Greece and her economy

[Walsingham]

I understand that there are conflicting stories of how Greece wound up in the mess she is in. but as I understand it, she now stands at a crossroads. She can take a loan from the Eurozone and IMF, with attendant austerity cuts in public spending. Or she can go bankrupt and have no public spending.

 

I therefore have two questions:

 

 

1. Is this summary accurate?

2. If it is accurate then how does a populace completely fail at simple logic? No spending vs some spending? It's a no-brainer.

[Gfted1]

2. If it is accurate then how does a populace completely fail at simple logic?

 

 

Because once something is given it becomes an inalienable right and can never be taken back. Greeks want to live beyond their means, French riot in the streets if you dare raise the retirement age by 2 years, etc...

[Malcador]

Thought Greece's problem was lack of tax collection ? Well at least one of the problems.

[Rostere]

Thought Greece's problem was lack of tax collection ? Well at least one of the problems.

 

That problem is quite obvious to anyone who's been to Greece . It's not the only problem though. For example, politicians often secure their voters' support by hiring people to administrative jobs invented for the sole purpose of buying votes. The political system is stagnant, where the most powerful politicians are often from the same families. From both what I've seen and heard, it's really quite bizarre that it has been going on for so long. Oh well. You can blame that on the Euro.

[Nepenthe]

Greece's problem is that corruption essentially extends to every conceivable part of the society (cab drivers were repeatedly on strike when it was suggested that they should give out receipts), strong left-wing parties who make sure that the populace a) has no basic concept of economics b) is always ready to blame the "capitalists" for all problems in their life c) the politicians realised LONG ago that they can use the people's own money to buy votes from them.

 

I've lived there for some years, I could write an essay on it. On the plus side, contrary to popular belief, Italy and Spain do not have a monopoly to smoldering hot brunettes. Probably the hottest girl I've dated in my life was Greek. Of course, we also had a 4-floor house in central Athens at the time, and chix dig bux.

 

Edit: you can't blame the structural issues on the Euro, they essentially go back as far as Byzantium.

Edited June 21, 2011 by Nepenthe

[Purkake]

I was under the impression that the problem was cultural/societal with the people generally having the opinion that the government doesn't use their money well and thus you get massive tax evasion.

[Rosbjerg]

Coupled with a rather underhanded law central and northern Europe passed - where the administration cost of handling asylum were to fall on the original country that the immigrant in question first arrived at.. and seeing as most immigrants always come from the south and move up - naturally Italy, Spain, Greece etc. got stuck with the bills.

[Niten_Ryu]

Basic issue is that Greece cooked their books and managed to get into euro. Thus their whole economic structure was based on a lie and in that kind of situation several wealthy banks and bankers (and major investors and institutions) saw the great potential for the profit. And profit they did. Zero risk (moral hazard), profits are private, losses are socialized.

 

Why not just let Greece default? Bacause big banks and investors still have money in Greece bonds and banks. If Greece would have defaulted year ago, it would have meant that several big banks in Germany, France, Spain, England and US would have lost billions. In that case bankruptcy and eventually nationalization would have been only option for the big banks. Then nation states of these banks would have to finance 'em WITHOUT the help of all euro nations. Bad deal for the Germany and others.

 

Investors and banks have got about 50-65% of their assets out of Greece in one year, reaping pure profit all the time of course as euro nations and European Cenral Bank buy garbage rated bonds. The goal is to let Greece default after most of the banks and investor assets are safe in some other location. Those who still think that Greece could survive without leaving the euro and/or defaulting, it's impossible. Right now Greece 10 year bond almost 17% , when safe limits for the nation states are under 5%. There ain't way out... cuts, hope for increased growth or voodoo economics can't bring back the market confidence. And that is if people wouldn't riot on the streets. They certainly deserve to riot and (try to) make the fat cats suffer.

 

Whatif situation

Greece tries to cook their books in order to get in the euro. Rather then corrupt official, they get one of the few good guys in euro zone to do the inspections. They don't get into euro. They still have their drachma... years later, at the financial downturn hit 2008, they devaluate drachma for about 30% (bit more then what Sweden did... they devaluated krona about 20-25% bit later in the crisis). Sweden krone is now revaluated back and even higher vs. euro and it's highly likely that in Greece it would have been similar story. Debt would be in manageable levels, structural problems like tax evasion and too high public sector benefits still there, but they still could get loan for the private markets.

[Gorth]

Yeah, the problem is basically a clash of cultures. Central/northern strictness and high degree of accountability versus one of rampant corruption, living beyond means and not paying tax. It used to work before the Euro because, as mentioned, they just devaluated their currency rather than repay their original debts. Now they are trapped in a spiderweb and can't move in their usual ways. The last 100bn Euros they got has disappeared mysteriously and nobody can really tell whose pockets they ended up in. Sure as hell not where it was intended to go. The riots are in part because the corporate fat cats and politicians (whose corruption levels are something of a public secrect) tell people that, sorry we mismanaged so badly, you guys tighten your belts a bit while we retire to our mediterranean villas and relax in our (funded by public money) pools, so that we don't have to spoil our appetite for the latest caviar by listening to your whinging. Eat your sandals for jeebus sake, they are made out of good, nutritious leather...

[pmp10]

So are Greeks themselves guilty of this due to inefficiency and corruption or have they been screwed over by conspiracy of bankers and politicians?

Seems like an important distinction to make.

[Gorth]

So are Greeks themselves guilty of this due to inefficiency and corruption or have they been screwed over by conspiracy of bankers and politicians?

Seems like an important distinction to make.

Entirely IMNSHO, both are guilty of getting into the situation through complacency (and nobody really seemed to mind the state of affairs when things were "easy"), but currently only one part is being asked to make sacrifices to fix the collectively created problem.

[Nepenthe]

I'd put it more down to selfishness than complacency, an extreme case of the free rider problem, if you will.

[Monte Carlo]

Ideology trumped reality, the leitmotif of the European project. Greece should never have been let in the Euro, it was a fudged piece of creating accounting designed to propel the integrationist project forward.

 

You reap as you sow.

[Morgoth]

We need politicians in Brussels that act pragmatically and not ideologically.

[HoonDing]

Brussels needs to be nuked from orbit.

[Pidesco]

No one is nuking Manneken pis!

[Walsingham]

So are Greeks themselves guilty of this due to inefficiency and corruption or have they been screwed over by conspiracy of bankers and politicians?

Seems like an important distinction to make.

 

+1

[Nepenthe]

We need politicians that act pragmatically and not ideologically.

Fixed that for you.*

 

*I hate doing that, but in this case, it seemed appropriate.

[Pidesco]

So are Greeks themselves guilty of this due to inefficiency and corruption or have they been screwed over by conspiracy of bankers and politicians?

Seems like an important distinction to make.

 

Not conspiracy but general idiocy.

 

Anyway, there's no distinction because it's both. Greeks themselves are guilty because of inefficiency and corruption, but the situation was made worse by bankers and politicians.

 

Portugal is more or less the same, by the way. Seriously, one could argue that Portugal has been in a financial and economic crisis since the independence of Brazil.

[Enoch]

Basic issue is that Greece cooked their books and managed to get into euro. Thus their whole economic structure was based on a lie and in that kind of situation several wealthy banks and bankers (and major investors and institutions) saw the great potential for the profit. And profit they did. Zero risk (moral hazard), profits are private, losses are socialized.

 

Why not just let Greece default? Bacause big banks and investors still have money in Greece bonds and banks. If Greece would have defaulted year ago, it would have meant that several big banks in Germany, France, Spain, England and US would have lost billions. In that case bankruptcy and eventually nationalization would have been only option for the big banks. Then nation states of these banks would have to finance 'em WITHOUT the help of all euro nations. Bad deal for the Germany and others.

 

Investors and banks have got about 50-65% of their assets out of Greece in one year, reaping pure profit all the time of course as euro nations and European Cenral Bank buy garbage rated bonds. The goal is to let Greece default after most of the banks and investor assets are safe in some other location. Those who still think that Greece could survive without leaving the euro and/or defaulting, it's impossible. Right now Greece 10 year bond almost 17% , when safe limits for the nation states are under 5%. There ain't way out... cuts, hope for increased growth or voodoo economics can't bring back the market confidence. And that is if people wouldn't riot on the streets. They certainly deserve to riot and (try to) make the fat cats suffer.

All this is pretty spot-on. (I can't verify the degree to which the big players have gotten out of the Greek debt business, but it absolutely makes sense that they would be doing so.) Greece was let into the eurozone because: 1) Germany and France wanted to expand their system of continental mercantilism, getting more markets for their exports within the currency control of the ECB (i.e., their finance ministers); 2) the big banks could make a lot of money on dealing with the Greek government and Greek banks; 3) the Greek government got access to incredibly cheap borrowing via the ECB. With all the parties well-greased, nobody had much incentive to look for reasons to upset the deal with honest reporting.

 

There are really only the slimmest of chances of an outcome that doesn't include some level of Greek default at some time. (And leaving the Euro to devalue the Drachma would simply be a default by a different name.) The Greek government owes more than it can pay without a write-down or a shift to well-below-market interest rates. The latter is coming, courtesy of the kind folks at the IMF (read: the major European finance ministers, with quiet support from the US). But it would take an economic and political near-miracle for this to do more than simply delay the coming default.

 

All the focus on the waste and inefficiency in Greek government is somewhat besides the point. All that waste is profit for somebody-- taking it away would be good for the cause of good governance, but it approaches a zero-sum game with regard to an economy's ability to pay it's debts. Doubling the efficacy of tax collection is effectively identical to doubling tax rates, and there are thousands of businesses that are viable today but would have to go under if the tax collectors started getting honest. And thousands more would be shuttering their doors alongside those if/when the civil servants that make up their customer base suffer significant layoffs or pay cuts. Things are going to get worse before they get better, and the "getting better" part, if it comes at all, is going to be a long and slow process. What are the chances that the politicians are able to maintain support for the ECB/IMF plan over the long haul? Devaluation or default will continue to be tempting options for the angry masses.

Edited June 22, 2011 by Enoch

[Purkake]

Brussels needs to be nuked from orbit.

But they have some pretty good sushi and waffles.

 

How about we compromise and go with Luxembourg?

[Meshugger]

Even if there is a solution that would prevent Greece from defaulting, there still has to be a complete overhaul on how the greeks handle their social contract with the state. Those politicians didn't fall from the sky, they are greek people from greek families with greek values.

[Walsingham]

I certainly don't have much sympathy for people claiming that their democractically mandated and supervised institutions aren't 'theirs'. On the other hand I don't think Britain is terribly good at paying attention to what our government does. Not in any meaningful way.

[Rosbjerg]

On the other hand I don't think Britain is terribly good at paying attention to what our government does. Not in any meaningful way.

 

Unfortunately no one really is. Of course the politicians have spent most of their lives getting to know the trade - while your average Joe is busy trying to figure out his work/speciality.. Asking someone to use their >8 hour spare time keeping tabs on the government is asking a lot and unfortunately (again) the press doesn't seem to do a good job either.

[Wrath of Dagon]

All the focus on the waste and inefficiency in Greek government is somewhat besides the point. All that waste is profit for somebody-- taking it away would be good for the cause of good governance, but it approaches a zero-sum game with regard to an economy's ability to pay it's debts.

Not really, it's the difference between someone buying a new villa or opening a new Swiss bank account and building a road which will help economic development.

Doubling the efficacy of tax collection is effectively identical to doubling tax rates, and there are thousands of businesses that are viable today but would have to go under if the tax collectors started getting honest.

No, because you're not changing the tax rates for those who are already paying. Assuming that the tax is on the profit, it shouldn't make anyone go out of business, since if they have no profit they pay no taxes anyway.