# Greek default seems to be inevitable...what's the fallout? **URL:** \ **Category:** Great Debates\ **Created:** [June 29, 2015, 8:24pm UTC](https://boards.straightdope.com/t/greek-default-seems-to-be-inevitable-whats-the-fallout/723811 "2015-06-29T20:24:18Z")\ **Posts on this page:** 20\ **Page:** 8
**Author:** ![Magiver](https://avatars.discourse-cdn.com/v4/letter/m/4491bb/32.png) [@Magiver](https://boards.straightdope.com/u/Magiver)\ **Post date:** [July 5, 2015, 12:54am UTC](https://boards.straightdope.com/t/greek-default-seems-to-be-inevitable-whats-the-fallout/723811/141 "2015-07-05T00:54:31Z")
> [@LinusK](#): > > I’ve never lent a thousand dollars to anyone, but if I did, I’d do it with the realization they might not pay me back. > > In my line of work, FWIW, I often extend credit, in the sense that I put people on payment plans, rather than demanding to be paid up front. Sometimes some of those people default. Nevertheless, I continue offering payment plans, because the additional money I bring in by doing it is worth more than the risk. Yes but if you’re line of work was specifically lending money then you’d be broke if you didn’t assign higher rates to higher risk. Greece is in serious serious trouble and nobody knows how bad it is except they are already rationing money and businesses are starting to shut down. If short term lending is interrupted then everything from payroll to the transport of goods stops. ---
**Author:** ![LinusK](https://avatars.discourse-cdn.com/v4/letter/l/258eb7/32.png) [@LinusK](https://boards.straightdope.com/u/LinusK)\ **Post date:** [July 5, 2015, 12:57am UTC](https://boards.straightdope.com/t/greek-default-seems-to-be-inevitable-whats-the-fallout/723811/142 "2015-07-05T00:57:24Z")
> [@Measure\_for\_Measure](#): > > > [@](#): > > > > Originally Posted by LinusK View Post > > Since Germany will never fiscally integrate with Greece, the alternative is for Greece to take back control of their monetary policy. > > Well, more likely the alternative is to suffer extended depression/recession, until Europe’s economy is roaring. Which won’t happen soon. I’m not so sure about that. If the drachma depreciates substantially against the euro (and I assume it will) Europeans and Americans will have an opportunity to go to Greece for prices that are laughably cheap. If it happens, I for one, am planning on booking a flight. Greek exports will undercut prices of similar products all over Europe and America. Greek businesses will also undercut the prices of goods sold to other Greeks, compared to imported products. The Greek government will be able to deficit-spend. It’ll be able to mail checks to pensioners and employees. It’ll be able to fund infrastructure projects that’ll put Greeks back to work. All that means less Greek unemployment. If - as I believe - the national wealth of a country is the productivity of its people, all those previously unemployed people doing all that work will increase the national wealth of Greece. Now, obviously, that scenario depends on Greece’s self-sufficiency: if they can’t keep the lights on and the people fed in the interim, then of course they’ll be fucked. And if there are particular problems in the Greek economy - corruption and tax evasion, for example - those problems will continue to hold Greece back, whether it’s in the EU or not. > [@](#): > > As for what happens to “all those Euro deposits in Greek banks” that’s an interesting question. > > I think the starting point is this: most of those deposits are not there. If Greek banks work like all other banks - and I think they do - their reserves are only a fraction of their deposits. I don’t know what the reserve requirement is for Greek banks - or if they even have one - but let’s pretend it’s 10%. That means the actual Euros they have on hand is only 10% of what they owe the public, in the form of deposits. Meaning they could pay out only 1 euro for every 10 euros on deposit. (Thus the Greek bank controls.) But it gets worse from there. Some amount of those euros - and probably a substantial amount - are not paper currency in the vaults of Greek banks. They’re in reserve accounts at the European Central Bank. Now maybe I’m wrong about this, but if Greece defaults, or leaves the EU, it seems unlikely the ECB is going to release Greek bank reserves to Greek banks. > [@](#): > > Would that even be legal? I’m guessing not. I don’t know. My guess is based on the fact that Greece owes billions of euros to other countries in the EU. I suspect, if Greece leaves the EU, the ECB will freeze its accounts, in order to pay them over to Greece’s creditors. It’s just a guess, but it seems like a reasonable one to me. > [@](#): > > Also at least in the US reserve requirements no longer bind that much: it’s capital requirements that matter. In other words Greek banks hold lots of assets in the form of Euro-bonds. Presumably the Greek government could also capitalize them by having their new central bank loan them Wonkabars, at which point they turn around and buy Greek Government bonds denominated in Wonkabars. Maybe the question is whether the drachma (to use a more dignified label) has a 20% or 70% discount to the Euro. I don’t know if I understand what you’re saying here. But I think that whatever euros are in Greece, or are under the control of the Greek government, will go to pay for whatever imports Greece needs most. To put it differently, I think Greece will seize whatever euros it can get its hands on, pay for them in drachmas, and then use them (the euros) to buy food or energy or whatever the country needs, but can’t produce itself. > [@](#): > > Would the Greek government attempt to convert (ha!) its Euro debt into the new currency? If the Drachma crashes that could make meeting interest payments a challenge both at the national and company level. How much does the ECB really want to punish Greece anyway? Would they settle for malign neglect? I can’t answer all those questions, but I think that if Greece leaves the EU and the euro, it will ignore outside debts entirely, while it tries to keep the lights on. At some point, thereafter, Greece will reopen negotiations to repay its debts, but it will never repay them entirely. It will start with negotiations with the creditors who have the most power to hurt them, and go from there. Greece can’t unilaterally convert its euro debts to drachmas. I mean, it could, but if it handed over a bunch of drachmas to, say France, France does not “have to” accept them as payment in full. If it wants to get “paid in full” credit from creditors, it will have to negotiate an amount that’s acceptable on both sides. ---
**Author:** ![Magiver](https://avatars.discourse-cdn.com/v4/letter/m/4491bb/32.png) [@Magiver](https://boards.straightdope.com/u/Magiver)\ **Post date:** [July 5, 2015, 1:01am UTC](https://boards.straightdope.com/t/greek-default-seems-to-be-inevitable-whats-the-fallout/723811/143 "2015-07-05T01:01:02Z")
> [@ralph124c](#): > > Heard in the lobby of a Greek bank: “Nikos…your money isn’t here… its in the mortgages your neighbors have”. These are real people suffering. :dubious: What if you and most of your neighbors were thrown out of work and you couldn’t get to you meager savings. How many days of food do you have in your house? What if your power company didn’t have the capital to buy fuel? What little food you have spoils or cannot be cooked. What if [this person](http://www.abc.net.au/news/2015-07-04/crying-greek-pensioner-behind-the-photo/6594984) was your father? Do you realize that they closed the banks so anybody without an ATM card was completely cut off? ---
**Author:** ![Velocity](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/velocity/32/18006_2.png) [@Velocity](https://boards.straightdope.com/u/Velocity)\ **Post date:** [July 5, 2015, 7:43am UTC](https://boards.straightdope.com/t/greek-default-seems-to-be-inevitable-whats-the-fallout/723811/144 "2015-07-05T07:43:50Z")
This is referendum is like asking someone who hates Brussels sprouts whether he wants to vote for it for dinner or not. It’s good for you, but will they be wise enough to say yes? ---
**Author:** ![up\_the\_junction](https://avatars.discourse-cdn.com/v4/letter/u/f1d935/32.png) [@up\_the\_junction](https://boards.straightdope.com/u/up_the_junction)\ **Post date:** [July 5, 2015, 8:41am UTC](https://boards.straightdope.com/t/greek-default-seems-to-be-inevitable-whats-the-fallout/723811/145 "2015-07-05T08:41:32Z")
> [@Measure\_for\_Measure](#): > > A year ago Greek unemployment was 27%. It’s now 25.5%. That’s pretty high. > “Fuck those Germans!” If analysis fails, there’s always scapegoating. Spanish unemployment is over 20% Germany has 6.8% unemployment - as close as you get to zero in modern societies. It has enjoyed around that level of unemployment throughout this crises because keeping Greece on life support feeds German exports. The euro is basically an artificially depressed version of the DMark. > [@Velocity](#): > > This is referendum is like asking someone who hates Brussels sprouts whether he wants to vote for it for dinner or not. It’s good for you, but will they be wise enough to say yes? It’s a nonsense to treat Greece as an homogenised whole. As always, the people paying the highest price are the working class, the retired and the vulnerable. We know the game here, middle class Greeks have been taking $50 flights to London - and presumably other capitals - for 5 years now; open a UK account and put everything that’s not spending money into it. In euros, dollars and pounds. No one - I mean no one except a few people media drag up to create the drama - is surprised by what’s happened to the banks. If you have money, it left the Greek banking sector years ago. It’s the elderly, poor and vulnerable who rely on benefits who are suffering now. ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [July 5, 2015, 8:47am UTC](https://boards.straightdope.com/t/greek-default-seems-to-be-inevitable-whats-the-fallout/723811/146 "2015-07-05T08:47:33Z")
> [@LinusK](#): > > I’m not so sure about that. If the drachma depreciates substantially against the euro (and I assume it will) Europeans and Americans will have an opportunity to go to Greece for prices that are laughably cheap. … My quote was outlining the scenario whereby the Greeks vote yes. That’s a recipe for austerity and Greek depression. Or so I was claiming. Another scenario has occurred to me. The economist Paul De Grauwe argues that, “[Greece is solvent but illiquid](http://www.voxeu.org/article/greece-solvent-illiquid-policy-implications)”, which is interesting if true. He claims that _nominal_ Greek growth of 2% would be sufficient to exceed interest payments, which implies solvency. If that is the case I can see a path out. Greeks vote yes. Government falls. EU starts to play ball with mainstream Greeks. Austerity is eased up a little - basically Greece adopts the milder austerity of Latvia. That might be sufficient to secure shitty growth, enough to keep the creditors happy and unemployment declining at a slo-o-o-o-o-o-w rate. Maybe. ## Here’s another link sketching the problems Greece would have with a big devaluation. Greece is not Argentina. They import a lot of their food, 95% of their fertilizer, all of their fuel, etc. Recall the J-curve: devaluation hurts the trade balances before it helps and this won’t be a simple devaluation. [https://twitter.com/alexebarker/status/615917012452249600/photo/1](https://twitter.com/alexebarker/status/615917012452249600/photo/1) [Greece Referendum: Food Shortage and Supermarket Update - Business Insider](http://www.businessinsider.com/greece-referendum-food-shortage-and-supermarket-update-2015-7) Greek media is pushes Yes vote-- hard. Moguls don’t like the Greek President. [Greek Media Really, Really Wants Yes Vote On Euro-Bailout – Mother Jones](http://www.motherjones.com/kevin-drum/2015/07/greek-media-really-really-wants-yes-vote-euro-bailout) ---
**Author:** ![Measure\_for\_Measure](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/measure_for_measure/32/557_2.png) [@Measure\_for\_Measure](https://boards.straightdope.com/u/Measure_for_Measure)\ **Post date:** [July 5, 2015, 8:52am UTC](https://boards.straightdope.com/t/greek-default-seems-to-be-inevitable-whats-the-fallout/723811/147 "2015-07-05T08:52:52Z")
> [@up\_the\_junction](#): > > Spanish unemployment is over 20% > > Germany has 6.8% unemployment - as close as you get to zero in modern societies. It has enjoyed around that level of unemployment throughout this crises because keeping Greece on life support feeds German exports. > > The euro is basically an artificially depressed version of the DMark. Again-no. Greece is too tiny to affect the value of the Euro. Add in the Spanish and Portuguese economies and the Rest of Europe still dominates. Just because Germany doesn’t give a shit doesn’t mean they are benefiting from Greek suffering. Though in some ways they are. For rebalancing to occur, you would need higher inflation in Germany than in Spain. Shockingly high inflation -at least to a German: it could top 4%!!11!!! It would be Weinmar all over again!!! Never underestimate the power of human folly. ---
**Author:** ![Merneith](https://avatars.discourse-cdn.com/v4/letter/m/57b2e6/32.png) [@Merneith](https://boards.straightdope.com/u/Merneith)\ **Post date:** [July 5, 2015, 9:48am UTC](https://boards.straightdope.com/t/greek-default-seems-to-be-inevitable-whats-the-fallout/723811/148 "2015-07-05T09:48:32Z")
So when will we get the result, in the US EST? Sadly, the Greek Indie-gogo fund has only raised 1.8 million Euros, so no help there, I’m afraid. Still - 45 hours left. ---
**Author:** ![up\_the\_junction](https://avatars.discourse-cdn.com/v4/letter/u/f1d935/32.png) [@up\_the\_junction](https://boards.straightdope.com/u/up_the_junction)\ **Post date:** [July 5, 2015, 10:50am UTC](https://boards.straightdope.com/t/greek-default-seems-to-be-inevitable-whats-the-fallout/723811/149 "2015-07-05T10:50:20Z")
Of course you don’t look at Greece in isolation - you look at the overall benefits of the southern countries on the competitive value of German exports. And it’s huge. While most European economies shrank or stagnated post crash, Germany boomed. What a beautiful position to be in; the value of the DMark depressed in the guise of ‘euro’, and poor nations paying you interest for the privilege. Every day was Christmas in Berlin. ---
**Author:** ![Chief\_Pedant](https://avatars.discourse-cdn.com/v4/letter/c/a6a055/32.png) [@Chief\_Pedant](https://boards.straightdope.com/u/Chief_Pedant)\ **Post date:** [July 5, 2015, 12:16pm UTC](https://boards.straightdope.com/t/greek-default-seems-to-be-inevitable-whats-the-fallout/723811/150 "2015-07-05T12:16:30Z")
> [@up\_the\_junction](#): > > Of course you don’t look at Greece in isolation - you look at the overall benefits of the southern countries on the competitive value of German exports. And it’s huge. > > While most European economies shrank or stagnated post crash, Germany boomed. > > What a beautiful position to be in; the value of the DMark depressed in the guise of ‘euro’, and poor nations paying you interest for the privilege. > > Every day was Christmas in Berlin. These poor nations got that way by getting addicted to other people’s money. Tax evasion in Greece is something like twice what it is in Germany. Throw in an addiction to generous pensions funded with borrowed money instead of contributions from those receiving the largesse (with reforms never quite applying to the current crop of retirees). Whatcha got there is a recipe for killing productivity. And for creditors to stop being played for the sucker. You would have to be an idiot to extend money to Greece, and frankly, if Greece gets to walk out on $400 Billion, I have trouble wondering why they wouldn’t. Then they can make their own austerity rule: If, as a society, we want to have money, we have to be productive. 🙂 ---
**Author:** ![Shodan](https://avatars.discourse-cdn.com/v4/letter/s/9f8e36/32.png) [@Shodan](https://boards.straightdope.com/u/Shodan)\ **Post date:** [July 5, 2015, 12:37pm UTC](https://boards.straightdope.com/t/greek-default-seems-to-be-inevitable-whats-the-fallout/723811/151 "2015-07-05T12:37:56Z")
> [@Measure\_for\_Measure](#): > > You might want to consider a range of causes for that ability or inability. Seriously Sho, you made a fundamental error by introducing family style budgeting in a discussion of macroeconomics. That’s ok: not all of us have taken such coursework. But if this was an exam, you would receive points off: this is something learned at the introductory level. Countries can do things that agents within an economy can’t. How does a family inflate their currency to de-value a debt? Regards, Shodan ---
**Author:** ![up\_the\_junction](https://avatars.discourse-cdn.com/v4/letter/u/f1d935/32.png) [@up\_the\_junction](https://boards.straightdope.com/u/up_the_junction)\ **Post date:** [July 5, 2015, 12:49pm UTC](https://boards.straightdope.com/t/greek-default-seems-to-be-inevitable-whats-the-fallout/723811/152 "2015-07-05T12:49:34Z")
> [@Chief\_Pedant](#): > > These poor nations got that way by getting addicted to other people’s money. > > Tax evasion in Greece is something like twice what it is in Germany. Throw in an addiction to generous pensions funded with borrowed money instead of contributions from those receiving the largesse (with reforms never quite applying to the current crop of retirees). Whatcha got there is a recipe for killing productivity. And for creditors to stop being played for the sucker. > > You would have to be an idiot to extend money to Greece, and frankly, if Greece gets to walk out on $400 Billion, I have trouble wondering why they wouldn’t. Then they can make their own austerity rule: If, as a society, we want to have money, we have to be productive. 🙂 If a society makes more money the poor and working class people don’t see it no matter how “productive” they are. All over the world, the game is rigged. They don’t see it in good times (expensive accountants see to that), and they bear the burden of ‘socialised’ repayment in bad times - trademark: Goldman Sachs. They are used by the Greek ownership class, by the Germans, used by the EU, used by the IMF. Everyone wants a little piece of the vulnerable. And until today, they were getting it. ---
**Author:** ![Chief\_Pedant](https://avatars.discourse-cdn.com/v4/letter/c/a6a055/32.png) [@Chief\_Pedant](https://boards.straightdope.com/u/Chief_Pedant)\ **Post date:** [July 5, 2015, 1:04pm UTC](https://boards.straightdope.com/t/greek-default-seems-to-be-inevitable-whats-the-fallout/723811/153 "2015-07-05T13:04:43Z")
“Society” doesn’t make money. Individuals do. And most societies have plenty of people happy to get Other People’s money. When society enables those folks to live more generously than their personal productivity, the borrowing begins. To the extent societies like Greece’s encourage comfortable pensions on other people’s money, along with easy tax evasion, they discourage individual productivity. Eventually the Other People will stop extending their money. Balkiness from Germans to lend more is not driven by a perception that Greeks are slaving away for the Man but just getting screwed. It’s driven by a perception that German taxpayers are slaving away, and Greeks are happy to indefinitely borrow the results of that productivity so the Greeks do not have to be as productive themselves. ---
**Author:** ![clairobscur](https://avatars.discourse-cdn.com/v4/letter/c/839c29/32.png) [@clairobscur](https://boards.straightdope.com/u/clairobscur)\ **Post date:** [July 5, 2015, 2:54pm UTC](https://boards.straightdope.com/t/greek-default-seems-to-be-inevitable-whats-the-fallout/723811/154 "2015-07-05T14:54:40Z")
> [@Velocity](#): > > This is referendum is like asking someone who hates Brussels sprouts whether he wants to vote for it for dinner or not. It’s good for you, but will they be wise enough to say yes? I’m not sure it’s good for them. If I were Greek, I’d take the risk of voting “no” (with the assumption that Greece would default on all her debts fommowing a no). I can’t see how they can extract themselves from this situation barring starting afresh, regardless how painful it might be at first. I can’t see how they can take more austeritywithout aggravating an already dire situation. ---
**Author:** ![Dr.Drake](https://avatars.discourse-cdn.com/v4/letter/d/ad7895/32.png) [@Dr.Drake](https://boards.straightdope.com/u/Dr.Drake)\ **Post date:** [July 5, 2015, 5:44pm UTC](https://boards.straightdope.com/t/greek-default-seems-to-be-inevitable-whats-the-fallout/723811/155 "2015-07-05T17:44:08Z")
[The BBC reports](http://www.bbc.com/news/world-europe-33403665) that they have, in fact, voted no. Based on 15% of the results tallied, 60% No, 40% Yes. ---
**Author:** ![up\_the\_junction](https://avatars.discourse-cdn.com/v4/letter/u/f1d935/32.png) [@up\_the\_junction](https://boards.straightdope.com/u/up_the_junction)\ **Post date:** [July 5, 2015, 6:09pm UTC](https://boards.straightdope.com/t/greek-default-seems-to-be-inevitable-whats-the-fallout/723811/156 "2015-07-05T18:09:07Z")
Stuff that up your rhur. Fantastic - good for them! ---
**Author:** ![XT](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/xt/32/456_2.png) [@XT](https://boards.straightdope.com/u/XT)\ **Post date:** [July 5, 2015, 6:30pm UTC](https://boards.straightdope.com/t/greek-default-seems-to-be-inevitable-whats-the-fallout/723811/157 "2015-07-05T18:30:04Z")
> [@clairobscur](#): > > I’m not sure it’s good for them. If I were Greek, I’d take the risk of voting “no” (with the assumption that Greece would default on all her debts fommowing a no). I can’t see how they can extract themselves from this situation barring starting afresh, regardless how painful it might be at first. I can’t see how they can take more austeritywithout aggravating an already dire situation. They defaulted already (on Monday), so that’s a moot point right now. The vote was whether they would accept the ECB’s proposed terms for a (or I should say, yet another) bailout or not. The terms are pretty stiff, to be honest…read, more austerity. The Greek government seems to think (for reasons that escape me) that they will be in a stronger negotiating position if their referendum get’s a ‘no’ vote. Since it looks like that’s exactly what they got, I suppose we shall see. Personally, at this point I’ll be shocked if either is willing to negotiate in the face of this, and a Greek boot from the EZ (and probably the EU) seems inevitable, but, who knows…maybe fine political commentators such as this have it right: [QUOTE=up\_the\_junction] Stuff that up your rhur. Fantastic - good for them! [/QUOTE] This is, as always, a very nuanced and verbose treatment of this complex subject without any undue bias or negativity. Thanks, as always for your fine contribution! 😛 ---
**Author:** ![Donnerwetter](https://avatars.discourse-cdn.com/v4/letter/d/b2d939/32.png) [@Donnerwetter](https://boards.straightdope.com/u/Donnerwetter)\ **Post date:** [July 5, 2015, 6:42pm UTC](https://boards.straightdope.com/t/greek-default-seems-to-be-inevitable-whats-the-fallout/723811/158 "2015-07-05T18:42:13Z")
It is noteworthy that there is no legal process, there are no rules for either expelling a country from the eurozone or for a country to leave on its own account. Nobody thought of that. ---
**Author:** ![foolsguinea](https://sea3.discourse-cdn.com/straightdope/user_avatar/boards.straightdope.com/foolsguinea/32/14751_2.png) [@foolsguinea](https://boards.straightdope.com/u/foolsguinea)\ **Post date:** [July 5, 2015, 6:43pm UTC](https://boards.straightdope.com/t/greek-default-seems-to-be-inevitable-whats-the-fallout/723811/159 "2015-07-05T18:43:29Z")
> [@Chief\_Pedant](#): > > These poor nations got that way by getting addicted to other people’s money. > > Tax evasion in Greece is something like twice what it is in Germany. Throw in an addiction to generous pensions funded with borrowed money instead of contributions from those receiving the largesse (with reforms never quite applying to the current crop of retirees). Whatcha got there is a recipe for killing productivity. And for creditors to stop being played for the sucker. > > You would have to be an idiot to extend money to Greece, and frankly, if Greece gets to walk out on $400 Billion, I have trouble wondering why they wouldn’t. Then they can make their own austerity rule: If, as a society, we want to have money, we have to be productive. 🙂 You can keep saying this, but it won’t make it true. Greece has been working on reform. They tried austerity on the terms of “Europe,” and got massive depression from it. The argument between SYRIZA and the troika is not about whether to reform, but who gets to run it, and what it’s going to look like. ---
**Author:** ![clairobscur](https://avatars.discourse-cdn.com/v4/letter/c/839c29/32.png) [@clairobscur](https://boards.straightdope.com/u/clairobscur)\ **Post date:** [July 5, 2015, 6:43pm UTC](https://boards.straightdope.com/t/greek-default-seems-to-be-inevitable-whats-the-fallout/723811/160 "2015-07-05T18:43:37Z")
> [@XT](#): > > They defaulted already (on Monday), so that’s a moot point right now. The vote was whether they would accept the ECB’s proposed terms for a (or I should say, yet another) bailout or not. They defaulted already in the sense that they didn’t pay their instalment in time. I meant defaulting completely : stating that they won’t pay back any of their existing debts. [Previous page](https://boards.straightdope.com/t/greek-default-seems-to-be-inevitable-whats-the-fallout/723811.md?page=7) [Next page](https://boards.straightdope.com/t/greek-default-seems-to-be-inevitable-whats-the-fallout/723811.md?page=9)