What Happens When Greece Defaults?

sabretoothtigger

Greece doesnt mean anything to us directly. We do more trade with one state in the USA then the Greek nation

Its the ideas that matter like you mention Browns notion that spending is what makes a country successful or not.
I think its production thats sold and the wealth in turn from those sales that matters. If UK only sells to itself and the money used is borrowed from foreigners that does appear closer to a 'death spiral'

China is trying to do more trade with Greece to support them. No doubt they are trying for some good bargains but that is a much more realistic solution.
Exporting debt, promises, fine words and rhetoric but not that many actual goods is the american model and I think the whole idea is going to turn sour and Euro and any others will stop trying to do it

It would be interesting to see how the UK would cope. there is the devil side of me saying "bring it on"

Dont think we'd move to the same position quite as quickly. If the market raised our rates to 25% and its about 4% for 10 years now then we'd have an average term of 13 years to figure out how to cut the debt or another solution.

Though in theory Greece was better off by 3 years then USA by that idea
Maybe thats why they are so defiant , its not as bad as it could be yet

Generali

Rochdale_Pioneers wrote: »

You can't run away from the facts here - their economy is crashing faster than they can cut spending. Their cuts are increasing their deficit and are clearly counter-productive. Sat here in a country borrowing record amounts despite slashing 20% and more from most government departments, I can't say I am surprised. The time to rebase an economy so that the state is smaller is when business is booming - the private sector can take up the slack. Only in free-market dogma world can the private sector surge ahead when an economy is crashed.

You avoid the key point though. The Greeks have no choice. They are insolvent and they can't borrow any more money as nobody will lend to them at a price they can afford.

If you want to look at the situation in the UK then you can see that the boss of PIMCO, the largest private sector buyer of Government bonds in the world, was saying that he wouldn't be buying any more until the UK Government was taking decisive steps to cut borrowing. That is the start of the road of which Greece is reaching the end. If markets won't lend to you then you have to stop borrowing.

Britain isn't even cutting Government spending, it's just increasing it at a slower speed.

ChiefGrasscutter

Bohdy wrote: »

So what was the answer? What will happen when they default?

Will he Euro survive?

I think that no one really knows what is going to happen when they default (err should that be if). That is why there are so many discussions on it on the web and in the papers.
This weekend's rumours, which may or may not be true, include that the Greek banks are seeing a very high level of withdrawals...as people presumably take out euro notes in cash to avoid the risk of bank balances being frozen and their credits being converted to "new drachmas" in the event Greece pulls out of the Euro. The banks will run of out available cash in a few days if this is really happening.
Another rumour has the possibility of full scale civil rebellion and possibly a coup - remember the rule of "the colonels" anyone.

worldtraveller

ChiefGrasscutter wrote: »

..This weekend's rumours, which may or may not be true, include that the Greek banks are seeing a very high level of withdrawals...as people presumably take out euro notes in cash to avoid the risk of bank balances being frozen and their credits being converted to "new drachmas" in the event Greece pulls out of the Euro.

These euro withdrawals from Greek banks have been taking place for many months now, as I posted earlier in this thread, although somehow not noted by the press until now. The really big money was taken out a long time ago. The ECB (European taxpayer!) has been, and will continue, to pay the cost, until and unless any new legislation prevents it further.

Where's Robert Pestonopoulos when you need him (or not!)?

neverdespairgirl

worldtraveller wrote: »

It'll be interesting to see if the EU ultimately legislates in future against the movement of capital for this very reason. That would surely boost the likes of (portable) gold sales?

I don't think the EU could do that. Free movement of capital is written into the EU treaties, so it could only be done with a new EU treaty, not by the Commission / Parliament / Council of Ministers.

Rochdale_Pioneers

Generali wrote: »

Britain isn't even cutting Government spending, it's just increasing it at a slower speed.

And thats the tragedy. We are cutting spending on almost everything you can think of - specific real measurable cuts in expenditure. Yet overall government spending isn't dropping and we're borrowing record amounts. Why is that? What are we having to spend ever increasing amounts on due to the large cuts in spending?

You are right about Greece - they can't borrow the money. I'm just pointing out that its a death spiral because the more they cut the smaller their economy gets and the more they need to borrow. They should have told the EU to stick it at the first opportunity and flog some islands off to China or a Sheik.

Thrugelmir

Rochdale_Pioneers wrote: »

Yet overall government spending isn't dropping and we're borrowing record amounts. Why is that?

We are borrowing money to pay interest on our existing debt which will continue to grow. Thereby owing even more money incurring yet more interest.

Generali

Rochdale_Pioneers wrote: »

What are we having to spend ever increasing amounts on due to the large cuts in spending?

Because as the UK borrows more and more money, the interest bill increases. As a result the total amount of spending including is rising as the amount spent on services falls.

Rochdale_Pioneers wrote: »

You are right about Greece - they can't borrow the money. I'm just pointing out that its a death spiral because the more they cut the smaller their economy gets and the more they need to borrow. They should have told the EU to stick it at the first opportunity and flog some islands off to China or a Sheik.

The thing is, the Greeks really have 2 sources of funds at present, the EU and the IMF and the IMF will only lend to Greece on the basis that the EU is doing so too. Greece's total debt is about US$530,000,000,000. They probably need to get rid of about US$300,000,000,000 of that and bring the budget into balance. That's a lot of islands!

Mr_Mumble

Equities and Euro up on a report of another climbdown by Germany:

Berlin Considers a Shift on Greek Debt

Germany is considering dropping its push for an early rescheduling of Greek bonds in order to facilitate a new package of aid loans for Greece, according to people familiar with the matter.

Berlin's concession that it must lend Greece more money, even without burden-sharing by bondholders in the short term, would help Europe overcome its impasse over Greece's funding needs before the indebted country runs out of cash in mid-July.

But some officials in Berlin hope that a short-term fix can be found that would allow a full deal including a bond rescheduling later this year.

The FT's Neil Hume has a good response to the last paragraph:

Yeah, like that will happen.

sabretoothtigger

nothing about this crisis can be strong for the Euro.

Its not one dimensional. Taking out the trash could be a positive, to ignore any problem is really a greater negative. Failure is a normal part of business.
Euro has been rising strongly for over a decade now, it could continue to do so if they choose to sort out the crap from the success of mutual trade across europe. That is a positive

If we look at the wider picture, Euro could be the reserve currency that gains all the benefits USA has. I believe it is widely held across the world but that effect could increase.

They need to act with integrity not bias to any individual countries political ego, if Greece fails to set itself a reasonable budget then they are not within euro currency requirements. They exit and come back later if they get a clue

That crisis is a positive for everyone else within the euro and who trades with Europe hoping to take home the steady spending value of a euro

The irony is the negatives that occur and pass qualify the positives