I think the root cause of the large debt was Greece’s politicians decision to borrow far too much. Because Greece was part of the Euro and thus under the aegis of the European Central Bank the Greek government could borrow at rates comparable to those charged to more financially sound economies like Germany. So they did, in a big way. But when the markets become afraid of risk following the GFC (and the revelations about Greece’s worse than reported true balance sheet) the rates have leapt to far higher levels.
Essentially it’s like a person buying a house with an adjustable rate mortgage with a very low teaser rate. They look at the monthly payments at the low rate and think they can afford to borrow much more than their income can really support. Once the low rate expires and the monthly payments are much higher things become unsustainable. Add in a reduction in income and things get really ugly.
So now we have Greece’s creditors, the IMF and ECB (who have already given at least one ‘bailout’ loan) insisting upon swingeing cuts to Greece’s expenditure and also increases to its income (higher taxes + asset sales). And the people who are bearing the brunt of these cuts are voicing their anger and disapproval at the deal.
I would agree that Americans are a smaller part of the Greek tourist market. However, your 2% number is lower than I would have guessed. Any cite for that? And is that number of visitors, or percentage of revenue? Because Europeans might hop down to Greece for a short stay, while Americans would be more likely to stay --and spend-- for a couple of weeks.
Anyway, not meaning to sidetrack the discussion. It does look like American tourist dollars would be a relatively tiny part of Greece’s GDP either way.
This is quite wrong. If you mean Figure 15 in your link, that’s Average exit age from labour force,, NOT the mandated retirement age. Big difference. Mandated retirement age in Germany is 65, for France 60. There are possibilities to leave earlier - partly programs by the companies, or simply being laid off and not finding another job, but that always means that your pension will be reduced.
Dog has already partly explained this, but basically, if all spending cuts target the normal population, without touching the rich or the corrupt, people tend to get angry.
Both of these options are not really alternatives: restructuring their debt won’t work because nobody is offering them credit at acceptable rates - that’s why the govt.s are stepping in in the first place (and why Angie Merkel strongly told the banks to do their part and offer credit to Greece, too).
Defaulting on their debt or leaving the Euro would make things much much worse. The Greek govt. was afraid (before the measure passed) of a run on the banks.
No, other options would be measures besides cuts, like better enforcment of existing taxes, instead of raising taxes on the same 5 people while the rest of people cheat on existing taxes.
There is more to it, financial institutions (hedge funds) are prodding the markets looking for weakness.
So far Iceland, Ireland and Portugal have been ‘prodded’.
Greece is the current victim, Spain next, then Italy
While the economies may have weaknesses (sort of guaranteed), the problem is when the Interbank lending market closes up on banks, and demand dries up for Govt Bonds.
An uncharitable observer might suggest that panics are being flared up by a bunch of muppets - rumour mongering. The Euro was/is meant to prevent playing off one country against another. Hmm …
Well, I read somewhere (Paul Krugman?) that the difference between Greece and the others (Spain, Ireland, Iceland, maybe even Portugal) was that Greece was running huge budget deficits, while the others had either modest deficits or even surpluses. Then came the recession. Banks were in serious danger of failing, bringing the economies down with them, so the governments had to bail them out. And in the process, ran out of money.
I know something about Iceland in particular, since I have an Icelandic friend. A conservative government privatized the national bank around 2000, selling it at bargain rates to favored party contributors. Bad, but not disastrous. But they failed to regulate it and that was. The bank invested heavily in US mortgages, one way or another. They made huge profits and the government’s action seemed vindicated. Until it all came crashing down and Iceland was bankrupt. The government paid off Icelandic investors and told the others (apparently mainly British and Dutch) that they would have to wait. But Iceland is not part of the Euro zone, so their currency can be devalued vis-a-vis the Euro and their social safety net saved their unemployed from penury. Everyone’s belt tightened a bit and they have largely recovered. They are being sued in the World Court by UK and Netherlands for their actions. The sanction would be tariffs against their exports (unless they wanted to start a war). Obviously the Eurozone countries cannot do this. It wouldn’t at all surprise me if the Euro were to collapse, or at least seriously limited to a few countries with more stable economies as a result.
Jane Jacobs made this point about common currencies decades ago. IIRC she claimed the economy of Maine was permanently depressed because they were tied to the dollar.
Nope. It will make things worse in the short run. In the long run, nobody knows. There are a few examples of countries ditching a pegged currency or similar union, defaulting on debt, and then ending up with pretty good economic growth after the short, painful period. Argentina is an example of this. It is a possibility that a default or an exit would result in long-term disaster, and it’s also a possibility that it may not.
In any case, there already may be a slow-motion bank run going in Greece already, which, if that’s the case, would mean they’ll have to abandon the Euro eventually, unless the overall economy turns around.
The cite here is from the Greek National Statistics Agency, although it’s in Greek so I’ve taken Wikipedia’s word for it. In 2009, out of 19.3 million visitors to Greece, 0.56 million were from “the Americas”, which is 2.9%. Given that sounds like it includes south america as well it’s possible 2% is actually an overestimate for the US.
I’m surprised the number of US tourists to Ireland is that high. I would have thought that the number of US tourists in any European country probably seems higher than it is: the American accent is instantly recognizable and there’s a sizable number of American tourists to Europe but I figured the simple fact it’s so far away would mean the number of tourists is lower than we’d guess. Maybe that high percentage for Ireland is due to the fact that a lot of Americans have Irish ancestry. I’d be interested to see whether the figures for Spain are closer to 20% or 2%.
