And?
That people will get a finger up their behind is why they avoid going to see the doctor. The popularity of that choice doesn’t make it the healthy one.
Can they even do this? My understanding is that bonds state what currency they are issued in and the requirement is that they pay out in that currency (absent some other agreement from the lender).
IOW, AIUI, sure they can try to pay in drachmas, but the bond-holder is going to say “you have to give me enough drachmas to equal 300 billion Euros or you will be in default.”
Here’s SYRIZA’s program:
I thought the most interesting was:
Closure of all foreign bases in Greece and withdrawal from NATO.
Cite for these exact numbers?
Oh, yeah, that’s full of nonsense. Greece’s workweek is as long as France’s or Germany’s. The country is the victim of bad decisions by a previous government, as well as the behavior of German banks with whom Greece shares a currency but not a state.
Would Greece be allowed to stay in the EU if it left the Euro?
From the EU website:
I assume that Greece could simply do what Sweden does, “not qualify” whatever that means, but does anyone know if the EU would let them stay, should they go off the Euro?
The sons of Greece, I assume. After all, everyone knows that all the great empires and learned civilizations of Europe, nay, the world, came from the cold and Calvinist North. The Greeks, like the Iberians and Italians, are just subtropical summer children who could never amount to anything, a step above monkeys. 
I think that’s how it goes. Only to do it properly one has to cut all Hellenisms out of the vocabulary and state it in good hard German. e_e
And of course, the German banks who were only to happy to lend to the Mediterranean states in the boom years have done nothing, nothing wrong at all.
Yeah, better just read that last phrase in an agitated tenor and Bavarian accent.
Sorry, I’ll take it to the Pit.
Payments (outflows) require income (inflows). It gets worse than that in interactions between a lender from a rich country and major investment projects in a poor country. The poor country can get totally screwed over.
German banks got into these relationships.
See, I actually studied the S&L collapse in the USA in the 1980’s. The temptation to make bad loans is there for many of us.
And it looks like Greece had politicians willing to put other people on the hook for what they borrowed, but it took German participation for make it happen.
The Greek people are being blamed for a bad deal made by elites in both countries. That is unfair.
Greece should randomly pick 500 of its citizens and auction them off to be hunted for sport. Minimum bid: five million Euro.
2.5 billing won’t cover a years interest on the Greek debt.
I thought the part of “Referendums on Treaties with Europe”.
Let’s put both Foreign AND Fiscal policies up for a vote!
When the Communist Party thinks you’re on the right track, you probably aren’t.
As in:
Double the spending for healthcare
Nationalize all hospitals and medical practices
Eliminate all fees for healthcare
Yep, these are the right people for the job…
Well, there will be revenues from television coverage as well.
I think it’s distinctly possible Greece will leave the Euro.
Let’s look at what an exit would look like and the various pros and cons.
Right away, the currency would change. Greece would no longer use the Euro but the drachma. Almost certainly Greece would start the drachma at parity with the euro. The Greeks would further be conducting their own monetary policy through their own central bank—right now Eurozone central banks do not conduct their national monetary policy because that is done through the European Central Bank (ECB.) Domestic banks in Greece would redenominate all of their assets from euros to drachmas.
[Aside: the fear of exactly this is why some level of capital flight has occurred among Greece’s wealthy continuously since 2012, and will probably accelerate right now as some of the rich will flee before finding out what Syriza will do next.]
Pro: Direct control of monetary policy, to suit Greek needs and interests.
Con: Larger capital flight than before seen.
Mixed: For better or worse the ECB and the currency union is able to impose some rational discipline along with some ill-advised austerity measures on its member countries. Both go away come Grexit.
Currencies move, and very quickly after the redenomination, the drachma would collapse in value. This is neither as bad as it sounds or unexpected. The IMF estimated in 2012 that in this scenario the drachma would lose 50% of its value versus the euro.
This has benefits. If you’re a Greek politician in favor of “Grexit”, then the country you almost certainly look toward is Argentina, in 2002. Argentina had pegged its currency to the dollar for various reasons, and in 2002 it stopped doing so. Their currency immediately lost value, but they also had strong economic growth because of it—because lower currency value helps exporters. Lower currency value can also boost tourism, as foreigners will see their money go further for better accommodations and goods and services in Greek than in a country with a currency value closer to their home country (or in the Eurozone, tourists are going places that have the same currency as home.)
Pro: Stronger exports
Pro: More tourism
However, unfortunately for Greece it is not nearly in as good a position as Argentina was in 2002. Argentina is a country whose economy is largely driven by agricultural exports and other commodity exports. People pay good money for this stuff regardless of how you do the currency conversion. Greece simply does not have a robust enough economy to fix its domestic woes via stronger exporting. Additionally, most experts feel that a Grexit will require an exit from the EU as well. That is a whole other issue, but there are many reasons that is true and the current non-Euro EU countries in a sense are exceptions to the current rules. It is unlikely, in my opinion, that Greece could stay in the EU if it drops the euro. Being forced out of the EU adds transaction costs with Greece’s largest trading partner (the EU zone) and also removes Greece from eligibility for several aid and assistance programs that are EU wide even for non-Eurozone EU members. My belief is that even though Grexit will also require Greek removal from the EU, the EU is loath to let Greece burn, and will to some degree send aid and assistance even to a Greece that has spurned the common currency and left the union. Estimates have also predicted that domestic inflation would reach 35% in the case of a Grexit, which would be extremely painful for Greek consumers.
Con: Likely forced out of the EU
Con: High inflation
An earlier poster suggested that a Greece that repudiates its debts is a more attractive borrower. This is true, assuming you evaluate the risk of it doing so again as being relatively low during the lifetime of the bond. However, things are not that simple…and again I find us comparing Greece to Argentina. Argentina repudiated its debts, but unfortunately for Argentina this has resulted in international capital markets essentially being closed to it. So, a country with vastly reduced debts didn’t end up being that attractive to lenders, is this because the hypothesis itself is flawed or something else? Well, the hypothesis is mostly legit, as long as there is reasonable belief it won’t happen again anytime soon and the underlying economy is strong, a country that has recently repudiated its debts does present as an attractive borrower. However, what both Argentina and Greece did in the economic tumult preceding is they actually issued bonds subject to the laws of other countries. Greece can easily redenominate domestic debt, and would have little reason to repudiate it since it would be relatively easy to pay off as the currency quickly devalued versus the Euro. But because of the 2012 restructuring Greek foreign debt is subject to English law (Argentina issued debt subject to American law), this was done for the same reason as in Argentina, to make it so foreign capital markets and lenders would keep giving money to these countries. What happens when a sovereign State decides that it refuses to accept the foreign laws governing the bonds? It can do that, Argentina did. What happens is it closes off capital markets because any foreign investors who buy your bonds are liable to be sued by bondholders of the previous debt that are subject to English law. Further, because English courts are involved you could see a situation similar to what Argentina has seen, with overseas assets seized, ships docking being seized for repayment of debt and etc. It almost makes the entire world like a legion of repo-men. It makes ordinary bond issuances to foreign investors essentially impossible because lending to your country guarantees being embroiled in legal battles.
Con: Capital markets likely closed to Greece
Con: Face international legal actions similar to Argentina
Would this happen? Or would Greece be able to negotiate Grexit that didn’t result in endless legal battles? I think if Grexit happens, this scenario will play out. Because the Eurozone, even including voters in Germany, do not want Grexit and do not want Merkel and the austerity-hawks to play uber hardball and force Greece out. That means some accommodation will be offered to stop Grexit, so if Grexit were to happen it would mean Syriza simply refused to negotiate at all, for anything other than no-strings-attached repudiation of all debts. If that happened I think we would not have a country that would try to negotiate a soft-landing, but instead would be one that was destined to follow the Argentine model.
What of the rest of the Eurozone come Grexit?
The sort of systemic contagion that Greece presented in 2012 is largely protected now, through moving ownership of Greek debts to hands better able to handle them becoming worthless, permanent rescue funds in the Eurozone and aggressive policies that the ECB would follow to protect the weaker countries come Grexit.
Grexit would cause a weakening of an already weak recovery, projections suggest that 1.5% of GDP growth over 18 months would be lost due to Grexit. Some of the weaker countries in the Eurozone, right now have bonds that could be sold off very quickly if investors feared contagion—for example if they started to believe Spain or Portugal might leave the Eurozone too they would not want to be caught holding euro debts that could be repudiated or redenominated into a much less valuable currency.
But the biggest damage to the Eurozone would be a death to the concept of the Eurozone being inviolate, to the concept that once a euro country always a euro country. It may not, and likely would not, lead to any other countries leaving the near-medium term. But long term, it would set a precedent that likely could see other countries leave in some distant future crisis, if it behooved them.
The only real pro for the Eurozone with Grexit would just be the vague notion that poor national management and refusal to accept controls on spending and debt was shown to be unacceptable, and that it might vaguely enforce “discipline” on heretofore recalcitrant countries.
In summation I do think Grexit is worse for both Greeks and the rest of the euro, but would not have to be a disaster for either (for Greece it likely would be, because of the foolish policies they want to pursue.) Greece is experiencing an economic recovery, and in many ways Grexit would sabotage that. Further, Tsipras has many proposed policies that will return Greece to being a moribund and uncompetitive country. A hike in the minimum wage, rehiring of 12,000 public sector employees and cancellation of privatisations that were a boon to the economy. Tsipras believes he can wave a wand and return Greek to the era of no consequences. For a Grexit to “work” for Greece, Greece would need to show fiscal discipline and not reject long term structural reforms in favor of a return to clientelism. Yes, freed from the yoke of the accumulated debt Tsipras would have some freedom of movement, but his policies would quickly resume deficit spending in an environment in which Greece would find capital markets closed to it.
The path forward to me would be a significant restructuring of Greek debt. I do not believe allowing Greece to repudiate its debt is politically feasible, but I actually think that is probably the best option. The main reason is that Greek debt is either never going to be repaid or it will be converted into such long-term, low-interest debt (and this happened already to some degree) that the economic value for anyone for Greece to continue making these payments for 100 years is so low as to be political theater. But, that being said, a restructuring yet again could help. A forgiveness would help more. However, it would have to be contingent on Greece agreeing to limit its spending, and to engage in structural reforms. To be honest if Greece is not willing to make the structural reforms required to make it a competitive economy then Greece shouldn’t stay in the euro, whatever pain might come for the Eurozone. If it isn’t willing to restructure into competitiveness, it will suffer far worse for it outside of the euro than in, and there are many countries out there you can point to that show this to be the case.
In addition to restructuring, there also should be an end of fiscal austerity for austerity sake. The brand of austerity Merkel pushes, frankly has the Eurozone in risk of deflation and a generation of low productivity. A much better package of reforms would be emphasizing the kind of structural reforms Greece has already started to make (but many of which, sadly, Tsipras wishes to abandon), but remove the painful yoke of mandated cut-to-the-bone government services and higher taxes. That doesn’t mean letting a country go back to reckless spending and taxation, but the current fiscal austerity I think makes the Eurozone less competitive, not more. The United States as a somewhat comparable economy has done far better since 2008 and has largely not followed the path of austerity.
Any country (or individual for that matter) can do that. Nothing prevents the USA from issuing bonds in Yens. Nothing would prevent Greece from issuing bonds in Euros. Before the Euro existed, bonds were issued in ECU (European Count Unit) that wasn’t even a currency, for instance (it’s value was based on a basket of European currencies, making it more stable than any individual currency).
Well…I’d rather loan to a country that owes nothing because it defaulted than to a country that already owes so much that it’s pretty certain it won’t reimburse its debts in full. That Greece defaulted last year doesn’t mean it will default again next year.
Again, not an issue if Greece doesn’t borrow in Drachma.
I was thinking of the situation where Greece defaulted, not just left the Euro without defaulting.
Otherwise, she would still owe Euros. She borrowed Euros, she’s supposed to reimburse Euros, even is she decides to switch to another currency. That’s unrelated.
Greece’s issue here is that much of its foreign held bonds were restructured so that they were subject to British law, much as Argentina did the same with some of its bonds and American law. This makes you subject to courts in that jurisdiction, and when you try to repudiate them as Argentina has done it makes it very difficult to effectively raise money on international capital markets due to constant legal challenges. In short, read about Argentina’s bonds that are overseen by American courts and what has happened when Argentina stopped paying the coupon payments on them.
Martin,
Thank you. Everyone should read your post.
Yes, I second this. Thank you, Martin Hyde.
Thirded.
Unfortunately, that’s not the question the Greeks have to answer. The question for the Greeks is “Why should I loan to either one?”
The idea of the loans were that the money was going to be used while the Greeks reformed their economy so that they could pay the money back. That apparently didn’t work. What a reasonable creditor is going to ask if the reforms are going to work so that next year the same thing doesn’t happen.
Allegedly and apparently austerity didn’t work. OK, then what is going to work, and why will that work when austerity didn’t? And “throw good money after bad and don’t ask so many questions” is not sound banking strategy IMO.
If the current remaining half or so of the loans aren’t really loans and aren’t going to be repaid, then they become grants. That doesn’t change the question very much. Why should the taxpayers of the EU subsidize the Greeks, and what evidence is there that another large grant on top of the previous ones will stir the Greeks to put their financial house in order, when having to repay did not?
Regards,
Shodan
But it wasn’t “sound banking strategy” to loan Greece the money in the first place, was it?
(And they are still being offered more, which the new government is supposedly refusing)
And the bankers who did it have been punished with a couple of haircuts already.
Here’s the thing you can’t get away from:
Nobody has to lend to Greece in the future. If they fuck this up, they’re in serious, serious trouble. They will become a country with few, if any, options.