Just a matter of time now (Greece)

[D.Turtle]

There is a difference between running a government and running a household.

A households spending has no direct effect on its income. A government's spending has a pretty direct effect on its income. That is why you want the government to spend more in recessions. If you simply cut drastically, all you do is ruin your economy, putting you even more in the whole. Greek GDP is roughly 10-15% below its peak. How do you expect it to balance its budget when its that deep in the hole?

Spend lots of (German) money effectively, and jump-start the economy. Or let them leave the Euro, go bankrupt, get rid of excessive debt and do an Argentina.

[Thanas]

They should never have been allowed in the union in the first place and they probably shouldn't have received titanic amounts of aid either. The situation now is just a huge lose for everyone; the Greeks were going to lose out anyway because of their internal problems, but now everyone else gets to as well.

I'm not sure why is is 'lol EU bad' and not 'those guys lied about Greece's financial situations', but I'm not rich, lol.

Because apparently the EU is the great evildoer, Stark.

[Aaron MkII]

To be honest, if people falsified shit to get Greece in, then they should be in jail. I dunno if the EU was a bad idea or not but this isn't exactly a sterling example of the cause.

[UnderAGreySky]

To be honest, if people falsified shit to get Greece in, then they should be in jail. I dunno if the EU was a bad idea or not but this isn't exactly a sterling example of the cause.

Now this, I can get behind. One of the reasons the EU needed to be *more* united to be successful was that Brussels should have been able to jail those proven to have falsified data, and another would be to have each country monitor each other's budgets.

[Stark]

To be honest, if people falsified shit to get Greece in, then they should be in jail. I dunno if the EU was a bad idea or not but this isn't exactly a sterling example of the cause.

All kinds of unification (or even centralization) movements throught history have faced problems like this; the young United States had a kinds of shit going on. It's not unusual; it's only noteworthy to me because this is a serious situation arguably created by the same people who use it as evidence the EU is fundamentally unsound.

Not that I'm saying the Greek government probably didn't pay serious bribes to get those misleading reports. I think someone should have known and called them out, but this may have been politically impossible at the time.

[mr friendly guy]

http://www.abc.net.au/news/2012-05-16/a ... 3f/4012490

Imagine for a moment you live in Greece.

You wake up one morning to the news your country is no longer part of the eurozone.

You were meant to buy groceries and pay bills today, but what happens to your money now?

You may feel a glimmer of hope, or you may actually be in the middle of a "financial holocaust".

If Greece exited the eurozone, there would be several advantages, but experts say the move would also catapult the country into a chaotic abyss.

First, they say Greece would go into lockdown. It would close its borders and freeze its entire banking system. It would also be impossible for Greek businesses to trade internationally.

Then an emergency currency would be brought into effect. This would hold Greece over until it could print enough drachma - Greece's former currency - to replace the old euro.

A tsunami of economic effects would roar across Europe. All euro notes and coins which originated in Greece would no longer be legal tender, and Greece's debt would potentially double.

ABC News Online spoke to two economists who say, logistically, a Greek exit from the eurozone would be a nightmare, and economically, the consequences would be dire.

Satyajit Das, a financial risk analyst, former banker and author of Extreme Money, says one thing is for sure - the announcement would come as a surprise.

"The first thing is you have to do it unannounced, because if you do it announced everybody in Greece will take their money out of the country to preserve its purchasing power," he said.

"Twenty per cent of the deposits in Greek banks have left already, and if they got a wiggle that this was going to occur that would double almost over night.

Basically you're talking about people's life savings, their wealth, their incomes being completely wiped out.

It would be the absolute total destruction of wealth and purchasing power of the Greeks.

Satyajit Das
"So basically you have to do it by surprise. What you would do is effectively close the borders and shut down the entire banking system, pretty much the whole economy, for a few days.

"Then you would take all the euro in circulation within Greece and stamp them as Greek euro, and then you would have a process of replacing them with your new currency, but that's going to take two to six months.

"The stamped euro would be a temporary currency. Overseas people would never accept it because the value of those Greek euro would be different, so they could only be spent internally."

'Destruction of wealth'

Mr Das says the Greek currency would fall anywhere between 20 and 50 per cent in value.

"After you introduce the new currency, the Greek euro, which would now be the new drachma, would fall in value like a stone," he said.

"Basically you’re talking about people's life savings, their wealth, their incomes being completely wiped out.

"The price of all imported goods in Greece would go through the roof - and Greece imports a lot of stuff.

"So the Greek debt will potentially double, and they won't be able to pay it back.

"They will default on their debt so all the people who have lent to them will suffer losses - these are German banks, French banks, investors."

He says a Greek exit from the eurozone could cost anything from 350 billion euro to a trillion euro.

"It would be the cost of the absolute total destruction of wealth and purchasing power of the Greeks," he said.

Mr Das says it would be the "financial equivalent of the holocaust".

He says because such a move is unprecedented, the full impact is impossible to predict.

Take this analogy, he says: "If you want to be at Hiroshima to watch what an atomic bomb does, stand at ground zero and look up, this is what you're doing when you're exiting from the euro, because none of us know how this will work.

"We know what the mechanics are, but we don't know what the full effects will be.

"But at the end of it all, the average Greek citizen would be considerably poorer."

Chaos and violence

PHOTO: There is growing anger over soaring unemployment and falling living standards. (Reuters: John Kolesidis)
Dr Oliver Hartwich, editor of the New Zealand Initiative and former employee of the Centre for Independent Studies in Australia, paints a similar picture for Greece.

It could be quite chaotic, it could be violent, there could be people storming banks to try and get their money out.

Once you tell Greek people their savings in the bank are no longer worth what they though it would be worth, it could become ugly.

Dr Oliver Hartwich
He says Greek people are "torn" over whether they want to leave the euro, but if it does happen, violence and chaos will reign.

He largely agrees with Mr Das on the mechanics of the move.

"The most likely scenario is that they would take in the old euro notes and stamp them so that on that day all the euro notes in Greece would have some sort of magnetic ink stamp that would render them useless outside Greece.

"It would serve as an emergency Greek national currency.

"They'd have to have some kind of check at the border so nobody could take their euro out of the country. All the Greek bank accounts would be frozen and there would be a bank holiday for maybe a week so nobody could access their funds."

Dr Hartwich agrees printing a new currency could take months, but he is not sure if Greece could even pay for it.

"What would also happen outside Greece is that the other European countries would have to remove all the coins and bank notes from Greece, because you can still recognise where these coins have come from in Europe - the Greek 2 euro coin has an owl on the back and the bank notes have serial numbers on them and a country code.

"So all of them would need to be taken out of circulation in the rest of Europe.

"Banks would advertise these are no longer legal tender and people would probably take their money into the banks and get it exchanged for say German or French euro."

'Massive operation'


VIDEO: Greek MP Euclid Tsakalotos joins Lateline to discuss economic reform (Lateline)
Dr Hartwich estimates about 2 to 3 per cent of the total euro in circulation is from Greece.

He says if recent times are anything to go by, the exit would not be pretty.

"It could be quite chaotic, it could be violent, there could be people storming banks to try and get their money out," he said.

"Once you tell Greek people their savings in the bank are no longer worth what they though it would be worth, it could become ugly.

"It would take a lot of police and military effort - it would be a massive operation."

But it isn't all doom and gloom.

Mr Das says there would be at least two advantages for Greece if it did leave the eurozone - tourism would increase and its debt would be waived.

"Their tourism industry, which is their main industry, would benefit because they would become cheaper, so people who are now going to Turkey may come back to the Greek islands," he said.

"Also, the amount of debt they have would be reduced because they would essentially be unable to pay their debt, so they would just default."

Both Mr Das and Dr Hartwich say they have no idea whether Greece will leave the eurozone.

They say the decision to stay or go rests in the hands of Greek politicians, but that essentially, every remaining option is a bad one.

Thoughts from the more economically minded folks here.

[Col. Crackpot]

http://www.abc.net.au/news/2012-05-16/a ... 3f/4012490

snip

Thoughts from the more economically minded folks here.

A spot on description of a disorderly exit from the Euro. Which is precisely why a disorderly exit must be avoided, and in all reality won't happen. If Greece does decide to take their marbles and go home (or if Herr Merkel decides for them) there will be an orderly transition administered by the ECB.

[Simon_Jester]

There just isn't enough slack in the budget of a first world social democracy to cut 15% of expenditure without touching any kind of transfer payment or public service.

And that's just to stop future cuts. If you want to also reverse the cuts already made back to peak deficit levels, you need to find another 15%.

It's not a question of doing it without cuts, it's a question of... frankly, this turns into detail. I do not know exactly what the Greeks should do. But from what I know of their situation, I certainly don't fault the Greek people for thinking that they need a new government to finish fixing their budget.

"Accountable to the Greek people" is not the same thing as "no spending cuts," you see; as far as I can tell, what's really harmed the current government is the perception that they don't care what the Greek electorate think about austerity, or who should be paying for what and how.

Rule by detached pro-business technocrats is bad for most people, or perceived as such because they get hurt the most in relative terms.

[cosmicalstorm]

That last article was pretty damning. Lets hope this somehow works out for the better, although by now this has been a slow motion car wreck for years.

[streetad]

The fact is that the Euro has always been at least as much of a political project as an economic one; it's no good asking why Brussels did nothing about countries like Greece falsifying economic data because it is eminently possible that they simply didn't care. When trying to drive forward your grand project, things like 'reality' are not always a factor.

[Col. Crackpot]

The fact is that the Euro has always been at least as much of a political project as an economic one; it's no good asking why Brussels did nothing about countries like Greece falsifying economic data because it is eminently possible that they simply didn't care. When trying to drive forward your grand project, things like 'reality' are not always a factor.

That. Right there. You hit the nail right on the head.

Sovereign States not having control of their own monetary policies and nations sharing a currency and not a tax code was a bad idea from the start.

[Surlethe]

Thoughts from the more economically minded folks here.

This whole crisis can be summed up as "Greece is a lot poorer than everybody thought." Setting aside the causes of this poverty for a moment, the Greek economy will come to reflect that in one of two ways: either it will complete a wrenching disinflationary adjustment, with Greek prices and wages falling and a large fraction of the population put out of work, or it will undergo fast inflation which will wipe out people's savings and incomes.

If Greece stays in the Eurozone, the second option is out. The ECB targets 2% inflation of the euro. My understanding of the politics is that the healthy northern economies don't want more inflation, and they're politically powerful, so the ECB's mandate is not going to change. That means that the money supply in Greece, hence wages and prices in Greece, will fall. This means high unemployment (right now, 20-50%), since deflation grinds macroeconomic gears. This is currently in progress.

The second option is what's outlined in the article. Greece freezes its banks and borders and stamps a new currency. If it's done correctly, after a little while, Greece can start printing drachmas. Ultimately, inflation rises, people start going back to work (even as their incomes and savings fall), Greek sovereign debt starts to be inflated away, the economy lurches back to its usual semi-functionality. If Greece can't get this prepared quietly, then euros flee the country, and there's super-sharp deflation before the new drachma is up and running. (Possibly, financial markets have got wind of an exit already --- c.f. run on Greek banks, Greek M2 down 15% from last year.)

[Col. Crackpot]

Surlethe,For the second option to work Greece may need to get downright draconian to ensure a stable transition. Daily bank withdrawal limits, restrictions on wires and interbank transfers, price fixing... what ammounts to martial law. There is already a run on the banks and god knows where that money is going. That needs to stop ASAP.

[Surlethe]

Yes, they'll have to effectively freeze all cross-border euro transfers to end the bank runs. The question for them is whether the inflationary relief is going to be worth the temporary martial law. (As far as other factors that might enter the calculation, I doubt that Greece really cares about any pan-European ripple effects, unless they somehow lead to war.)

[evilsoup]

I'm pretty sure European law would stop them from being that draconian (can't close the borders, for example). So to make that work, they'd have to drop out of the EU entirely.

I think the Greek government (when one is finally formed) will ultimately tell the banks to fuck off. Unless Merkal can do what she did in Italy and install a puppet technocrat government.

[Col. Crackpot]

I'm pretty sure European law would stop them from being that draconian (can't close the borders, for example). So to make that work, they'd have to drop out of the EU entirely.

I think the Greek government (when one is finally formed) will ultimately tell the banks to fuck off. Unless Merkal can do what she did in Italy and install a puppet technocrat government.

They can tell the banks to fuck off all they want, what will it accomplish when the money is gone?

[HMS Conqueror]

There just isn't enough slack in the budget of a first world social democracy to cut 15% of expenditure without touching any kind of transfer payment or public service.

And that's just to stop future cuts. If you want to also reverse the cuts already made back to peak deficit levels, you need to find another 15%.

It's not a question of doing it without cuts, it's a question of... frankly, this turns into detail. I do not know exactly what the Greeks should do. But from what I know of their situation, I certainly don't fault the Greek people for thinking that they need a new government to finish fixing their budget.

"Accountable to the Greek people" is not the same thing as "no spending cuts," you see; as far as I can tell, what's really harmed the current government is the perception that they don't care what the Greek electorate think about austerity, or who should be paying for what and how.

Rule by detached pro-business technocrats is bad for most people, or perceived as such because they get hurt the most in relative terms.

To be clear - do you think the Greek government should make the cuts but just explain why more clearly, or do you think they should do something other than the cuts?

I mean being accountable to The People is great media fodder - who could be against that? - but what practical difference does it make if there are no better options than what's happening anyway? I'm no fan of technocrats in general, but in this instance the no-cuts camp is simply wrong, and the politicians are ignoring them because their solutions are just fantasies that can't be implemented irrespective of ideology.

[amigocabal]

There just isn't enough slack in the budget of a first world social democracy to cut 15% of expenditure without touching any kind of transfer payment or public service.

And that's just to stop future cuts. If you want to also reverse the cuts already made back to peak deficit levels, you need to find another 15%.

It's not a question of doing it without cuts, it's a question of... frankly, this turns into detail. I do not know exactly what the Greeks should do. But from what I know of their situation, I certainly don't fault the Greek people for thinking that they need a new government to finish fixing their budget.

"Accountable to the Greek people" is not the same thing as "no spending cuts," you see; as far as I can tell, what's really harmed the current government is the perception that they don't care what the Greek electorate think about austerity, or who should be paying for what and how.

Rule by detached pro-business technocrats is bad for most people, or perceived as such because they get hurt the most in relative terms.

To be clear - do you think the Greek government should make the cuts but just explain why more clearly, or do you think they should do something other than the cuts?

I mean being accountable to The People is great media fodder - who could be against that? - but what practical difference does it make if there are no better options than what's happening anyway? I'm no fan of technocrats in general, but in this instance the no-cuts camp is simply wrong, and the politicians are ignoring them because their solutions are just fantasies that can't be implemented irrespective of ideology.

First of all, we should determine if these cuts are really cuts. Politicians have called reductions in the rate of increases in spending "cuts".

[Surlethe]

There is a difference between running a government and running a household.

A households spending has no direct effect on its income. A government's spending has a pretty direct effect on its income. That is why you want the government to spend more in recessions. If you simply cut drastically, all you do is ruin your economy, putting you even more in the whole. Greek GDP is roughly 10-15% below its peak. How do you expect it to balance its budget when its that deep in the hole?

Spend lots of (German) money effectively, and jump-start the economy. Or let them leave the Euro, go bankrupt, get rid of excessive debt and do an Argentina.

Just noticed this. The problem here is the ECB: it targets inflation. Unexpected increases in government spending are inflationary. Spend lots of money to jump-start the Greek economy and the ECB will just tighten down demand until inflation falls back below 2%. You'll be left with extra (German) debt and nothing else.

[Teebs]

Just noticed this. The problem here is the ECB: it targets inflation. Unexpected increases in government spending are inflationary. Spend lots of money to jump-start the Greek economy and the ECB will just tighten down demand until inflation falls back below 2%. You'll be left with extra (German) debt and nothing else.

Not really because the Greek economy is completely insignificant compared to the eurozone as a whole.

[D.Turtle]

Just noticed this. The problem here is the ECB: it targets inflation. Unexpected increases in government spending are inflationary. Spend lots of money to jump-start the Greek economy and the ECB will just tighten down demand until inflation falls back below 2%. You'll be left with extra (German) debt and nothing else.

Yes, the problem is that the ECB targets inflation. With higher inflation it would be possible for Greece to become more competitive without massive deflation. However, Germany has an extreme fear of inflation, and is not willing to adhere to any policy that would lead to higher inflation.

The Greek economy is too small to have a direct influence on Eurozone inflation. Eurozone inflation is mostly dependent on Germany. Germany largely dictates ECB policy. If Germany were willing to inflate, the ECB would go along with it. What is required is for the ECB to go against German wishes and have a higher inflation target (which would mostly mean higher German inflation).

[Col. Crackpot]

Yes, the problem is that the ECB targets inflation. With higher inflation it would be possible for Greece to become more competitive without massive deflation. However, Germany has an extreme fear of inflation, and is not willing to adhere to any policy that would lead to higher inflation.

The Greek economy is too small to have a direct influence on Eurozone inflation. Eurozone inflation is mostly dependent on Germany. Germany largely dictates ECB policy. If Germany were willing to inflate, the ECB would go along with it. What is required is for the ECB to go against German wishes and have a higher inflation target (which would mostly mean higher German inflation).

So basically the smaller Eurozone nations are unable to apply Keynsian style stimulus. They cannot deficit spend because they cannot 'print money' without consensus. Northern Euro nations see inflation as a greater threat to themselves so they say nien. There can't be any more austerity measures without people fucking starving to death, but there has to be because there is no money and they can't devalue their currency... So they starve to death? What the fuck i don't know anymore. Germany needs to man up and deal with the inflation i suppose?

[Surlethe]

Well, for starters, there's no guarantee at all that any of the money they deficit-spend would stay in the country. Second, to help (say) Greek competitiveness, you have to fix underlying real issues like productivity and functional governance. You can't do that with nominal tools. The only reason inflation helps is that it will make the relative drop in prices and incomes easier to bear, it doesn't actually help the real issues. That brings me to the third point: it's not so clear (to me, at least) that Keynesian deficit spending would jump-start their economies. It would boost demand, but I have the impression that their economies are so sclerotic that boost would just turn into a burst of inflation.

[Col. Crackpot]

Well, for starters, there's no guarantee at all that any of the money they deficit-spend would stay in the country. Second, to help (say) Greek competitiveness, you have to fix underlying real issues like productivity and functional governance. You can't do that with nominal tools. The only reason inflation helps is that it will make the relative drop in prices and incomes easier to bear, it doesn't actually help the real issues. That brings me to the third point: it's not so clear (to me, at least) that Keynesian deficit spending would jump-start their economies. It would boost demand, but I have the impression that their economies are so sclerotic that boost would just turn into a burst of inflation.

It would have to be accompanied by the rather draconian measures i suggested earlier... Cutting off as much capital flight as possible. But as others have pointed out that my not be legal under current EU regs. From many accounts, tax dodging seems like a sport in Greece so i can't even begin to say how to fix that.

[J]

That brings me to the third point: it's not so clear (to me, at least) that Keynesian deficit spending would jump-start their economies. It would boost demand, but I have the impression that their economies are so sclerotic that boost would just turn into a burst of inflation.

There was a chart I saw at work within the last week or so comparing government spending for various nations with GDP and unemployment from 2007 to the first quarter of this year. The only nation where increased spending improved GDP and employment is Germany which leads me to believe it's a structural issue; whatever Germany is doing the other nations will need to do as well for increased government (deficit) spending to improve their economies.