What to do about Greece?

Started by Snarky, Tue 30/06/2015 18:10:58

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Snarky

I figure we need a new controversial debate thread, so what do you all think about the whole Greek economic crisis/bailout/referendum/Grexit thing?

On the one hand, the anti-austerity side (which argues that the "troika" of Greece's main creditors - the European Commission, European Central Bank and IMF - should offer the country more generous terms, and often that Greece should otherwise leave the Euro) argues that austerity is a failed economic policy that has led to immense suffering in Greece, with sky-high unemployment and poverty, and that the costs of helping the country out aren't that big, relatively speaking. They also accuse the creditors of trying to dictate Greek policy against the democratic will of the Greek people (in particular by not extending their deadlines until after the referendum this weekend), and many have suggested that they have deliberately scuttled negotiations in order to overthrow the Syriza government.

On the other hand, in favor of a harder line against the country we can note that successive Greek governments have reneged on the terms of previous bailouts, failing to fully implement promised reforms to the economy (e.g. simplifying the tax system and closing loopholes while improving the collection rate, reducing subsidies, liberalizing the economy, cutting over-generous pensions, and privatizing assets). Also, while austerity has been painful, it is the price the country is paying for spending way past its means for the last decade or more. While of course it would be more comfortable to Greece if others just extended them unlimited credit to finance their social system, creditors and tax payers in the nations bailing the country out simply aren't willing to help unless the country makes deep cuts in order achieve solvency in the long run (and arguably shouldn't be expected to do so). Other countries that have implemented austerity policies coupled with economic reforms (Spain and Portugal, for example) have started to see their economies turn around, and there was a similar upturn in the Greek economy before the Syriza government came to power. Looking at the terms of the deal Greece turned down, they don't sound all that draconian to me, anyway: for example, Greek pensions (which are massively unaffordable) are still more generous than German ones, and still offer numerous loopholes for early retirement - fixing that seems pretty reasonable. Finally, Syriza in particular have strung out negotiations interminably, engaging in populist anti-EU brinkmanship that made a deal much more difficult, and missing every possible deadline: if they wanted a referendum on a deal, they should have called it a month ago, before the current bailout program and lines of credit expired.

The party is also being disingenuous and highly irresponsible in suggesting that the country can refuse a deal and yet remain in the Euro: While the country can't be "forced" out of the currency union, if Greece and its banks can't get credit (and without a deal, the ECB arguably cannot continue to extend them credit), the banks and the whole Greek financial system will collapse unless bailed out by the state, which Greece is in no position to do without printing their own money.

So with all of that in mind, I think Greece should vote yes, toss their current government, accept something like the creditors' terms and implement reasonable reforms, working towards a debt write-down later on. At the same time, having them leave the Euro is probably better for everyone concerned in the long run (that way they could devaluate and improve their economic competitiveness), but in a controlled manner, not in the midst of a collapse.

Radiant

Ah, but do they have a secret laser weapon?

NickyNyce

#2
Quote from: Snarky on Tue 30/06/2015 18:10:58
but in a controlled manner, not in the midst of a collapse.

Are you sure you changed the subject? This all sounds very familiar.

Gurok

Austerity is the way to go, but even with a default, I don't think the reduced debt package will be serviceable. It seems to me as though if they accept Germany's offer, reforms are part of the package, but if they default, nobody's holding them to the austerity. I would side with defaulting anyway. The PIIGS countries should all go anyway. Germany's propping up so much of the euro. Greece would do well to actually have some manufacturing rather than tourism to support its economy.
[img]http://7d4iqnx.gif;rWRLUuw.gi

selmiak

#4
afaik did the leftwing government in greece plan to tax the rich more to pay the debts. But the ECB, and other european institutions that are even less democratically elected, were against it, so there is some truth to them sabotaging the greece plans. But then the greece debts were not payed on time and the timeframe was too short anyways probably.
And the weirdest thing is, there are no contracts, no clauses, it is not possible to leave the euro... on paper.
And even is they decide to do so, the debts won't magically disappear, will they?

Where does all the money go? 11 million people live in greece and they have a military of 130.000 soldiers. Within the whole of the nato only the US has a bigger ratio of armed people to civilians. There are 1600 tanks in the greece army. All demands from EU and ECB explicitly write things down about taking from the poor and poorest and retired but nothing about reducing military spendings. How could they, the biggest military exporteurs need the money from greece, these are germany, france and the US. Some of the credits from recent times are used to pay for debts from previous military spendings.

also this

Nikolas

#5
Ahhh...

I was SO waiting for such a thread to emerge.

Here's my thoughts, as a Greek living here for the past 7 years and getting ready to flee Greece anytime! :(

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The biggest issue with Greece is that the whole situation is COMPLETELY different than that of the other countries getting the IMF help (Ireland and Spain noticeably).

Greece never had a bank issue, it has a social issue.

We simply spent much more than we make. We actually make pretty much nothing. We produce nothing but services (and we do that rather poorly, so Turkey is taking the lead in the area).

We need some serious reforming if anything is to work. But that's not going to happen.

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So now we got a "leftist" party in the government and it fucked up seriously. It's pressing really hard to keep "their clients" (ergo voters) happy and that's not easy to accept for the rest of the Europe.

Certainly the austerity measures ARE awful (there's no doubt about that), and certainly the IMF is still treating Greece as Ireland (and thus not solving the problem).

We do need a solid YES in the referendum (if it is to happen on Sunday) so that Syriza can get the hell out.

This, obviously, will just bring new elections and this will stall things even, but even that is better than anything else.

Here there should be a note that THIS government (Syriza) has shown some amazing levels of hard left mentality (which is bizarrely close to fascism (and I do mean that!)).

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On the actual happenings RIGHT NOW.

There's a very nice capital control plan, where the maximum amount you can withdraw from the cash machines is 60 euros (actually 50, cause ALL the cash machines only have 50 euro notes). Of course one with several cards in the same account, or more than 1 account, can withdraw more money *ahem*.

The pensions have NOT been paid. They are handing out 120 euros (1/3rd of the pension in some cases, or less) to the pensioners alphabetically (today it's A to I).

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Solid problems about Greece:

1. Civil workers. There's a huge number of people involved in the 'capitol'. All civil workers CANNOT get fired. They have accepted some big pay cuts, but they've kept their jobs at least.

2. Pensioners. There's 2.8 million pensioners for 3.7 million workers. You do the math. It can't work. Reason is that with very loose laws, one could even be a pensioner at the age of 45. And I'm NOT kidding.

3. Tax evasion. With too harsh tax rules, and with a sense that our money are not used to benefit us tax evasion is one of the biggest problems in Greece. EVERYONE will evade tax, if possible.

4. Social problem. The real problem, though, and this IS unsolvable, is that we don't care about one another. We don't really give a shit! For the good and the bad. The idea of "call if you see me drive carelessly" is a joke in Greece. The idea that we should phone to the police if anything illegal is happening is also a joke. It's no wonder that smoking is still present in EVERY single bloody bar and restaurant (even if there's a law against that).

I don't know if we're getting closer to a civil war (which is NOT out of the question right now), but things are rather dire at the moment.

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As for myself. I'm fine.

Wife's working abroad, EMF is doing great actually and I have cash, food and gas (and I'm not kidding).

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EDIT: If Syriza wants to use the argument about democracy in Greece, then so can the other 18 European nations. This is a total joke.

I mean, yes, sure, have your will, have your referendum. But, in the meantime, all the other European nations will also do what the want, have their will and cut us off.

Mandle

I think every Greek citizen should put either a white rock or a black rock into a pot and just start civilization and democracy all over again...

But with better rules learned through much hardship since those days...

Billbis

As far as I know, Greece primary budget balance is positive (without paying the debt interests). Thus the problem is clearly a debt issue, not a budget issue, and the solution is to cut the debt, not the budget.
Then what Greece government does with it budget, I let the Greek people decide of that.

Snarky

That doesn't necessarily make sense. If I get a mortgage to buy a house, and it turns out I can't make the payments without cuts in my other spending (but would have money to spare if I didn't have any mortgage payments to make), it does not follow that the bank should just forgive my mortgage because then my "primary budget balance" would be positive. Sure, that's a very comfortable solution for me, but why should the bank pay off my debts? (Though there are situations where that might be appropriate.)

Sorry, but you can't just run a huge deficit for a decade and a half, build up a massive debt, and when it comes due say that you've cut back enough that you'd be in the black if it wasn't for the debt, and therefore it should be canceled.

Almost every country has government debt and interest payments they need to make. Greece has a ton of debt, but because of very favorable terms on the interest rate on their ECB/IMF/EZ loans, they actually don't have higher interest payments than most other EU countries. And a bunch of the debt was already forgiven (57%, IIRC), with private creditors forced to take a loss before selling it on to the EU.

Now, debt relief will probably have to be offered Greece at some point, but the creditors want to ensure that the reforms they see as necessary so that Greece won't be back in exactly the same position a few years down the road are actually implemented before they're willing to grant it. Take for example the latest offer from Tsipras: he apparently accepts almost all of the EU's terms, but is still insisting on a 30% VAT rebate for some of the poorer Greek islands? Why? There doesn't really seem to be any sound economic reason for it: other parts of the country are even poorer, but get no such favorable treatment. It seems to be just a populist perk for a constituency. That kind of clientelism doesn't inspire confidence.

Billbis

You can't reason the same with people and state, you can't apply micro-economy reasoning with macro-economy. Legitimate states and governments do not obey banks but the opposite.
If Greece -or any other government- refuse to pay its debt, you can't do much to fore them to pay (invasion? commercial blockade? refuse them next mortgages? They do not need them any more).
It happens somewhat frequently everywhere.

Snarky

States do default (but then again, so do people), but they always pay a price for it. This includes difficulty getting new loans (and a modern state NEEDS the ability to borrow money), and in some cases even seizure of assets (which can effectively function as a blockade). Even war has happened, although that's no longer considered legitimate. The balance of power between creditors and state can vary (for example, remember when debt writeoff for Africa was a big topic? The countries couldn't just walk away from the debt because they were dependent on aid and further loans from those same creditors).

Countries tend to prefer to come to a deal with their creditors to pay pennies on the dollar rather than walk away entirely, in part to avoid situations like this: http://dealbook.nytimes.com/2015/02/13/argentine-debt-dispute-remains-murky-even-as-london-court-sheds-some-light/

Billbis

#11
I surely won't deny the huge impact of sovereign default, that will definitely lead to a ~2 years depression and never ending juridical fight with predator funds, but Greece depression have last 7 years now. Maybe it is time for them to try something more radical? EU (and Germany) does not appear in favour of a Greek debt cut, so it will likely (and sadly) end by a unilateral decision of Syriza.

It is totally a cots/benefit reasoning, and the I think the long term balance is in favour of an immediate default and a exit from the Eurozone (well, I think the Eurozone should be dissolved anyway).
Anyway, I am not comfortable with the title of the topic, and I hope it is ironic. It is to Greek people to decide what they want to to with their country not EU (or Germany).

EDIT: Oh, and Greece as no need to immediately borrow more money after a debt cut, thanks to the slight primary budget surplus. In the long term, the market will be happy to lend money to a government with a very low depbt/PIB ratio few years after it default.


reEDIT:

Snarky

The thread title is not ironic, though I also considered writing it from the Greek perspective ("Grexit: Good or Bad?"). It's all very well to say the choice is ultimately up to the Greeks, but as long as they want to remain within the Euro (and the majority clearly do, even if you don't agree), it isn't really, since they have to rely on others to provide the funds to make that possible.

And I wouldn't count on there being a primary budget surplus any more after recent events (I seem to remember reading estimates that the chaos might knock as much as 10% off GDP), not to mention that Syriza is failing to improve the tax collection rate in line with plans, or that their policy platform includes reversing a number of cuts already implemented.

None of which is to say that the policies that have been carried out in the last six years have been successful, or even wise in principle.

Billbis

Indeed, if they want to stay in the eurozone, they have no other choices than accept troika's austerity, waiting and hoping for some other country (Spanish Podemos?) to deal with the issue.

TheBitPriest

I appreciated this self described user-friendly chart of the US debt situation.  I wonder what Greek's chart would look like using this same format?

Dualnames

Worked on Strangeland, Primordia, Hob's Barrow, The Cat Lady, Mage's Initiation, Until I Have You, Downfall, Hunie Pop, and every game in the Wadjet Eye Games catalogue (porting)

SilverSpook

#16
LOL x2

Andail

I guess everybody engaged in this issue has read Piketty's interview about Greece's situation by now:
http://www.huffingtonpost.com/2015/07/06/piketty-germany-greek-debt_n_7735866.html

It's pretty interesting, and it's also demonstrates why we can't necessarily apply micro-economical principles (what you borrow you have to pay back) on a state, since A) young Greeks today shouldn't have to pay for one past government's faults, and B) writing off debts for nations in need is something we've done in Europe throughout recent history, with France and Germany as notable examples.

One could add C); having Greece turning its back on Europe to find a loan giver in Putin would be much worse.

With the recent referendum proving that Syriza has the people's support in Greece it looks like the troika will have to give in and write off parts of the debt, if only to avoid civil war and a humanitarian disaster.

I'm pretty sure that ordinary Greeks' willingness to pay taxes and abide by economical (and other) laws will increase once they start trusting the state again - that part comes naturally in a nation.

Nikolas

A) This is EXACTLY what's happening right now for the last 35 years. I I'm paying my national insurance contributions, NOT to save for the future, but to provide money for the pensioners (aged 40-50) RIGHT NOW. I'm also paying huge taxes (26% to go to 29%, from the FIRST euro I make (input your own currency if you want) to pay the public sector NOT doing its job properly.

B) Yes, after a world war. hmm... :-/

C) Putin is not about to hand us over any money. Not a chance. Neither will BRICS (another ridiculous plan) or China, or anything like that.

The recent referendum was a total joke. The question, roughly was "Do you want us to agree to the new austerity measures worth 8 billion?...". The small print (not shown in the referendum) was "... which we, as a government, created, because if we were actually negotiating, the asking money via austerity measures would be around 2 billion (my number, but lower anyhow).

BTW, you guys do realize that RIGHT now Greece is going over to Brussels to propose... the 8 billion plan to Europe? Only now the stakes have gone to 13 billion.

So, you get a referendum, you get a negative answer, you don't give a shit about the answer and go, yet again, to the same people asking for money (and it IS the people that we're asking money from).

Lastly...

Unless there's a feeling that the tax money are returning back to us, NOBODY in their sane money will want to pay taxes for fucked up schools, fucked up universities, fucked up roads, fucked up tax system and fucked up Greece.

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I know that some of you have been in Ag. Anna quite a few years ago for the European AGS meeting. I don't know how you felt then, but I'd like to invite you over here and explain why this country is up for shite! :(

Snarky

Quote from: Andail on Tue 07/07/2015 10:49:02
I guess everybody engaged in this issue has read Piketty's interview about Greece's situation by now:
http://www.huffingtonpost.com/2015/07/06/piketty-germany-greek-debt_n_7735866.html

It's pretty interesting, and it's also demonstrates why we can't necessarily apply micro-economical principles (what you borrow you have to pay back) on a state, since A) young Greeks today shouldn't have to pay for one past government's faults, and B) writing off debts for nations in need is something we've done in Europe throughout recent history, with France and Germany as notable examples.

While Piketty may have a point in part of what he says, I think his attack on Germany is pretty much an example of Godwin's law. 'Cause his examples are all about the Nazis: in contrast to what he suggests, debt forgiveness was never routine. When Germany got its debt reduced after WWII, there were a lot of very specific factors in play:

-Germany had been shattered by the war, and needed relief desperately
-At the time, Germany was still under actual occupation by the allies: they were forgiving an economy they themselves were administrating
-The debt had been run up by the Nazis, and most of the Nazi leaders had actually been hunted down and executed; the new German government represented (at least officially) a sharp break with the previous regime
-The Cold War: Remember that Germany was divided between the Soviets and western powers, and that this was during the Korean war. Building up an ally or buffer state in Europe was a high priority. In fact, the debt was originally only suspended until the reunification of Germany, but by that time most everyone had forgotten about it.
-Germany committed to a program of economic discipline, and the government had the credibility to convince creditors it would be implemented (as it in fact was)

And of course there were the memories of the Versailles Treaty (imposing heavy reparations on Germany), by that time considered a tragic mistake. None of these factors apply to Greece today (if EU forces had invaded and split up the country into occupation zones, leveled Athens and strung up the politicians, they might also now be inclined to let bygones be bygones and forget about the debt), except maybe:

QuoteOne could add C); having Greece turning its back on Europe to find a loan giver in Putin would be much worse.

From what I've heard, Putin doesn't realistically have enough money to fund Greece, with Russia's economy not doing so well itself. And China would rather stay on good terms with the EU than get involved in an economic mess in a relatively insignificant country.

QuoteWith the recent referendum proving that Syriza has the people's support in Greece it looks like the troika will have to give in and write off parts of the debt, if only to avoid civil war and a humanitarian disaster.

Well, the German government (for example) is not accountable to the Greeks, but to the German people. And Germans (and most other Eurozone countries, particularly in Northern Europe) are solidly against another bailout. Before the end-of-June deadline, wasn't there talk that any new bailout had to pass the German parliament, which looked very unlikely? Plus, Syriza has burned so many bridges in the negotiations thus far, and has basically zero trust left from the others. I don't think Greeks are the only ones who reach a breaking point of frustration with the ongoing process. Sooner or later other countries are going to say fuck it, let's just get rid of them and end this whole sorry affair. That point seems close.

So I'm not convinced there will be a deal. It basically depends on how desperate the EU is to avoid Grexit, and if they do yield, whether they can even avoid a Greek collapse before the terms are implemented. If things get really bad, humanitarian relief may be required.

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