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Greece, EU and why we can't have nice things


213374U

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This afternoon Greek PM Alexis Tsipras addressed the country reaffirming his commitment to next sunday's referendum, where the Greek people will have to vote on... stuff. Nobody is quite clear on what the referendum is really supposed to elucidate, as the previous bailout conditions are off the table after Greece failed to pay back 1.8bn € in due time. This is after a letter started circulating by which Tsipras would allegedly accept the latest proposed terms of the bailout, with some amendments. Tsipras has stressed that a "no" vote, for which he is campaigning, doesn't mean Greece would leave the Euro, as some have suggested. Should he lose the gamble, he may be forced to resign, by his own admission.

 

German Chancellor Angela Merkel wants to wait until after the referendum to start a new round of talks, French President François Hollande wants to reach an agreement before the referendum.  At any rate, it appears that the referendum itself will solve little regardless of the outcome because after years of austerity and cuts, the Greek economy has shrunk and can no longer sustain the debt, at least in the opinion of one Paul Krugman (Boo! Hiss!). It is more of this austerity (pensions cuts, VAT raises) that the Greek government and the troika disagree on.

 

As I'm sure you all know by now, Greece has been suffering capital flight since SYRIZA won the election on january, and after defaulting on the june 30th payment, things have reached a breaking point with banks closed since monday and limits of 60€ per card and day being imposed on cash withdrawals in an attempt to avoid a total financial collapse.

 

What seems to be at stake here (other than the future of millions of Greeks, obviously) is the stability and continuity of the Euro as a currency, as nobody really knows what a contagion could bring, and potentially, of western Europe as a political entity itself. As Chancellor Merkel put it four years ago: "Nobody should take for granted another 50 years of peace and prosperity in Europe ... that's why I say: If the euro fails, Europe fails".

 

Fun times.

Edited by 213374U
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- When he is best, he is a little worse than a man, and when he is worst, he is little better than a beast.

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This afternoon Greek PM Alexis Tsipras addressed the country reaffirming his commitment to next sunday's referendum, where the Greek people will have to vote on... stuff. Nobody is quite clear on what the referendum is really supposed to elucidate, as the previous bailout conditions are off the table after Greece failed to pay back 1.8bn € in due time. This is after a letter started circulating by which Tsipras would allegedly accept the latest proposed terms of the bailout, with some amendments. Tsipras has stressed that a "no" vote, for which he is campaigning, doesn't mean Greece would leave the Euro, as some have suggested. Should he lose the gamble, he may be forced to resign, by his own admission.

 

German Chancellor Angela Merkel wants to wait until after the referendum to start a new round of talks, French President François Hollande wants to reach an agreement before the referendum.  At any rate, it appears that the referendum itself will solve little regardless of the outcome because after years of austerity and cuts, the Greek economy has shrunk and can no longer sustain the debt, at least in the opinion of one Paul Krugman (Boo! Hiss!). It is more of this austerity (pensions cuts, VAT raises) that the Greek government and the troika disagree on.

 

As I'm sure you all know by now, Greece has been suffering capital flight since SYRIZA won the election on january, and after defaulting on the june 30th payment, things have reached a breaking point with banks closed since monday and limits of 60€ per card and day being imposed on cash withdrawals in an attempt to avoid a total financial collapse.

 

What seems to be at stake here (other than the future of millions of Greeks, obviously) is the stability and continuity of the Euro as a currency, as nobody really knows what a contagion could bring, and potentially, of western Europe as a political entity itself. As Chancellor Merkel put it four years ago: "Nobody should take for granted another 50 years of peace and prosperity in Europe ... that's why I say: If the euro fails, Europe fails".

 

Fun times.

 

This is an interesting and relevant topic but you are misunderstanding a few things or it may be you are ignoring them because of your personal view of the EU and austerity

 

  • When the various countries in the EU were instructed to undergo austerity the conditions varied from country to country but there were certain expectations that these countries had to comply with. Some may say " but who decides austerity ". An economic powerhouse like Germany with input from other countries like France was perfectly suitable to put pressure on these wayward countries but the intention as you know was never to punish these countries, it was to address the extreme economic  pressure that was self-inflicted 
  • The expected austerity cuts were things like reduce government spending , more efficient tax generation, a rise in pension age, reduce government pay and other similar prudent steps. None of these should seem anathema but reasonable considering the circumstances
  • The Greeks have been the worst to adopt this austerity and have ostensibly failed to meet several expectations that they agreed to. I can understand austerity is hard for you Europeans but the reality is it needed to be done 
  • Concerning this badly timed referendum I am of the opinion that there are people in SYRIZA that genuinely believe Greece would be better off outside the EU so they probably asked for this bizarre referendum in order to sabotage the negotiations and get Greece kicked out the EU. And lets not kid ourselves the patience of the EU for the Greeks attempts to sometimes obfuscate the austerity objectives have almost run out
  • The Greeks in the latest austerity measures were told to improve tax collection and change the retirement age. Both of these were apparently red line items for SYRIZA that they wouldn't compromise on but now they are prepared to and this is good news
  • SYRIZA is a populist party that came to power on the promise to end austerity. This was a completely unrealistic expectation and as we have seen cannot be implemented without Greece being kicked out the EU. I have to be honest I am surprised the Greeks voted them in on this specious election commitment, I would expect certain African countries to believe this type of rhetoric as they are less informed about the reality of economics than the Europeans
  • If Greece does vote NO then this would be the real start of them leaving the EU....and this would be economic hell for them and I doubt will happen. So I'm sure they will vote Yes and recommit to the necessary austerity 
  •  So need to worry about contagion....Greece will stay in the EU

"Abashed the devil stood and felt how awful goodness is and saw Virtue in her shape how lovely: and pined his loss”

John Milton 

"We don't stop playing because we grow old; we grow old because we stop playing.” -  George Bernard Shaw

"What counts in life is not the mere fact that we have lived. It is what difference we have made to the lives of others that will determine the significance of the life we lead" - Nelson Mandela

 

 

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Well... there has been in recent years a notion of nationalism spirit rising and mostly due to how bad immigrants from other regions of the world are at integrating into local populations and how noisy they are about getting new privileges while at the same time not respecting local culture and cultural background.

 

It might be less of a case in countries like Canada, which exist for around 140 years or US which is barely 230years old and are basically a melting pot of immigrants from various parts of the world, but when you look at countries like UK, France, Germany, Poland, Spain, Italy, Greece, etc. which all have at least, I say at least 1000years of cultural development and are proud of their history, while at the same time there still remain demons of previous wars somewhere in the back of the minds of EU citizens.

 

The Greek problem is the one, where the government CHEATED and FORGED official statistics, just to get to the EURO zone (do not confuse it into European Union). I have little regrets for them. If their own citizens do not want to pay taxes (tax evasion is there treated like a national hobby) and they want to have huge governmental benefits, then you dig yourself own grave.

 

Greece leaving EU at this point would do everyone good.

 

a) you would stop wasting money of EU taxpayers and stop pissing off people from those countries, especially the new members.

b) they could follow the Argentina's route, so while the first 1-2 years would be extremely painful, their economy could grow in the next years, and they are definitely better and safer destination for tourists than lets say North African Countries at this point, so their tourism would still bring them a lot of money.

 

I am more afraid of a possibility of UK leaving EU, because that WILL have a major impact on the whole EU economy. Greeks, not so much, they have no notable industry or financial markets that would shake the EU.

 

 

BTW, the Greeks are basically going to vote, if they want to stay in EUR zone and endure more cuts or not (and go bankrupt, but that's something they will not include in the poll). Obviously, since we know that democracy is the rule of stupid, most Greeks will probably vote for a separation, although I would not be surprised if when the threat reaches their wallets, they might actually start to count properly. They already have right now a first taste of what is to come, with the limitations on the cash withdrawals to 60 EUR a day, etc.

Edited by Darkpriest
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Greece leaving EU at this point would do everyone good.

 

a) you would stop wasting money of EU taxpayers and stop pissing off people from those countries, especially the new members.

b) they could follow the Argentina's route, so while the first 1-2 years would be extremely painful, their economy could grow in the next years, and they are definitely better and safer destination for tourists than lets say North African Countries at this point, so their tourism would still bring them a lot of money.

 

I am more afraid of a possibility of UK leaving EU, because that WILL have a major impact on the whole EU economy. Greeks, not so much, they have no notable industry or financial markets that would shake the EU.

 I have seen some really informed people suggesting that Greece should leave the EU as people are tired of there intransigence and lack of compliance with austerity. But for me Greece leaving the EU would effectively crash there banking institutions and who would now lend them money? You can forget the IMF as they owe them billions..maybe the BRICS bank but Greece would be considered a high risk and dishonest in its payment strategy. So Greece leaving the EU could devastate there economy to a point where they may  spend 15-20 years recovering from  it. Its a huge deal and really needs to be avoided 

Edited by BruceVC

"Abashed the devil stood and felt how awful goodness is and saw Virtue in her shape how lovely: and pined his loss”

John Milton 

"We don't stop playing because we grow old; we grow old because we stop playing.” -  George Bernard Shaw

"What counts in life is not the mere fact that we have lived. It is what difference we have made to the lives of others that will determine the significance of the life we lead" - Nelson Mandela

 

 

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Greece leaving EU at this point would do everyone good.

 

a) you would stop wasting money of EU taxpayers and stop pissing off people from those countries, especially the new members.

b) they could follow the Argentina's route, so while the first 1-2 years would be extremely painful, their economy could grow in the next years, and they are definitely better and safer destination for tourists than lets say North African Countries at this point, so their tourism would still bring them a lot of money.

 

I am more afraid of a possibility of UK leaving EU, because that WILL have a major impact on the whole EU economy. Greeks, not so much, they have no notable industry or financial markets that would shake the EU.

 I have seen some really informed people suggesting that Greece should leave the EU as people are tired of there intransigence and lack of compliance with austerity. But for me Greece leaving the EU would effectively crash there banking institutions and who would now lend them money? You can forget the IMF as they owe them billions..maybe the BRICS bank but Greece would be considered a high risk and dishonest in its payment strategy. So Greece leaving the EU could devastate there economy to a point where they may  spend 15-20 years recovering from  it. Its a huge deal and really needs to be avoided 

 

 

Nope, look at notorious bankrupt Argentina... or even at the frigging Iceland (even though it is smaller).

 

Bankrupcy will not devastate their economy for 20 years, in fact, it actually might help them out in the long run. Sure first 1-2 years will be bad, BUT, their tourism will becoame more affordable and attractive to even more people, their new/old currency will help their export and bring the economic growth, probably in the 2nd year, and will drive their economy up. People will actually have to work, instead of sitting in various governmental parasite institutions, and thus in the long run their workforce might become more competitive.

 

Bankruptcy is not the end of the world for a country. Sure, you will always be viewed on the market a bit higher risk, and pay extra %s on your future bonds, but that's basically it. You just need to be smart about it.

 

(I do not really have time to get all the data about Argentina and verify every bit of it, but they surely turned around their last bankruptcy into an overall better situation than it was before that)

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Greece leaving EU at this point would do everyone good.

 

a) you would stop wasting money of EU taxpayers and stop pissing off people from those countries, especially the new members.

b) they could follow the Argentina's route, so while the first 1-2 years would be extremely painful, their economy could grow in the next years, and they are definitely better and safer destination for tourists than lets say North African Countries at this point, so their tourism would still bring them a lot of money.

 

I am more afraid of a possibility of UK leaving EU, because that WILL have a major impact on the whole EU economy. Greeks, not so much, they have no notable industry or financial markets that would shake the EU.

 I have seen some really informed people suggesting that Greece should leave the EU as people are tired of there intransigence and lack of compliance with austerity. But for me Greece leaving the EU would effectively crash there banking institutions and who would now lend them money? You can forget the IMF as they owe them billions..maybe the BRICS bank but Greece would be considered a high risk and dishonest in its payment strategy. So Greece leaving the EU could devastate there economy to a point where they may  spend 15-20 years recovering from  it. Its a huge deal and really needs to be avoided 

 

 

Nope, look at notorious bankrupt Argentina... or even at the frigging Iceland (even though it is smaller).

 

Bankrupcy will not devastate their economy for 20 years, in fact, it actually might help them out in the long run. Sure first 1-2 years will be bad, BUT, their tourism will becoame more affordable and attractive to even more people, their new/old currency will help their export and bring the economic growth, probably in the 2nd year, and will drive their economy up. People will actually have to work, instead of sitting in various governmental parasite institutions, and thus in the long run their workforce might become more competitive.

 

Bankruptcy is not the end of the world for a country. Sure, you will always be viewed on the market a bit higher risk, and pay extra %s on your future bonds, but that's basically it. You just need to be smart about it.

 

(I do not really have time to get all the data about Argentina and verify every bit of it, but they surely turned around their last bankruptcy into an overall better situation than it was before that)

 

Was Argentina kicked out some economic union and forced to use there original currency?

 

I am not talking about bankruptcy for Greece. I am talking about something much worse, They would return to the Drachma that would be worthless  

Edited by BruceVC

"Abashed the devil stood and felt how awful goodness is and saw Virtue in her shape how lovely: and pined his loss”

John Milton 

"We don't stop playing because we grow old; we grow old because we stop playing.” -  George Bernard Shaw

"What counts in life is not the mere fact that we have lived. It is what difference we have made to the lives of others that will determine the significance of the life we lead" - Nelson Mandela

 

 

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1435568398999-1.png

 

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Good. The Euro was a mistake.

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They were forced to release their currency from 1:1 ratio to US dollar... their currency plummet like a nose diving crashing plane, but then they recovered and they even started to get budget surpluses. They were able to negotiate the debt cuts as far as 60-70% with their creditors and in the overall looked much better at the end of the process than what they were at the time of declaring bankruptcy.

 

Greece might follow the same scenario... how will it develop it is entirely to the Greek people. You need to live with the consequences of your choices. If you chose to cheat and abuse for short term gains, now you have to deal with the outcomes. Also, forcing EU countries to pour funds into Greece is only pissing off the new members, where in some cases people get 400-500EUR a month and yet their governments need to participate in aiding the "richer" cheaters Greeks. Rich countries like Germany also have issues with spending more money there, as there comes a point where you need to weight gains vs losses, not only economical but also political, including domestic politics, which shape what governments are at the steering wheel of the EU.

 

Cutting off one burden will help and will also show other countries, that there are reasons why you should adhere to the convergence regulations and follow them. it is also a warning to people who like to follow populists with catchy phrases and ideas, that are very costly and applying a heavy burden on the budgets. Getting in debt spirals deeper and deeper is bad and eventually creditors call out "check"...

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They were forced to release their currency from 1:1 ratio to US dollar... their currency plummet like a nose diving crashing plane, but then they recovered and they even started to get budget surpluses. They were able to negotiate the debt cuts as far as 60-70% with their creditors and in the overall looked much better at the end of the process than what they were at the time of declaring bankruptcy.

 

Greece might follow the same scenario... how will it develop it is entirely to the Greek people. You need to live with the consequences of your choices. If you chose to cheat and abuse for short term gains, now you have to deal with the outcomes. Also, forcing EU countries to pour funds into Greece is only pissing off the new members, where in some cases people get 400-500EUR a month and yet their governments need to participate in aiding the "richer" cheaters Greeks. Rich countries like Germany also have issues with spending more money there, as there comes a point where you need to weight gains vs losses, not only economical but also political, including domestic politics, which shape what governments are at the steering wheel of the EU.

 

Cutting off one burden will help and will also show other countries, that there are reasons why you should adhere to the convergence regulations and follow them. it is also a warning to people who like to follow populists with catchy phrases and ideas, that are very costly and applying a heavy burden on the budgets. Getting in debt spirals deeper and deeper is bad and eventually creditors call out "check"...

 

Don't me wrong, I agree the Greece issue is primarily self-inflicted. But I still don't want them to leave the EU....they just need to stick to austerity

 

Remember I live in Africa, I cannot just ignore countries that have decided on  policies that hurt there economy and or mishandled there finances :)

Edited by BruceVC

"Abashed the devil stood and felt how awful goodness is and saw Virtue in her shape how lovely: and pined his loss”

John Milton 

"We don't stop playing because we grow old; we grow old because we stop playing.” -  George Bernard Shaw

"What counts in life is not the mere fact that we have lived. It is what difference we have made to the lives of others that will determine the significance of the life we lead" - Nelson Mandela

 

 

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Greece leaving EU at this point would do everyone good.

 

a) you would stop wasting money of EU taxpayers and stop pissing off people from those countries, especially the new members.

b) they could follow the Argentina's route, so while the first 1-2 years would be extremely painful, their economy could grow in the next years, and they are definitely better and safer destination for tourists than lets say North African Countries at this point, so their tourism would still bring them a lot of money.

 

I am more afraid of a possibility of UK leaving EU, because that WILL have a major impact on the whole EU economy. Greeks, not so much, they have no notable industry or financial markets that would shake the EU.

 I have seen some really informed people suggesting that Greece should leave the EU as people are tired of there intransigence and lack of compliance with austerity. But for me Greece leaving the EU would effectively crash there banking institutions and who would now lend them money? You can forget the IMF as they owe them billions..maybe the BRICS bank but Greece would be considered a high risk and dishonest in its payment strategy. So Greece leaving the EU could devastate there economy to a point where they may  spend 15-20 years recovering from  it. Its a huge deal and really needs to be avoided 

 

 

Banking structure in EU has only quite minor risk to crash if Greek leaves Euro and possibly EU, as now those loans that Greeks have aren't for Europe's big banks, but IMF, ECB, and directly to other countries, so even if Greek defaults it don't collapse banks from other euro countries.

 

For Greeks banks leaving euro would be devastating as then they don't anymore get emergency funding from ECB. But it is absolute possible that Greek can recover from such blow, but for Greeks probably would lose quite lot their standard of living on short run and it is difficult to predict how it would impact on Greek's tourism and other major sources of income.

 

Following troika current plan would mean that Greek will have hard time to get any economic growth in next couple decades, so I can understand why it isn't very compelling option for them and why they could even risk defaulting.

 

Option that is in current political climate nearly non-option for other euro countries is that some of Greeks loans will be forgiven or they will be changed to interest free for decades, probably could be best option in long run, as it would allow Greek to build their economy back faster without need to cut their standard of living so much as two previous options. But this option would be quite hard to sell as economy in euro area is in recession and they going through major budget cuts.  

 

And own problem comes from rising popularity of anti-EU parties, UK's upcoming referendum about leaving the union. And also worsened relations with Russia, don't help. And of course situations in Middle-east and North-Africa don't help.

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If Zimbabwe can use the US dollar, why can't Greece continue to use the Euro? Although a weak economy using a strong currency isn't a good idea, which is why I always thought Euro was a stupid idea (except for a while when they seemed to do better than the US).

"Moral indignation is a standard strategy for endowing the idiot with dignity." Marshall McLuhan

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If Zimbabwe can use the US dollar, why can't Greece continue to use the Euro? Although a weak economy using a strong currency isn't a good idea, which is why I always thought Euro was a stupid idea (except for a while when they seemed to do better than the US).

 

I believe there are conditions to use the Euro but the Dollar is the acceptable global  currency due to its traction that any country can use if there own currency collapses, like Zim

 

Yet Mugabe still attacks the USA for "imperialism and interference " ....the hypocrisy annoys me 

"Abashed the devil stood and felt how awful goodness is and saw Virtue in her shape how lovely: and pined his loss”

John Milton 

"We don't stop playing because we grow old; we grow old because we stop playing.” -  George Bernard Shaw

"What counts in life is not the mere fact that we have lived. It is what difference we have made to the lives of others that will determine the significance of the life we lead" - Nelson Mandela

 

 

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If Zimbabwe can use the US dollar, why can't Greece continue to use the Euro? Although a weak economy using a strong currency isn't a good idea, which is why I always thought Euro was a stupid idea (except for a while when they seemed to do better than the US).

 

Nothing can force them stop using euro, but they will lose all control and benefits they now have. So from national economical standpoint it would be better for Greek to move back to use their own currency, if they leave euro, given that they can establish some value compared to other currencies for it, so that it can be used in international trade.

Edited by Elerond
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I think a few common misconceptions need to be alleviated, there's a lot of utter rubbish in the press.

 

The Greek issue is not primarily self inflicted- though they're certainly not blameless- and the current situation is the economic equivalent of the US bombing Hanoi to the stone age or the SS liquidating Lidice; pour (d)é(n)courager with a pretty large dollop of I'm looking at you, l'autre Podemos. Syriza is an ideological opponent, if they succeed then Spain and who knows else follows and suddenly the economic kool aid of bailing out the rich- banks in this case- via taxpayers nationalising their bad debt then going full neo liberal theory suddenly looks like kool aid swilling. Gut Syriza, blame them and the Greeks forever, just a bit more cutting, a bit more blood, a bit more hard work (from the people who are already the hardest working per the OECD, shame so few have jobs, eh) and suddenly it'll be paradise!

 

What was the big stumbling block; pensions vs raising taxes on the well off, the amount of money to be raised was the same. Far from being gold plated fountains of euros 45% of Greek pensioners are below the EU's own, self defined poverty line already, yet the IMF wants to cut them further. That is taking money straight out of the Greek economy, money which would be spent in shops, on rent, electricity etc and circulate because people on the poverty line aren't saving and aren't sending their cash off to Switzerland, Bermuda or Frankfurt to sit in banks or offshore share markets, nor are they buying London houses for 15% p/a appreciation which is what any sensible Greek who is rich has been doing for the past 7 years. However, the IMF expects those rich people whose taxes they don't want raised to invest in Greece because... well, who really knows, why would anyone who has an option given the mess the troika has made of it? There ain't an answer, you'd be mad to, yet the IMF says that is what will happen and it won't if you raise taxes on the well off. So still the IMF soldiers on, driving the economy further down, it's already shrunk 30%, unemployment is already 25%, poverty 35%, debt has ballooned to 180% of GDP since 'austerity' from just over 100%, 10% of their entire economic output is required just to service interest let alone pay stuff back, and that is full on GDP, not even tax take note.

 

And, of course, it is largely due to the utterly borked structure of the euro. Greece can't do anything to help itself because its currency is run from Frankfurt, not Athens, and for the benefit of Frankfurt, not Athens. It is constantly uncompetitive because Germany is a far bigger economy, Germany is helped because the euro is lower, relatively, than a deutchmark would be; Greece is hamstrung because the Euro is far higher than a drachma would be and they cannot print money to pay or inflate away debt. So Greece cannot compete effectively either within Europe not externally because its currency is too high which overvalues their products, but at the same time it has to maintain its own debt etc. Worst of both worlds. Fix the Euro, which effectively means full fiscal union, or disband it and the pan Europeans can go asterisk themselves, else Greece will not be the last. Won't happen though, stupid is as stupid does, and politicians will be stupid if it's politically expedient to be so.

 

Greece should have defaulted in 2008 and left the euro, their economy would be 30% larger then than now and facing the same prospect. They couldn't repay their debts when they were 100% of GDP and that was why the banks who owned that debt got bailed out*, how anyone thinks they can service it at its new, 180% of GDP is beyond sensible consideration and is a result of the most moronic ideological myopia imaginable.

 

*Which is the really galling thing. Sure, one can rail on the Greeks for living beyond their means, it's true enough, and complain about bailing them out; but someone lent them the money and they were bailed out every bit as much, more so they since they haven't faced anywhere near the costs Greece has. Yet for some reason you don't hear the Troika pushing that narrative- completely true, too- at all for some reason. Congrats, Eurotypes, you bailed out irresponsible lenders to the tune of 350 billion Euro or whatever, every bit as much as you bailed out the irresponsible borrower. Yet while Greece's economy has shrunk 30%, 35% poverty, 25% unemployment, 60% youth unemployment those irresponsible lenders have, what, bought a new Bugatti Veyron to keep their Ferrari, Maserati and Pagani from being lonely in their 17th century renovated Tuscan villa? Slight disparity in treatment there, even if I were over exaggerating slightly.

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Here's the thing-- the Euro mainstay powers like Germany were entirely complicit Greece's problems from the beginning. 

 

Flexible exchange rates are the release valve for export-oriented economies taking mercantilist advantage of poorer nations.  The Euro was fantastic for Germany, et al., because it gave them a market for their exports whose monetary policy they could control and that didn't offer much (besides pretty beaches) on the other side of the trade balance sheet. 

 

In a typical relationship, a one-sided trade balance between two nations gets balanced by their currency prices-- Drachmas get weak enough that Greeks can't afford imports from Euroland, Greece's domestic producers grow because imports are so expensive, Euroland's economy suffers from the loss of exports, and the currencies go back into balance.   The Euro gave the Northern Europe effective control over currency prices in the PIIGS markets, so that this would stop happening. 

 

In exchange for giving up this power, they bribed the poorer nations like Greece with access to basically unlimited credit.  And Greece, in particular, has been especially profligate with this credit-- it used it to fund a huge, well-compensated, well-pensioned civil service, and to avoid serious efforts at tax enforcement.  And nobody cared until the '08 financial crisis taught us that banks couldn't just hedge away all their default risks anymore.

 

The powers that be in Euroland have been enabling Greece's profligacy from the beginning.  The folks in charge were very interested in the short- and medium-term gains, knowing that they'd be out of office by the time the long-term risks came due.  They studiously avoided looking too hard at how rigorously countries like Greece were adhering to the treaty's deficit caps.  The books were cooked, everybody knew it, and nobody cared.  A currency union that encompasses both export-driven manufacturing economies and third-world-level nice-beaches-and-no-businesses economies was doomed from inception.  

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In exchange for giving up this power, they bribed the poorer nations like Greece with access to basically unlimited credit.  And Greece, in particular, has been especially profligate with this credit-- it used it to fund a huge, well-compensated, well-pensioned civil service, and to avoid serious efforts at tax enforcement.  And nobody cared until the '08 financial crisis taught us that banks couldn't just hedge away all their default risks anymore.

 

Don't know about especially profligate, their debt: GDP ratio didn't spike until 2008 and didn't significantly increase from that of their Euro accession so their borrowing was keeping pace with growth. It was retrospectively stupid, massively so, but it was a retrospective stupidity nearly everyone had over the equivalent period and which they were at least somewhat encouraged towards by the same people who are complaining now about bailing them out. Fundamentally, few nations paid back debt in the early-mid 2000s as they should have, and wherever they were. And I guess I'd also chirp in again there should be an obligation on lenders to lend with some responsibility as well as for borrowers to borrow responsibly, and significant consequences if they don't.

 

The tax enforcement thing is also a bit overstated, though obviously more is better for their situation. I was rather surprised myself but in 2009 Greece's black/ grey economy was almost exactly 20% (wikipedia says 25%, but their maths is simply wrong, herp derp) of GDP with well regulated and efficient Germany having 15% GDP grey/ black economy. There isn't that much room for improvement, certainly not as much as there is generally implied to be.

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Here's the thing-- the Euro mainstay powers like Germany were entirely complicit Greece's problems from the beginning. 

 

Flexible exchange rates are the release valve for export-oriented economies taking mercantilist advantage of poorer nations.  The Euro was fantastic for Germany, et al., because it gave them a market for their exports whose monetary policy they could control and that didn't offer much (besides pretty beaches) on the other side of the trade balance sheet. 

 

In a typical relationship, a one-sided trade balance between two nations gets balanced by their currency prices-- Drachmas get weak enough that Greeks can't afford imports from Euroland, Greece's domestic producers grow because imports are so expensive, Euroland's economy suffers from the loss of exports, and the currencies go back into balance.   The Euro gave the Northern Europe effective control over currency prices in the PIIGS markets, so that this would stop happening. 

 

In exchange for giving up this power, they bribed the poorer nations like Greece with access to basically unlimited credit.  And Greece, in particular, has been especially profligate with this credit-- it used it to fund a huge, well-compensated, well-pensioned civil service, and to avoid serious efforts at tax enforcement.  And nobody cared until the '08 financial crisis taught us that banks couldn't just hedge away all their default risks anymore.

 

The powers that be in Euroland have been enabling Greece's profligacy from the beginning.  The folks in charge were very interested in the short- and medium-term gains, knowing that they'd be out of office by the time the long-term risks came due.  They studiously avoided looking too hard at how rigorously countries like Greece were adhering to the treaty's deficit caps.  The books were cooked, everybody knew it, and nobody cared.  A currency union that encompasses both export-driven manufacturing economies and third-world-level nice-beaches-and-no-businesses economies was doomed from inception.  

 

You see for me  this post has some accurate and inclusive  points but it seems to focus on the wrong considerations around the Greek crisis 

 

Why do we feel the need to blame a country like Germany for becoming the most dominant economy in Europe despite losing its holistic global identity for decades after WW2 and having to recreate its financial institutions. Yet despite all this they persevered and have a strong export based economy. I often hear people say  " the EU was great for the Germans as it benefited there economic model...but not so good for everyone else in the EU like the PIGS "  Why? Why couldn't any other country have also adopted an export model that worked well in the EU. Its almost like we are blaming the Germans for having the diligence and work ethos to become efficient in the EU ?

 

Greece wanted to join the EU, they weren't bribed (?) and didn't need much motivation and there is evidence  that they did exaggerate there economic status to join. You can't expect the Germans to take responsibility for ensuring the Greeks were being honest about what they brought to the EU? 

 

You did note IMO exactly why Greece is in this mess where you said  And Greece, in particular, has been especially profligate with this credit-- it used it to fund a huge, well-compensated, well-pensioned civil service, and to avoid serious efforts at tax enforcement.  And nobody cared until the '08 financial crisis taught us that banks couldn't just hedge away all their default risks anymore" These are the fundamental causes, the other things you mentioned I'm sure contributed but they weren't as relevant as the mismanagement above 

 

Lets expect countries like Greece with such  ancient history and knowledge  to at least manage its own institutions properly.  And the criticism about the initial large loans that Greece asked for and now has become the fault of the various  institutions like the IMF, Germany and Euro Central Bank  for lending them the money seems utterly bizarre. If Greece asked for these loans and was prepared to adopt the austerity that was expected why shouldn't the money have been given to them. Imagine how embarrassing for the Greeks and condescending it would have been if the Germans has said in the beginning of the loan cycle " no we don't believe you can pay us back, we won't give you the benefit of the doubt and just kick you out now " 

 

Come on guys countries really need to take responsibility for there  own actions and decisions....and lets stop blaming the Germans for having one of the few very functional economies in the EU :) 

"Abashed the devil stood and felt how awful goodness is and saw Virtue in her shape how lovely: and pined his loss”

John Milton 

"We don't stop playing because we grow old; we grow old because we stop playing.” -  George Bernard Shaw

"What counts in life is not the mere fact that we have lived. It is what difference we have made to the lives of others that will determine the significance of the life we lead" - Nelson Mandela

 

 

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In exchange for giving up this power, they bribed the poorer nations like Greece with access to basically unlimited credit.  And Greece, in particular, has been especially profligate with this credit-- it used it to fund a huge, well-compensated, well-pensioned civil service, and to avoid serious efforts at tax enforcement.  And nobody cared until the '08 financial crisis taught us that banks couldn't just hedge away all their default risks anymore.

 

Don't know about especially profligate, their debt: GDP ratio didn't spike until 2008 and didn't significantly increase from that of their Euro accession so their borrowing was keeping pace with growth. It was retrospectively stupid, massively so, but it was a retrospective stupidity nearly everyone had over the equivalent period and which they were at least somewh,at encouraged towards by the same people who are complaining now about bailing them out. Fundamentally, few nations paid back debt in the early-mid 2000s as they should have, and wherever they were. And I guess I'd also chirp in again there should be an obligation on lenders to lend with some responsibility as well as for borrowers to borrow responsibly, and significant consequences if they don't.

 

The tax enforcement thing is also a bit overstated, though obviously more is better for their situation. I was rather surprised myself but in 2009 Greece's black/ grey economy was almost exactly 20% (wikipedia says 25%, but their maths is simply wrong, herp derp) of GDP with well regulated and efficient Germany having 15% GDP grey/ black economy. There isn't that much room for improvement, certainly not as much as there is generally implied to be.

 

 

Yeah I knew without absolute certainty that you would be one of the  people blaming the Germans and basically suggesting that the EU is fundamentally flawed. At least you are consistent with the anti-Western diatribe . I know whenever a discussion about the state of a situation in the world exists, be it Ukraine, Serbia  or Syria, its always the West fault hey Zora ?  ;)

"Abashed the devil stood and felt how awful goodness is and saw Virtue in her shape how lovely: and pined his loss”

John Milton 

"We don't stop playing because we grow old; we grow old because we stop playing.” -  George Bernard Shaw

"What counts in life is not the mere fact that we have lived. It is what difference we have made to the lives of others that will determine the significance of the life we lead" - Nelson Mandela

 

 

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Fun fact: in 1953, it was agreed to cancel 50% of the debt owed by FRG to western nations and banks. The remaining 50% was to be repaid provided that Germany ran a positive trade balance, and payments would amount to no more than 3% of export income. Among creditors who agreed to this debt cancellation was... Greece.

 

Go go German diligence and work ethos!

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- When he is best, he is a little worse than a man, and when he is worst, he is little better than a beast.

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Fun fact: in 1953, it was agreed to cancel 50% of the debt owed by FRG to western nations and banks. The remaining 50% was to be repaid provided that Germany ran a positive trade balance, and payments would amount to no more than 3% of export income. Among creditors who agreed to this debt cancellation was... Greece.

 

Go go German diligence and work ethos!

Okay but where is the relevance to the current Greek crisis?

 

Are you saying that Germany was given a structured way to repay debt and Greece showed them some compromise and good spirt at the time

 

Do you think this should motivate Germany to do the same now with Greece due to this historical decision? I can see the point but the circumstances are vastly different 

"Abashed the devil stood and felt how awful goodness is and saw Virtue in her shape how lovely: and pined his loss”

John Milton 

"We don't stop playing because we grow old; we grow old because we stop playing.” -  George Bernard Shaw

"What counts in life is not the mere fact that we have lived. It is what difference we have made to the lives of others that will determine the significance of the life we lead" - Nelson Mandela

 

 

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Just change the guarantees of the loans and the greeks can keep their stupid pension program and bonuses for government employees for remembering to wash their hands. Want another 10 billion? Sure, we will have the whole island of Rhodos as a security. 100 billion? Well, there's also Crete...

 

Other than that, just let them exit. They are bleeding dry due to them and banks for being too stupid.

 

Maybe we should make it a death penalty for financial fraud. I think that would help as well.

"Some men see things as they are and say why?"
"I dream things that never were and say why not?"
- George Bernard Shaw

"Hope in reality is the worst of all evils because it prolongs the torments of man."
- Friedrich Nietzsche

 

"The amount of energy necessary to refute bull**** is an order of magnitude bigger than to produce it."

- Some guy 

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Here's the thing-- the Euro mainstay powers like Germany were entirely complicit Greece's problems from the beginning. 

 

Flexible exchange rates are the release valve for export-oriented economies taking mercantilist advantage of poorer nations.  The Euro was fantastic for Germany, et al., because it gave them a market for their exports whose monetary policy they could control and that didn't offer much (besides pretty beaches) on the other side of the trade balance sheet. 

 

In a typical relationship, a one-sided trade balance between two nations gets balanced by their currency prices-- Drachmas get weak enough that Greeks can't afford imports from Euroland, Greece's domestic producers grow because imports are so expensive, Euroland's economy suffers from the loss of exports, and the currencies go back into balance.   The Euro gave the Northern Europe effective control over currency prices in the PIIGS markets, so that this would stop happening. 

 

In exchange for giving up this power, they bribed the poorer nations like Greece with access to basically unlimited credit.  And Greece, in particular, has been especially profligate with this credit-- it used it to fund a huge, well-compensated, well-pensioned civil service, and to avoid serious efforts at tax enforcement.  And nobody cared until the '08 financial crisis taught us that banks couldn't just hedge away all their default risks anymore.

 

The powers that be in Euroland have been enabling Greece's profligacy from the beginning.  The folks in charge were very interested in the short- and medium-term gains, knowing that they'd be out of office by the time the long-term risks came due.  They studiously avoided looking too hard at how rigorously countries like Greece were adhering to the treaty's deficit caps.  The books were cooked, everybody knew it, and nobody cared.  A currency union that encompasses both export-driven manufacturing economies and third-world-level nice-beaches-and-no-businesses economies was doomed from inception.  

 

You see for me  this post has some accurate and inclusive  points but it seems to focus on the wrong considerations around the Greek crisis 

 

Why do we feel the need to blame a country like Germany for becoming the most dominant economy in Europe despite losing its holistic global identity for decades after WW2 and having to recreate its financial institutions. Yet despite all this they persevered and have a strong export based economy. I often hear people say  " the EU was great for the Germans as it benefited there economic model...but not so good for everyone else in the EU like the PIGS "  Why? Why couldn't any other country have also adopted an export model that worked well in the EU. Its almost like we are blaming the Germans for having the diligence and work ethos to become efficient in the EU ?

 

Greece wanted to join the EU, they weren't bribed (?) and didn't need much motivation and there is evidence  that they did exaggerate there economic status to join. You can't expect the Germans to take responsibility for ensuring the Greeks were being honest about what they brought to the EU? 

 

You did note IMO exactly why Greece is in this mess where you said  And Greece, in particular, has been especially profligate with this credit-- it used it to fund a huge, well-compensated, well-pensioned civil service, and to avoid serious efforts at tax enforcement.  And nobody cared until the '08 financial crisis taught us that banks couldn't just hedge away all their default risks anymore" These are the fundamental causes, the other things you mentioned I'm sure contributed but they weren't as relevant as the mismanagement above 

 

Lets expect countries like Greece with such  ancient history and knowledge  to at least manage its own institutions properly.  And the criticism about the initial large loans that Greece asked for and now has become the fault of the various  institutions like the IMF, Germany and Euro Central Bank  for lending them the money seems utterly bizarre. If Greece asked for these loans and was prepared to adopt the austerity that was expected why shouldn't the money have been given to them. Imagine how embarrassing for the Greeks and condescending it would have been if the Germans has said in the beginning of the loan cycle " no we don't believe you can pay us back, we won't give you the benefit of the doubt and just kick you out now " 

 

Come on guys countries really need to take responsibility for there  own actions and decisions....and lets stop blaming the Germans for having one of the few very functional economies in the EU :)

 

 

I would like to advice you to read up more on the subject. I'd like to point you to der Spiegel, which is obviously written by Germans, who frequently point out how things are a little more complicated than "Hur dur, the poor hard working Germans lent all that money to the lazy, sneaky, greedy Greeks, and now they refuse to pay it back!!!".

 

This is an interesting article, for example: http://www.spiegel.de/international/germany/german-power-in-the-age-of-the-euro-crisis-a-1024714.html

Never attribute to malice that which can adequately be explained by incompetence.

 

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Here's the thing-- the Euro mainstay powers like Germany were entirely complicit Greece's problems from the beginning. 

 

Flexible exchange rates are the release valve for export-oriented economies taking mercantilist advantage of poorer nations.  The Euro was fantastic for Germany, et al., because it gave them a market for their exports whose monetary policy they could control and that didn't offer much (besides pretty beaches) on the other side of the trade balance sheet. 

 

In a typical relationship, a one-sided trade balance between two nations gets balanced by their currency prices-- Drachmas get weak enough that Greeks can't afford imports from Euroland, Greece's domestic producers grow because imports are so expensive, Euroland's economy suffers from the loss of exports, and the currencies go back into balance.   The Euro gave the Northern Europe effective control over currency prices in the PIIGS markets, so that this would stop happening. 

 

In exchange for giving up this power, they bribed the poorer nations like Greece with access to basically unlimited credit.  And Greece, in particular, has been especially profligate with this credit-- it used it to fund a huge, well-compensated, well-pensioned civil service, and to avoid serious efforts at tax enforcement.  And nobody cared until the '08 financial crisis taught us that banks couldn't just hedge away all their default risks anymore.

 

The powers that be in Euroland have been enabling Greece's profligacy from the beginning.  The folks in charge were very interested in the short- and medium-term gains, knowing that they'd be out of office by the time the long-term risks came due.  They studiously avoided looking too hard at how rigorously countries like Greece were adhering to the treaty's deficit caps.  The books were cooked, everybody knew it, and nobody cared.  A currency union that encompasses both export-driven manufacturing economies and third-world-level nice-beaches-and-no-businesses economies was doomed from inception.  

 

You see for me  this post has some accurate and inclusive  points but it seems to focus on the wrong considerations around the Greek crisis 

 

Why do we feel the need to blame a country like Germany for becoming the most dominant economy in Europe despite losing its holistic global identity for decades after WW2 and having to recreate its financial institutions. Yet despite all this they persevered and have a strong export based economy. I often hear people say  " the EU was great for the Germans as it benefited there economic model...but not so good for everyone else in the EU like the PIGS "  Why? Why couldn't any other country have also adopted an export model that worked well in the EU. Its almost like we are blaming the Germans for having the diligence and work ethos to become efficient in the EU ?

 

Greece wanted to join the EU, they weren't bribed (?) and didn't need much motivation and there is evidence  that they did exaggerate there economic status to join. You can't expect the Germans to take responsibility for ensuring the Greeks were being honest about what they brought to the EU? 

 

You did note IMO exactly why Greece is in this mess where you said  And Greece, in particular, has been especially profligate with this credit-- it used it to fund a huge, well-compensated, well-pensioned civil service, and to avoid serious efforts at tax enforcement.  And nobody cared until the '08 financial crisis taught us that banks couldn't just hedge away all their default risks anymore" These are the fundamental causes, the other things you mentioned I'm sure contributed but they weren't as relevant as the mismanagement above 

 

Lets expect countries like Greece with such  ancient history and knowledge  to at least manage its own institutions properly.  And the criticism about the initial large loans that Greece asked for and now has become the fault of the various  institutions like the IMF, Germany and Euro Central Bank  for lending them the money seems utterly bizarre. If Greece asked for these loans and was prepared to adopt the austerity that was expected why shouldn't the money have been given to them. Imagine how embarrassing for the Greeks and condescending it would have been if the Germans has said in the beginning of the loan cycle " no we don't believe you can pay us back, we won't give you the benefit of the doubt and just kick you out now " 

 

Come on guys countries really need to take responsibility for there  own actions and decisions....and lets stop blaming the Germans for having one of the few very functional economies in the EU :)

 

 

I would like to advice you to read up more on the subject. I'd like to point you to der Spiegel, which is obviously written by Germans, who frequently point out how things are a little more complicated than "Hur dur, the poor hard working Germans lent all that money to the lazy, sneaky, greedy Greeks, and now they refuse to pay it back!!!".

 

This is an interesting article, for example: http://www.spiegel.de/international/germany/german-power-in-the-age-of-the-euro-crisis-a-1024714.html

 

I am sorry thats what you think I am suggesting, I am saying the Germans are not at fault with providing loans to Greece and trusting them to stick to there austerity agreements

 

But thanks for the article, I'll read it :) 

"Abashed the devil stood and felt how awful goodness is and saw Virtue in her shape how lovely: and pined his loss”

John Milton 

"We don't stop playing because we grow old; we grow old because we stop playing.” -  George Bernard Shaw

"What counts in life is not the mere fact that we have lived. It is what difference we have made to the lives of others that will determine the significance of the life we lead" - Nelson Mandela

 

 

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Do you think this should motivate Germany to do the same now with Greece due to this historical decision? I can see the point but the circumstances are vastly different

Really Bruce, even for you that is particularly... unique* perspective given how many Greeks the Germans outright killed, let alone the damage they did to the country and its economy over WW2. Blame me for mentioning Lidice, I guess, even if I couched it as a economic comparison I clearly should have used Kondomari/ Kalavryta/ Kandanos instead- just on Crete, mind you.

 

Just in case anyone doesn't know the details, Germany declared war on and conquered Greece during WW2 with commensurate deaths in combat, mass murder, starvation,  destruction of property, mass appropriation and the like. 12 years after that they forgave Germany their debt. Bruce is right, that's not really similar circumstances- half a million (7% of pop) Greeks died as a result of WW2, I'm pretty sure not a single German has died due to issuing stupid loans that can't be paid back.

 

BTW Bruce, won't get much more west than Greece, cradle of western civilisation and that. Oh,*

 

*

I see him trollin', I hatin', natch

 

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