The Economist: A Greek bailout, and soon?

Generali

michaels wrote: »

Time for the boys on here with big ones to start shorting those PIGS (and UK?) bonds?

The line in the sand seems to be a big deficit (say 10%+ although that number may fall) and a national debt set to exceed 100% of GDP.

The UK should be ok on the basis of the latter for now. I do wonder how keen the appetite for Sovereign Debt will be as economies start to recover and potentially more lucrative equity investments start to look more attractive. Most Western Governments seem to have pencilled in very large deficits for many years to come. As a result the hurdle for a 'Bond strike' may become lower in future.

tomterm8

The problem with this kind of thing is that once it affects one nation, the markets tend to go on the rampage. If this turns into a Greek bond strike, it will soon be followed by Portugal, Spain, Ireland, and probably other EU member states. And, we will be in the Latin American debt crises: the sequal.

Not to mention, if you look at UK bank assets, they are very strongly linked with other european economies, which means if the european economies collapse, then... well... we are in for another banking crises. You've just got to listen to the rumours that the spanish government is going to need to pull out a 30% GDP banking bailout to cover its banks for the falls in residential real estate to know that there are actually nations in a worse financial position than Greek that have been relatively unharmed so far.

Frankly, Greece needs to go to the IMF now, before a fully fledged bond strike starts.

Generali

tomterm8 wrote: »

The problem with this kind of thing is that once it affects one nation, the markets tend to go on the rampage. If this turns into a Greek bond strike, it will soon be followed by Portugal, Spain, Ireland, and probably other EU member states. And, we will be in the Latin American debt crises: the sequal.

Not to mention, if you look at UK bank assets, they are very strongly linked with other european economies, which means if the european economies collapse, then... well... we are in for another banking crises. You've just got to listen to the rumours that the spanish government is going to need to pull out a 30% GDP banking bailout to cover its banks for the falls in residential real estate to know that there are actually nations in a worse financial position than Greek that have been relatively unharmed so far.

Frankly, Greece needs to go to the IMF now, before a fully fledged bond strike starts.

There do seem to be the beginnings of the earliest tiny mutterings of markets instilling some fiscal responsibility on Governments. Perhaps the UK Government should cut spending now while it is still able to choose how and where to cut before emergency measures are forced upon it.

Rochdale_Pioneers

Funny thing about reading this and other similar threads is that it appears that half of Europe is in a much more precarious state than the UK. Yet I keep being told by the Conservatives that the UK is last place and effectively broke.

Both can't be right. I wonder who is wrong?

Generali

Rochdale_Pioneers wrote: »

Funny thing about reading this and other similar threads is that it appears that half of Europe is in a much more precarious state than the UK. Yet I keep being told by the Conservatives that the UK is last place and effectively broke.

Both can't be right. I wonder who is wrong?

I realise it may be tough for you to shake off your belief that if other countries are in a worse place than the UK then the UK must be ok so I'll try to break this to you gently.

Firstly, do you really want to compare the UK's position with that of Greece? Is that about where you see the UK's position in Europe or the world.

Secondly, and more importantly, if the UK goes down the same road as Greece (large deficits with no clear plan to reduce them) then the UK will end up in the same place as Greece!

Labour have spent more money than the productive part of the economy can bear. As a result, when bad times have come along, the Government can't do what they need to: once you strip out welfare spending which has no impact on GDP, Government spending is now falling.

RabbitMad

Labour are always saying that we're not broke just look at xyz country.
Thats like a bloke thats just about to loose his house because of debt saying - its OK I only owe x. My neighbour owes twice as much as me so I must be OK.
Also Greece can't be bailed out by the IMF whilst in the EURO as they require a country to devalue its currency as a way out of trouble. Greece can't devalue the EURO.

JP45

purch wrote: »

The EUR is an artificial currency. They chose to introduce it, purely for political purposes.

Precisely, and in so doing they deliberately fudged the entry requirements. As Wolfgang Munchau pointed out in a recent article in the FT:

The Greek crisis goes back a long time. The country entered the eurozone in 2001 with the help of some creative accounting. These accounts suggested that the country met the various entry criteria for membership, when in fact it did not. Successive Greek governments, on the left and the right, have since misrepresented the country’s fiscal position. The reported 2009 budget deficit, a 12.7 per cent of gross domestic product, is obviously unsustainable. I say “reported” because I do not trust even this high number. As far as I can tell, nobody in Brussels does so either. This lack of trust has in itself become an obstacle to the resolution of the crisis.

Generali

RabbitMad wrote: »

Labour are always saying that we're not broke just look at xyz country.
Thats like a bloke thats just about to loose his house because of debt saying - its OK I only owe x. My neighbour owes twice as much as me so I must be OK.
Also Greece can't be bailed out by the IMF whilst in the EURO as they require a country to devalue its currency as a way out of trouble. Greece can't devalue the EURO.

Do they actually require a devaluation or is it that a fixed exchange rate is often part of the problem when the IMF are called in?

I see no reason why the IMF couldn't lend Greece what they require for their short-term needs in return for changes in fiscal policy (cutting spending in effect) given the exceptional circumstances they face as members of the Euro. Otherwise, the IMF is saying that Euro members aren't covered by their implied 'guarantee' to help bail out national finances.

tomterm8

It's a bit of a stawman argument: the IMF went along with european monetary policy where Latvia and Hungary were concerned. It would have to do so with greece, since greece has no control over its monetary policy.

JP45

According to Stephanie Flanders, reporting from Davos, the message the European authorities would like to send the international bond markets is:

"We will help Greece if they really need it. Just don't tell the Greeks that."

But as she goes on to conclude:

So we return to my opening thought: Eurozone officials would like a way to say yes to the bond markets, without appearing to let Greece off the hook. But it's not clear that such a path exists. And if they keep looking for one, they risk making the bailout they fear that much more likely.

The lesson of history - repeated again and again - is that uncertainty about the end-game only brings it closer. The more doubt there is about the Greek safety net, the higher the risk premium on Greek debt will go - the more likely it is that Greece will fall.