Greece...

purch

kabayiri wrote: »

they have created an inflexible Euro system which does not allow for certain situations which were always likely to occur.

They used to have a more flexible system, the ERM which although being very far from perfect did allow for some revaluation when needed.

The drive towards a single currency ultimately made the ERM too inflexible to be effective, and the response to that was to create the system we have now that allows NO flexibility.

BlondeHeadOn

purch wrote: »

They used to have a more flexible system, the ERM which although being very far from perfect did allow for some revaluation when needed.

The drive towards a single currency ultimately made the ERM too inflexible to be effective, and the response to that was to create the system we have now that allows NO flexibility.

Progress eh?

Froggitt

ciaccino wrote: »

Expand on that, including sources and logical statements please.

http://demonocracy.info/infographics/eu/debt_greek/debt_greek.html
Slightly out of date, but they've taken €360bn from other European countries and banks, and now look like they aren't going to pay it back, so I would suggest that pillaged is a fairly accurate word.

michaels

If you lend someone say for example 360bn that given their 'income' is clearly beyond their ability to pay back, who's fault is it when the borrower defaults? Presuambly like credit card companies you have charged high rates on the debt (when it was being serviced) to make up for the fact that you never expected to get back every penny you loaned out.

I seem to recall from history that when Germany was asked to pay unaffordable 'reparations' in the 20s that ti didn't end well. Sure these are not reparations but they are clearly unaffordable. The FT piece Gen linked yesterday suggested that Greece would be worse off in the medium term if it tired to carry on servicing the debt than if it defaulted; given this then the only logical thing for the greeks to do is demand a restructuring than means they would be better off not defaulting, otherwise why on earth would it make sense for them to carry on paying?

kabayiri

michaels wrote: »

...
I seem to recall from history that when Germany was asked to pay unaffordable 'reparations' in the 20s that ti didn't end well. Sure these are not reparations but they are clearly unaffordable. The FT piece Gen linked yesterday suggested that Greece would be worse off in the medium term if it tired to carry on servicing the debt than if it defaulted; given this then the only logical thing for the greeks to do is demand a restructuring than means they would be better off not defaulting, otherwise why on earth would it make sense for them to carry on paying?

It seems problematic to me to use the "logical" term when you are dealing with a nation of people being influenced by politicians intent on pursuing the populist vote.

The easy solution will always look more attractive to the voter. The ability to pin the blame, however unfairly, on some distant Eurocrats, is also attractive to the ordinary Greek.

Would Greeks accept a "cold turkey" solution if they felt it was one in which they were in control?

ChiefGrasscutter

Generali wrote: »

Imagine you were paid in two forms of currency, EUR and EUR IOUs, which would you spend first? The IOUs of course. Any savings you'd hold in EUR cash. The IOUs would circulate faster and faster as nobody would want to hold on to them for any period of time. Over time, the IOUs start to drive the EUR out of existence as EUR are being hoarded and only spent if absolutely necessary.

Such as when I worked in China during the period of the parallel currencies FEC and RMB.
The natives used RMB while foreigners got given FEC to use when you exchange your currency.
When buying anything in China got given back RMB in change which no one then wanted: They all wanted FEC from you. So you ended up with lots of RMB left as your supplies of FEC dwindled.
Best of all it was illegal to take out RMB from the country so I just gave it all away randomly.

Generali

michaels wrote: »

If you lend someone say for example 360bn that given their 'income' is clearly beyond their ability to pay back, who's fault is it when the borrower defaults? Presuambly like credit card companies you have charged high rates on the debt (when it was being serviced) to make up for the fact that you never expected to get back every penny you loaned out.

I seem to recall from history that when Germany was asked to pay unaffordable 'reparations' in the 20s that ti didn't end well. Sure these are not reparations but they are clearly unaffordable. The FT piece Gen linked yesterday suggested that Greece would be worse off in the medium term if it tired to carry on servicing the debt than if it defaulted; given this then the only logical thing for the greeks to do is demand a restructuring than means they would be better off not defaulting, otherwise why on earth would it make sense for them to carry on paying?

I suspect that Greece will be 'punished' if they default, mostly out of spite.

The Iceland example tells us what happens when a small, mostly closed economy defaults on foreign debts. Things are pretty nasty for a while as imports can't exceed exports. This makes buying things made overseas like, in the case of Iceland, almost all medicines, most baby products (baby food, nappies etc), gin, tonic water and lemons. Over time, the country's economy adjusts via a reduced exchange rate and life goes on much as before, albeit from a lower ability to buy products from abroad.

It remains to be seen exactly how spiteful Europe would be in the face of a Greek default when it happens. It has always been inevitable: the Greeks can't maintain their essential spending (basically the pensions system which costs, IIRC, 16% of GDP) while servicing even their rebased debts.

Either some of the debt needs to be forgiven or it will be defaulted on. It really is that simple.

As for the moralising about how Greece should pay the debts back? How about we have a word with the idiots at Deutsche Bank and BNP Paribas who decided that it was a great idea to lend to the Greek Government at an interest rate 0.2% higher than they did to Germany? After all, the largest part of the first Greek bailout was to enable the idiot banks to sell their Greek bond holdings to the ECB at way over the market price. Without that, both would have gone bust.

It's not even like the ratings agencies were pretending that Greece were AAA or something. The very highest rating I can find for Greece from Fitch is A, officially defined as "economic situation can affect finance". Moody's, according to Wiki, had them at A1, the 5th level down the ladder. Yeah, that was optimistic possibly but both ratings state there is a genuine level of risk.

Froggitt

michaels wrote: »

If you lend someone say for example 360bn that given their 'income' is clearly beyond their ability to pay back, who's fault is it when the borrower defaults?

However, Greece said their income was sufficient to pay back that money. Liars loans strike again.

Generali

Froggitt wrote: »

However, Greece said their income was sufficient to pay back that money. Liars loans strike again.

They 'hid' about EUR8bn of debt with the infamous Goldman Swap. Beggur all in the grand scheme of things.

antrobus

Generali wrote: »

....The Iceland example tells us what happens when a small, mostly closed economy defaults on foreign debts. Things are pretty nasty for a while as imports can't exceed exports. This makes buying things made overseas like, in the case of Iceland, almost all medicines, most baby products (baby food, nappies etc), gin, tonic water and lemons. Over time, the country's economy adjusts via a reduced exchange rate and life goes on much as before, albeit from a lower ability to buy products from abroad......

The Icelandic economy might be small, but I wouldn't describe it as "closed" - it's in the EEA. (In fact, one could say, that being in the EEA was the reason that they got into difficulties in the first place.:))

And the difference with Iceland is that it was not a sovereign default. The IMF was willing and able to help bail them out, whilst Iceland had friends who were also willing to help. And of course, it helped that Iceland was so small; $2.1 bn dollars goes a long way, if you're only talking about 300,000 people.

Generali wrote: »

... It has always been inevitable: the Greeks can't maintain their essential spending (basically the pensions system which costs, IIRC, 16% of GDP) while servicing even their rebased debts......

Greece spent 17.5 % of GDP on pensions in 2012, more than any other country in the EU.

See also;

Greece's generous pensions - What makes Germans so very cross about Greece?
http://www.economist.com/blogs/charlemagne/2010/02/greeces_generous_pensions