Greece is in debt to the tune of about 380 billion euros. it is reasonable to ask where the money went. Suppose we assume that most of the money was used to pay government employee salaries, and also finance stuff like the 2012 Athens Olympics, and also buy stuff not made at home (like tanks, fighter jets, etc. for the Greek armed forces). is most of this money outside Greece now?
If most of the money is spent domestically (food, clothing, healthcare, restaurants, etc., is it fair to say that the money is still inside Greece? Or is it all in foreign hands, outside the country.
Suppose we did the following analysis:
Of the 385 billion:
-50% (192.5 billion was paid to pensioners and government workers). This was spent domestically, and wound up in the accounts of merchants, landlords. restaurants, doctors, hospitals, etc. So, assuming most of it was not spent on imports, say that 50% was retained inside Greece.
-30% (115.5 billion) was paid to service debt (this money is outside Greece, in the accounts of European banks)
-10% (38.5 billion) was paid for tanks, planes, weapons not made in Greece-this money has lefty the country
-10% (38.5) was used for various imports-this money is gone.
So, why are Greek banks short of cash? Or have the Greek people themselves shipped their money off to Switzerland? We see ATMs and banks accounts empty-where is the money?
I guess that you have no source for your percentages.
The 2012 Olympics was in London.
The money has been spent or has just evaporated. If you had taken out a loan for $200,000 in 2000, using your $300,000 house as security and fell on hard times in 2010 after the Lehman Brothers collapse. You would have lost your house which was now only worth £100,000. The bank’s $100,000 has just vanished and if you are one of many, they will need to borrow to make up the loss so that they can keep the ATMs full.
If the bank doesn’t mend its ways, it will happen again and they will need another loan or go bust. A bank can go bust and all the people, businesses and governments that loaned them money take a haircut. A country cannot go bust, but would normally just allow the value of their currency to drop. The Euro has prevented that from happening.
If it happened to, say, Alabama, the whole US would take the hit, but Europe is a coalition of sovereign states - well it was, because if this deal goes through, the Greek government will have lost any control it may have had.
Do you not understand the concept of a loan? If you borrow a billion dollars to pay pensions to people, that money may still be in the country, but the government still owes a foreign bank a billion dollars. A billion dollars isn’t coming back in taxes, and wouldn’t even if the Greeks were honest about paying taxes (which is one of their problems).
Debt doesn’t disappear until it is paid back. The government can’t take 380 billion euros out of the economy to do so. That’s more than a year’s GDP.
They were at 170% of current GDP (if any numbers from Athens can be believed, which is open to debate) - that was at 240B they are now talking another 80-some billion.
They will need a miracle (and more political will than they have exhibited) not to be back begging for more money in 2018.
Has Tsipras attempted to hit the US for the money? Why did the Secretary of the Treasury make a point of telling Greece and Europe to “work it out”?
If you look at what money has to be repaid when, this is an extremely unusual year for Greece. Most of their debt is long term, more like mortgage payments than credit card payments.
As far as the US goes… well, we weren’t the ones to invite Greece into our currency. Plus we have Puerto Rico to deal with. Also our own national debt, which is a lot more solvable than Greece’s but nearly as politically charged.
They have been to the IMF for support as well as to the eurozone organisations.
The question here isn’t just about moral hazard, it’s about what policy prescriptions will work, and whether the failure of successive bailout packages has been down to the failure of the Greeks to reform, or the failure of what the other eurozone countries have asked them to do.
My question is very similar to OP’s (though i find the question “So, why are Greek banks short of cash?” uninteresting and easily understood. The answer to that question will be apparent to anyone who’s experienced bad credit! It “can’t happen” to centralized sovereigns like U.S.A., Japan or “Europe” due to programs like QE, where the FRB essentially prints more money. But, though Greece is part of “Europe” and operates a Euro note-printing shop, if it just started printing more banknotes and giving them to itself, the other Europeans might get really mad!)
The amounts of money given to Greece exceed Marshall Plan money on a per capita basis, given Greece’s small size. It is a fair question: Where did all that money go? Marshall Plan money was AFAIK spent mostly on repairing infrastructure and building factories. What were these Greek borrowings spent on? Overly generous pensions, government salaries, luxury items for corrupt businessmen? Corrupt politicians? I certainly don’t know the answers but since this is GQ let’s break down the question:
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What is the total “bailout” amount (€B), past, present and future? To be meaningful I’m afraid an answer will need to mention dates, haircut sizes, deferment agreements. I’m sure there are several on-line summaries claiming to be cogent – which really does the best job of summing up financial transfers to Greece in the 2005-2025 period? (2025 is not a misprint; obviously future Greek payments or borrowings are key to full understanding.) Many countries experienced huge losses after the 2007-2008 Panic – to be fair to Greece one must somehow subtract its “normal” losses from that.)
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Just as the troika has absorbed debts from private hands, to what extent have private Greek debts been assumed by the Greek government? What does Greek private debt total?
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What was the money spent on? This is ambiguous due to the fungibility of money, but we can postulate/stipulate that Greeks spent €B on items they otherwise wouldn’t have. Part of this money (what percent?) was spent on upscale imported foods and yachts. (The former has become worm food but what is the value left in ships and boats recently acquired by Greeks?)
Marshall Plan aid to Greece is shown as $380 million in 1950 dollars, about €26 billion today. What is the fair summary figure for the Europe–>Greece aid/bailout?
Greece’s biggest problem is that since joining the Eurozone, they have no economy.
Prior to joining the Eurozone, the Green economy was pretty healthy, as it was almost all tourism. The Drachma was very inexpensive compared to most European currencies, and a lot of people used to take advantage of that to go to Greece on vacation.
With the common currency, that is all out the window. Now it is just as expensive to go to Greece as anywhere else in the Eurozone, and the tourism (and income stream) has seriously dried up.
Waste, fraud and mismanagement.
That was the big catch in joining the EU-Greece had to adhere to labor laws, tax laws, wtx. set by Brussels-that meant that Greece became very expensive to travel to. Now, you can go to Croatia, turkey, Albania, for much less.
This is nonsense.
The last 2 years broke all records for visitors and this year looks set to follow. Not what I’d call drying up. Tourism ain’t the issue.
Right, it’s not a question of where the money went, but rather why hasn’t the money come in. Tax evasion is socially acceptable in Greece, it’s like “real Greek men don’t pay taxes”. It’s not the entire problem like Exapno Mapcase states, but it is a frustration on the lenders. Like a homeowner expecting his mortgage company to accept the excuse for a missed payment that the homeowner just didn’t bother picking up his paycheck.
This is a big part of it. The Greek government gets the loans, and spends the money on the train system and government workers and pensions, etc. But if nobody pays their taxes, it doesn’t matter if it stimulates the economy or not, because the government doesn’t get any increase in revenue, because nobody pays taxes. And it doesn’t appear that the Greek economy is very stimulated, either.
Regards,
Shodan
The tourism receipts of Greece seem to have been very roughly constant between 2000 and 2013 PDF by Greece’s tourism association - Greece entered the Euro area in 2001.
The main problem for Greek tourism does not seem to be the Euro but that Turkey has eaten Greece’s lunch in the tourism industry Excel sheet by Turkish government
To be clear: I never said that avoidance of taxes was the whole problem, nor even that taxes per se was the the whole problem. I just said it was foolish to believe that a government had the money to repay a loan just because it used the money for payments within the country. America is certainly prosperous and doing much better than any European country. Even so, the U.S. national debt is over $18 trillion because that money goes to other things that don’t get returned dollar for dollar in taxes. That’s the way countries work.
Some data.
Greece’s deficit went from 15.7% of GDP in 2010 to 8.7% in 2013 before going back to 10% last year. (Cite..
Unemployment went from about 11% in 2010 to about 27% in 2014, which shows how well austerity worked. Cite.
As to where the money went, it is hard for any economy with a 25% unemployment rate to run a surplus and pay off loans. It would certainly be better if everyone paid taxes, but it also would have been better if some banks hadn’t colluded with the former government to lie about the state of the budget in order to sell bonds.
BTW, it bugs me when people talk about the “Greek government” as if there was continuity. The bums who did this got thrown out. It is like as if the US Socialist Labor party got a majority in Congress and then got attacked because of the size of the debt.
Google “Greek Pension”. The Economist has a couple of articles on the system - it is wondefully complex, and the oft-promised “reforms” have always been written with enough loopholes that most of them will apply to only future pensioners.
Some fascinating bits:
The government pension was for 100% of FINAL salary.
Certain professions had much lower levels of required pay-in - originally for arduous physical jobs, but everybody wanted their jobs included in the list.
The general plan was to pay taxes for the minimum number of years to assure a pension, then switch into the shadow market, where money was not reported.
Enough provisions and loopholes to make gaming the system a national pastime.
And: outside cities and buildings, the is no way of telling who owns what land. The records are not by lot numbers (they don’t have any), but by owner’s name. The descriptions are meaningless - “the threshing floor and the land surrounding it” was one description. No mention of how much land or in which directions.
This is why the stories include the reference to a “land registry”. Greece has been paid enough to establish one many times in the last 20 years, but still hasn’t. Some of the islands were owned by Italy until WWII. They still have the Italian registries, on big green ledger books. Those are the only parts of the country with any parcel records. It can take 10-20 years in courts to decide who owns what.
Wouldn’t the lack of the money available from those bonds have represented a severe level of austerity?
Why did the rest of the world recover from the 2008-2009 panic and Greece did not?
Unless all of it can be laid at their (hugely improper and unlawful*) adoption of the Euro, there is likely one or more structural defects.
Pensions
Tax evasion
Land registry
Court system
Pharmacies (read up - you have to go to a drugstore to but aspirin)
are just the ones large enough for everybody (else) to see.
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- they cooked the books to look like their economy was in the required health to join