArrow | Hacker News Reader

This is really reckless, I hope the Greek government rejects this deal. The debt is already beyond what Greece can pay, unemployment is very high, and yet the plan is to combine more debt and more austerity. This is nothing less than a power grab, there's no interest in a strong Greek economy before its public infrastructure has been sold off.

I hope the Greek government has the guts to go bankrupt. It'd be a short term loss with a long term gain. It's not like the creditors have to lose out, Argentina showed that by paying off its debts after their currency issues. Similarly, savings could be protected by freezing their value and offering to pay the equivalent in the new currency (assuming Greece would be required to leave the Euro).

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The debt is already beyond what Greece can pay, unemployment is very high, and yet the plan is to combine more debt and more austerity.

These are the bad news. The good news is that now Greece will participate in ECB's QE program that will relief some of the debt burden and is also promised a 35bn five-year program to finance growth, as part of Juncker's 315bn investment plan. [1]

All things considered this isn't a bad deal after all, if we could leave aside all the unpleasantness and the bad blood of the negotiation process.

As a Greek I'm happy we avoided bankruptcy because exiting the Eurozone would bring us back to the stone age. And of course if we haven't been fooling around for five months we could probably get a much better deal.

[1] http://www.euractiv.com/sections/eu-priorities-2020/junckers...

I'm so happy to hear someone from Greece say that. I think the alternatives were all worse and this is the best of a lot of bad options.

Reading the details of Juncker's €315bn investment, it just sounds like a new loan package, what makes this particular loan package good for economic growth?

Because it goes directly to the economy rather than bailing out banks.

I don't think it's quite as good a deal as you might think.

First of all, the investment is €21 billion, not €315 billion. €315 billion is the projected return on that investment.

Secondly, that €21 billion will be spread across a number of EU countries, Greece's share will be a fraction of that total.

Thirdly, whilst SMEs are mentioned in the announcement, a larger portion of the investment returns are expected to come from long term investments. Long term investments generally refer to investments that have a low return on investment in the short term and better return in the long term, which can be a sensible way to invest, but those investments will be based on loans, and the interest accumulated on those loans doesn't necessarily start when the investment pays off (i.e. the interest could start straight after the loan is made, regardless of how long the return on investment is projected to take).

Lastly, even if Greece got the full investment (which they aren't likely to), this €21 billion is a drop in the ocean compared to the existing debt, and furthermore will come with its own debt, it might help if it was managed right but it's a huge gamble and I'm not convinced it would make much of a dent in the overall debt. Perhaps I'm wrong, but I hope you can see why I have these doubts.

Oh I have doubts too, dozens of them. If you see the agreement you'll be dazzled by the amount of new taxes. But all things considered I still think it's the lesser of two evils. Because I don't think we could go to drachma in an orderly fashion. We'd go highly unprepared, the capital controls are a proof of how the government was caught with their pants down, and then all hell would broke loose.

There are risks with going back to the drachma, but the implementation can be handled sensibly. For example, set the currency value to match the Euro, so 1 drachma = 1 euro. That would give reassurance that savings wouldn't be lost, and while wages and product costs are likely to go through a period of notable fluctuations, it doesn't have to be dramatic.

It isn't that black and white.

While exiting might be good in the long run, you make it sound like it will be all right. If they exit, Greece will suffer worst and will need humanitarian help to save it's citizens.

Remember, Argentina still can't raise capital from market even after more than a decade.

> Remember, Argentina still can't raise capital from market even after more than a decade.

Argentina was quite capable of doing that just right before their legal case with a few predatory holdouts made life for the government difficult again.

To be fair, it was an incredibly mismanaged trial (both by the defending lawyers and Cristina's insane and confusing statements), and the holdouts in question are essentially the scum of planet Earth, purposely speculating on junk bonds and always going to trial for profit.

Despite that, both national and local governments have been raising capital to the tune of several billion dollars. Of course, the interest rate is insane, but that's more of a question of the government's disastrous capital control policies; serious private investors were not convinced that the default over the holdouts' bonds is too relevant.

"I hope the Greek government has the guts to go bankrupt. It'd be a short term loss with a long term gain. It's not like the creditors have to lose out, Argentina showed that by paying off its debts after their currency issues."

The confusing part is that there is a very recent, very relevant precedent that was set by Iceland and for some reason that course of action is completely off the table.

I don't know why. It appears to have worked very well for Iceland.

I don't think Iceland's government defaulted. AFAIK, they simply let their own banks fail and made no move to support them. UK was pretty pissed off because their citizens lost cash in those banks, and they expected Iceland's citizens to cover for them.

Greece is in a completely different pot of hot water. Their incomes (taxes) keep being lower than expenditures, aka salaries, pensions etc. Not getting any more EU help means they will start paying their doctors and firefighters with monopoly money.

> and they expected Iceland's citizens to cover for them.

because that was actually Iceland's obligation so it wasn't at all unreasonable for the UK and the Netherlands to expect that.

http://ec.europa.eu/finance/bank/index_en.htm (Single Passport and cross-border banking)

I don't know the exact details but I didn't think Iceland was in Europe, the UK wanted to rush them in so that those rules could apply:

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

Iceland is and was in the EFTA and hence in the EEA where the single-passport rules apply -- and applied back then as well, otherwise the Iceland banks operating in the UK and the Netherlands would have been under UK/NL supervision instead of IS supervision. UK/NL were not ALLOWED under those rules to meaningfully supervise IS banks operating in their countries. As long as they operated under IS law and IS supervision, they operated under IS insurance rules with the usual EU (EEA) 100k€ limit. Iceland blatantly broke the rules.

Later, after the shit hit the fan, Iceland did apply for EU membership and negotiations begun. Iceland later withdrew their application.

Iceland isn't part of the Eurozone, is it?

No, it isn't.

Then how are the situations comparable?

Iceland had a bank crisis triggered by a speculative bubble produced by poorly managed deregulation. It imposed capital controls, was bailed out by the IMF, and took on a crapload of debt in the process, which it is paying off. All this was managed by Iceland's central bank, which controls Iceland's own currency.

Greece has multiple structural flaws and an economy that does not appear compatible with the Eurozone, while being locked into the monetary policy of Germany and France, who effectively control the ECB.

The only thing these events seem to have in common is that they were economic crises. Iceland's problems were acute; Greece's chronic. Iceland's had a single cause, Greece many. Iceland controls its monetary policy, Greece signed that over to the Eurozone. Iceland got assistance from the IMF, Greece requires ongoing assistance from the ECB. Iceland is paying off its debts, Greece is (it seems apparent) never going to do that.

You've been drinking a lot of cool aid, it seems. This is a popular propanda statement on a lot of TVs in the region.

The greek governments and people had many, many years to reform and they simply refused. They have jaw dropping social spending and corruption. They elected a populist party and voted OXI to the last proposal, which was better than this one.

Also, Argentina is in a terrible situation, don't know why you even bring it up. Probably more kool aid you drank from some politician you saw on TV.

You're both talking past each other by adopting extreme positions and making sweeping moral judgments about entire nations.

My issue with this new bailout is that it presents yet more debt as the solution to crushing debts which Greece can't even afford the interest payments on.

As the IMF admitted, it's not a sustainable solution, the many politicians and reporters talking about it probably know this but they just don't care because they can more easily sell a simple morality tale about Greek profligacy or German imperialism to their constituents.

Right. And I don't think there is any good path forward. Greece has essentially gone up a box canyon.

What annoys me about the IMF is, where the hell were they with these observations and recommendation about debt even one month ago when everything was actually working? Where were they six months ago? The debt load being untenable is not news for everyone else.

Apparently the EU has a law that makes actual debt forgiveness illegal, all that can be done is extend it or reduce the interest rate. Neither of these approximates what the IMF would recommend, has recommended, to any other country with their own currency rather than being part of a currency union: monetize the debt through inflation.

I can understand the German affinity for rules and policy adherence over politics. But self evidently the Greeks are not Germans, and do not share this preference. So how does the EU system afford a compromise that at worst means both sides are equally unhappy? Because right now, basically Germany and the creditors are getting their way to the expense of Greece.

Europe is clearly not willing to either bail out Greece (or Portugal, or Italy), nor long term subsidize their economies like what happens in the U.S. It's not willing or able to setup an EU wide tax structure that's EU administered and audited to both make compliance easy, as well as consistently punishing tax evasion across all socio-economic levels.

None of the major problems have been addressed: Greece's debt load is unchanged, as well as its affinity for patronage and tax evasion.

> None of the major problems have been addressed: Greece's debt load is unchanged, as well as its affinity for patronage and tax evasion.

The current ultimatum is very much about addressing those problems.

How is adding more debt designed to address the debt load problem? Is Greece getting a sizable interest-free repayment holiday?

Yes. And they have been enjoying one for several years now.

I agree that more debt is disconcerting. But the alternative of going "cold turkey" would result in a humanitarian crisis. This is a country which imports most of its food, energy and medicine. The banks are bust and the government doesn't have the money to pay next month's public sector salaries.

To actually exit the vicious downward spiral, they need significant debt forgiveness (yes more), as Germany received after WWII, as well as stuctural reform of course, but one without the other will disappoint both creditors and the Greek people.

The funniest thing about this whole manufactured crisis is that the ECB is printing 1 trillion euros via QE at the moment to buy gov bonds and nationalised industry bonds, which completely dwarfs the sums for Greece and is essentially doing the same thing - buying government debt and making all EZ citizens slightly poorer in order to allow counter-cyclical investment.

http://www.bloombergview.com/quicktake/europes-qe-quandary

This is not a matter of black and white. One side is grey and the other is pitch black. A black hole sucking money. I'm sorry, but they have been paying themselves pensions, child support, 13th, 14th and 15th salaries + other bonuses for national holidays for decades, with money they don't have. Time to pay up. That's how it goes. If they have to pay with tears, I'm truly sorry for the situation, but the party is over.

I think you make some good points, but unfortunately your first paragraph and last sentence destroy the value of your comment.

This is my thought as well.

Countries which recognised the problem and took charge of it are doing good now, eg Ireland.

Greek politics looks quite bad. They need a market friendly government who can indeed do reforms. Sadly, left parties have the majority.

Only way forward I guess is to force reform down their throat by IMF/EU first and then hope they realize it then continue it. That's what happened in India in 1991 https://en.wikipedia.org/wiki/Economic_liberalisation_in_Ind...

I'll leave aside the ad hominems, and address the core of your arguments.

From what I've read there appears to be consensus across the board that the Greeks approach to taxation is currently too complex, and reform of this tax system would be sensible.

With that said, there's a fundamental misunderstanding of what's happening with these loans. Read this...

http://jubileedebt.org.uk/reports-briefings/briefing/six-key...

"When the IMF, European and ECB bailouts began in 2010, €310 billion had been lent to the Greek government by reckless banks and the wider European financial sector. Since then, the ‘Troika’ of the IMF, EU and European Central Bank have lent €252 billion to the Greek government.[1] Of this, €34.5 billion of the bailout money was used to pay for various ‘sweeteners’ to get the private sector to accept the 2012 debt restructuring. €48.2 billion was used to bailout Greek banks following the restructuring, which did not discriminate between Greek and foreign private lenders. €149.2 billion has been spent on paying the original debts and interest from reckless lenders. This means less than 10% of the money has reached the people of Greece."

Furthermore, there's a common misconception that the Greeks are lazy, but the statistics show that they have the longest average working hours in Europe, and their average retirement age is not that different from the rest of Europe.

As for Argentina, yes they're not out of the woods yet, but since their economic crash they've had impressive growth. IIRC it's been the fastest growing economy in South America recently, I'm sure I could find the stats if you disputed this.

So, with all this in mind, why do you think more loans is the answer?

The word "lazy" is an emotional appeal. The practical issue seems to have been that Greece had, at least until recently, a very expensive retirement system, projected to dominate GDP within a few decades, and vaulting them to the top of the Eurozone prior to reforms. Not only that, but even after reforms, large numbers of people were grandfathered in to a previous scheme that allowed people working in "arduous" careers --- a list that included such dangerous careers as hairdressing --- to draw a generous (relative to the EU) minimum pension after just 10 years of experience.

It's not that people are lazy for accepting generous retirement benefits, or for retiring early. They're being entirely rational by doing that. The problem isn't the people, it's the policy.

(Most of this is from The Economist).

The pension situation is interesting. First of all, let's look at the average retirement age, there's a useful graph here:

http://www.bbc.co.uk/news/world-europe-31803814

As you can see, whist the average retirement age is lower than average, they're not that different from the average. So you have the Greeks retiring at 57.8 and the British retiring at 58.3, not that different.

Secondly, talking about the average Greek pension payment is €713, and 45% of Greek pensioners live below the poverty line. http://www.theguardian.com/world/2015/jun/17/greece-pension-...

Lastly, costs of pensions is an issue for many countries, as we all live longer (on average). The most straightforward solution is to raise the retirement age, and I fully expect that to happen in Greece.

You can't quote the retirement age in isolation. You also have to capture the replacement rate, the percentage of the pensioners salary paid out by the plan. That rate usually changes as employers age, so that early retirees replace significantly less of their salary through pensions.

The UK, not surprisingly has apparently one of the lowest replacement rates in the world, even for people with full pensions. Greece has one of the highest, and was (at least prior to reforms, some of which may have grandfather clauses) notorious for generous replacement plans for early retirees.

Again: these aren't value judgements about Greek citizens. They're assessments of the sustainability of Greece's pension obligations. Greece spends an anomalously high percentage of its GDP on its pensions.

So what do you propose? How would you fix it?

As far as I can see, if you've already got nearly half of your pensioners living below the poverty line, the answer is not more cuts to their payouts. With unemployment at approximately 25% there are many people who can't save money to supplement their pension, plus right now we need Greeks to invest in their own future rather than save. The only solutions I see for the Greeks (if they stay in the Euro) are to stimulate growth and raise the retirement age. Do you agree, or do you see it differently?

Ultimately, you can only make the pension payments you can actually afford. Regardless of the standard of living of Greek pensioners, they can't make up money out of thin air to pay them. Something has to give. Usually, that means raising taxes on young workers. But in Greece's case, that's problematic for other reasons.

Sure, you can only make the pension payments you can afford, but if a high proportion of Greek pensioners are already struggling (nearly half), wouldn't it be better all round to look to other areas of the economy to find money? Furthermore, increasing the retirement age buys you time to reform the economy by temporarily slowing the number of new retirees.

Pension reform is almost inevitable, but let's not punish those who are already struggling on their current pension, let's reform it for later generations, making it clear that private savings will be an essential component of future pensions, giving those affected time to save (once the economy returns to growth).

> the answer is not more cuts to their payouts

Either Greece would start living within their means, or -- as the case is now -- other countries are giving money to Greece so Greece can e.g. pay pensions to their citizens.

But in the long run, they may run out of other countries willing to give them money, and then they must start living within their means.

Dropping the debt burden in the short term strikes me as the most effective way to give Greece the time to make those adjustments. If the interest generated on the debt was frozen and payments deferred for a few years, and no extra loans given, Greece could readjust, but with debt of approximately 150% of GDP and restrictive austerity demands made by those who hold the debt, Greece has limited opportunities to find the growth it needs to 'balance the books'. You could look at the pensions issue as an example of living beyond their means, or you could look at it as a high portion of GDP only because the growth wasn't strong enough. Focus on growth and the pension issue becomes far less significant.

Debt servive is a problem and it seems like much of Greece's debt should simply be written off, but Greece pretty consistently runs a primary deficit; even the years in which they've claimed a primary surplus, the numbers have turned out to be very sketchy.

Supposedly Greece had small signs of growth in 2014, but I'm not clear on how accurate these claims were. From what I've read the last clear signs of growth that Greece had was around 2008 (before the global economic recession), is this claim also sketchy?

Debt service is however not one of Greece's current problems, no matter what they say or think.

Can you elaborate on why you think that?

Because they don't have to spend much to service their current debt. Maturities have been extended, the interest is artificially low, payment of interest has been postponed. There are other EZ countries that have to spend quite a bit more to service quite a bit less debt because they were not as special as Greece.

One reason is because they consistently run primary deficits.

Greece has been giving enough time to reform itself. It refused to do so. You propose to give them more time? It won't change anything. Open your eyes.

Greece hasn't been given any time to effectively reform since 2010. Austerity hinders growth, and growth is the only reasonable solution (in the short term at least). With the EU demanding austerity meant Greece had little room to improve their situation. Also remember the stats I shared with you before, the vast majority of the last loan went to the banks and paying off the prior loan payments, the money available to the Greek people to grow the economy was far less. Pausing the debt burden would give time for growth that Greece hasn't had since 2010.

Not only hairdressers but also radio hosts -- microphones harbour a lot of dangerous bacteria, you see.

More Kool-Aid.

Reform is the answer. They have three days.

Please try not to come across as rude.

Do you dispute what the loan money has been spent on? If so, show me your sources.

> They elected a populist party and voted OXI to the last proposal, which was better than this one.

It was nicer and softer but not better -- with this agreement, they have three days to finally, finally!, pass some much needed reforms, many of which were already promised as part of previous relief packages. If they actually do pass them, they will be much, much better off.

Shame that the "Greuhandanstalt" will be in Athens under Greek management instead of in Northern Europe under adult control. Maybe they will fix that if Greece doesn't meet the deadline and they get a chance to renegotiate.

This is what happens when you try to play chicken with a brick wall.

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