Just a matter of time now (Greece)

[Col. Crackpot]

The Telegraph

Merkel tells Greece to back cuts or face euro exit
Greece may be forced to leave the euro if the country refuses to implement spending cuts agreed with the European Union, Angela Merkel warned. Raising the spectre of a Greek exit, the German chancellor said “solidarity for the euro” was threatened by the ongoing political crisis in Athens.

Stock markets around the world fell sharply with fears mounting that a euro break-up could lead to renewed financial turmoil. The FTSE-100 index of Britain’s major companies fell by two per cent to 5465, with bank shares hit particularly hard.

The cost of Spanish government borrowing also hit a record high since the single currency was introduced because of concerns that the crisis will spread.

Today, François Hollande, the new French president, will be sworn in and, in an indication of the concern gripping Europe, will almost immediately travel to Berlin to hold talks with Mrs Merkel that will be dominated by Greece’s plight.

Attempts to form a new government in Athens have been thwarted for the past nine days, although the country’s president will meet all major parties this afternoon to discuss the forming of a “technocratic” administration rather than a coalition.
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An outgoing Greek minister warned that the country could descend into “civil war” amid the chaos of a euro exit. “If Greece cannot meet its obligations and serve its debt the pain will be great,” Michalis Chrysohoidis was quoted as telling a local radio station. “What will prevail are armed gangs with Kalashnikovs and which one has the greatest number of Kalashnikovs will count … we will end up in civil war.”

New elections may be held next month and Greek voters are likely to be warned by European leaders that their country may be ejected from the euro if they do not support parties backing austerity measures.

George Osborne, the Chancellor, travelled to Brussels yesterday to take part in meetings with other European finance ministers about the worsening crisis.

Speaking on arrival, he said: “The eurozone crisis is having a real impact on growth across Europe.

“The British recovery has been damaged over the last two years not by Britain getting a grip on its public finances but by uncertainty in the eurozone. It is that uncertainty, not austerity, that is doing the real damage to the European recovery, and indeed the British recovery.”

Today, Mr Osborne may agree to looser banking rules, stipulating how much money banks must keep on their balance sheets, to allow more flexibility in responding to the turmoil.

A report from Fitch, the credit rating agency, said yesterday that the British economy may not re-emerge from recession before 2014 if there is a “shock case” of a disorderly Greek exit from the euro.

Germany and the European Central Bank are thought to have drawn up detailed plans for a Greek exit for the euro. They are designed to stop it provoking panic in other vulnerable countries, particularly Spain and Ireland. However, this is fraught with difficulties, particularly if Greece refuses to take part in an “negotiated exit”.

Yesterday, Mrs Merkel raised the spectre of Greece leaving the euro. She is under increasing pressure in Germany to force the country out of the single currency to avert several more years of uncertainty. “I believe it’s better for the Greeks to stay in the euro area, but that also requires that we set out a path on which Greece gets back on its feet step by step,” said the chancellor.

“The solidarity for the euro will end only if Greece just says, 'We’re not keeping to the [austerity] agreement.’ But I don’t expect that to happen. I do think they are making an effort. There are many, many people in Greece who actually want it.”

Wolfgang Schaeuble, the German finance minister, added: “We have a very nervous situation in the eurozone.”

He said the advantages of Greece staying in the euro outweighed any perceived gain from exiting the single currency. “But it will be strenuous,” he said. “The price if they decide to leave the euro is very high. It would cause a huge amount of turbulence for all of us.”

The British Government is largely watching the euro turmoil from the sidelines and has not seen the details of contingency planning in Germany. Ministers are relatively confident that British banks would not be hit too hard directly by a Greek meltdown, but the indirect impact of how this would spread through the global financial system are far less certain.

The Foreign Office also has plans to evacuate British citizens from Greece if it becomes dangerous. A government source said: “The situation is now political rather than economic so is out of our hands. We are well prepared to help protect British citizens from the storm.”

There is no political will in Greece to accept further austerity... so now what? Herr Merkel controls the checkbook.

[Simon_Jester]

Is "no political will to accept further austerity" the right way to put it?

[Alkaloid]

I would say 'outright refusal to accept further austerity' myself.

[evilsoup]

Is there any way for ze Germans to kick Greece out of the Euro, anyway?

[Simon_Jester]

I would say 'outright refusal to accept further austerity' myself.

It's not clear that long term, austerity is worse for Greece than the alternatives.* What is clear is that the Greek public utterly hates the whole thing, and regards it as a symbol of how their parliament is hopelessly corrupt and is more answerable to Brussels and Berlin than it is to Athens.

Even if it happens to be a good policy,* it puts such an extraordinary share of the costs on common Greeks that they're not willing to accept it as the core of the Greek national response to the crisis. Theoretically the politicians might be willing to do it again, but if I were in their shoes, I'd be afraid that if I passed another round of austerity cuts, the Athenians would riot and horsewhip me through the streets of the capital.

*Not saying it's better, just saying it's kind of hard to gauge.

[madd0ct0r]

fun fact- this year's global summit on the vietnamese economy is being held in greece.

why must life always exceed satire?

[Thanas]

Is there any way for ze Germans to kick Greece out of the Euro, anyway?

No.

However we could easily force them into bankruptcy.

[Esquire]

fun fact- this year's global summit on the vietnamese economy is being held in greece.

why must life always exceed satire?

Always a question worth asking. Any idea why the global summit on the Vietnamese economy isn't being held in... I don't know, Vietnam, maybe? Then again, that might itself be a statement on globalization.

[evilsoup]

Is there any way for ze Germans to kick Greece out of the Euro, anyway?

No.

However we could easily force them into bankruptcy.

I'm not entirely sure how much worse that could be for Greece than the austerity measures are. Surely it would hurt German/French/Swiss banks more than anything else?

Anyway. Any ideas what the effects of driving Greece to bankruptcy would have on the wider Eurozone?

[HMS Conqueror]

It's a result of cognitive dissonance on a national scale. The Greeks don't seem to realise that the Germans and the IMF are the ones paying for them to continue deficit spending. If they default, they need to eliminate the entire deficit immediately because they will no longer have access to credit.

The choices are:

1. Accept the international plans and gradually reduce state spending over a period of years.

2. Default and suddenly reduce state spending enormously.

They want 3. Continue spending magical leprechaun gold forever., and in trying to get it they will end up with 2.

fwiw, 2. might not be so bad. I means they don't need to pay back the money, and their finances still end up in order. But some people will be put in a very bad position in the short term.

[Siege]

Merkel's statements are at least in part intended as a shot across Hollande's bow, because he is far less of an austerity fan than Sarkozy. Best to take a firm position now so that she'll have more political ground to negotiate over once Hollande gets to Berlin. Ground which I suspect Merkel will need, because support for uncompromising austerity isn't exactly in vogue in Europe right now, and Hollande knows it.

[Col. Crackpot]

Anyway. Any ideas what the effects of driving Greece to bankruptcy would have on the wider Eurozone?

A great many European banks still hold a top of Greek debt. BNP, Societe Generale, Commerz, ING, RBS... Them all taking multi billion euro hits will be very painful the general public when they pull back on lending.

[LaCroix]

One thing that strikes me is the fact that everybody is talking about how this 'financial aid' doesn't reach the Greeks, it's all skimmed away by banks and never does anything for Greece.

Seriously, nobody is giving them financial aid in the traditional sense of giving them money to spend - Europe is simply paying their utility bill so they have a chance to get their finances under control.

Defaulting will not help them - they simply become untouchables for banks, and as soon as they recover slightly (magically? For no one will lend them any money.), banks will want their pounds of flesh. There is no such thing like chapter 11 protection in international law.

[HMS Conqueror]

There is no such thing like chapter 11 protection in international law.

The legal term is "sovereign immunity".

[LaCroix]

Which helps them exactly how if a bank refuses to lend them money unless they pay their old debt, first?

Defaulting only works if some kind of law forces the debt holder to write off all debt. There is no such international law.

Old Luis could force the French banks to accept his "There are no debts" trick, but there is no way Greece could force a German bank to agree to this.

[HMS Conqueror]

It doesn't really work like that. Banks want to buy state debt, because it makes them money with (ordinarily) very low risk. In fact the return on US Treasuries is called the "risk-free rate". They can refuse on principle, but they're shooting themselves in the foot, and there are more big banks in the world than the ones that currently own a lot of Greek debt.

However in the short/medium term it makes no difference. Greece won't be able to (and shouldn't!) run deficits in the wake of a default.

[UnderAGreySky]

It's a result of cognitive dissonance on a national scale. The Greeks don't seem to realise that the Germans and the IMF are the ones paying for them to continue deficit spending. If they default, they need to eliminate the entire deficit immediately because they will no longer have access to credit.

The choices are:

1. Accept the international plans and gradually reduce state spending over a period of years.

2. Default and suddenly reduce state spending enormously.

They want 3. Continue spending magical leprechaun gold forever., and in trying to get it they will end up with 2.

fwiw, 2. might not be so bad. I means they don't need to pay back the money, and their finances still end up in order. But some people will be put in a very bad position in the short term.

From the impression I get, Greeks think that (and I concur) 1 is right out simply because it's been tried over and over so far and it's not worked even once in three years. The only thing reducing spending has done is make more people unemployed, resulting in them spending less on all non-essential items and this causing a vicious feedback loop.

I have no idea who wants option 3. Perhaps you could cite a source?

[HMS Conqueror]

I don't think anyone explicitly favours 3., I think they don't understand the consequences of what they support. Like a man who doesn't believe in gravity walking off a cliff. They want to not cut, and also want to default. You can't do both. You also can't keep spending without default because then the IMF and the capital markets will cut you off anyway. So it's 1. or 2.

[Simon_Jester]

You're missing something. Right now, the decision about what parts of the budget to cut is being made by a certain group of people- the current Greek government, which is very good at doing what Brussels and Berlin say, and not so good at doing what Athens says. The decision is influenced heavily by standard-issue neoliberal policies: cut the welfare checks and the economy will surely boom!

What if this is what the Greeks are rejecting? What if they're not rejecting the need to cut the budget and raise some taxes to make things balance? What if they're instead saying "we want the problem of balancing the budget to be handled by a government that is actually answerable to the Greeks, more so than it's answerable to the Germans?" Sure, maybe they'll cut the budget anyway... but they'll be doing it in a way less toxic to the medium-term survival and well-being of the Greeks.

[UnderAGreySky]

The Funniest Graph I've Ever Seen About Why the Euro Is Totally Doomed

[HMS Conqueror]

You're missing something. Right now, the decision about what parts of the budget to cut is being made by a certain group of people- the current Greek government, which is very good at doing what Brussels and Berlin say, and not so good at doing what Athens says. The decision is influenced heavily by standard-issue neoliberal policies: cut the welfare checks and the economy will surely boom!

What else is there in the budget? I cannot find figures off-hand for Greece, but here is a breakdown of British government expenditure:



The Greeks are running a 7% deficit. That's % of GDP, which corresponds to about 14% of the budget. So what do we cut without touching anything social-y? We can abolish the entire military, police, prison and court service, and stop maintaining the road, rail and airport network, and that just about covers it.

But being more realistic, we can't cut law and order because everyone is rioting. We can't cut the army that much for the same reason. And we can't really stop maintaining the transport infrastructure because that is just going to store up more problems for the future (not least because some of that money is going on ensuring vehicles are roadworthy and drivers are licensed). And even if we could cut all of those things, hundreds of thousands of people still lose their jobs because these functions are not performed by machines.

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%.

e: I wouldn't be so hard on "neoliberal" policies btw. A lot of the (non-budgetary) reforms being proposed are simply agreed by most economists to be beneficial.

[Aaron MkII]

How much can you cut by forcing ministries to be more efficient? Canada has some fairly bloated ministries, we could for instance stand to trim things out of NDHQ, specifically former military staffers hired on as civvies at double the rate.

[Mr Bean]

How much can you cut by forcing ministries to be more efficient? Canada has some fairly bloated ministries, we could for instance stand to trim things out of NDHQ, specifically former military staffers hired on as civvies at double the rate.

Firing on that sort of scale requires removing lots of Greek laws that makes it impossible for the government to purge the ministries every election.
As for how much money can be saved who knows since that's the sort of thing that requires an outside agency and about two years worth of data. Further a large majority of the greek population are government employed.

It is quite possible to dig a hole deep enough you can't climb back out. And the EU enabled Greece to dig pretty far pretty quickly. They are far past the point where austerity will work and they can't spend their way out of the hole because no one trusts them to spend out then sit quietly for the twenty years to pay it all back. Anything Greece does will hurt itself because again they owe lots of money to other countries to their own people and to themselves. To be frank the economic policy the last few months have resembled a German effort to figure out how to burn Greece down for the insurance money without setting themselves on fire as well.

[Aaron MkII]

Lovely.

[Stark]

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.