Greek default seems to be inevitable...what's the fallout?

[Terr]

@camille

The standard VAT rates you listed are misleading, because those countries have reduced VAT rates for certain things like restaurants, hotels, food, entertainment, pharmaceuticals, etc. Some reduced rates are as low as 3%

Denmark VAT Rate

Standard VAT rate: 25% (Jan 1992)

Reduced VAT rates: none

Denmark’s economy is in horrible shape, isn’t it?

[CarnalK]

Terr, are you arguing that a sales tax has no effect on sales?

[XT]

@camille

German per capita standard of living highest in Europe

The emotional bias you decry in others goes both ways. Yes, the Germans are “meticulous”, hard working, and efficient. On the plus side for Greece is that they haven’t massacred millions of people in recent history. They were, in fact, the victims of such, which is part of the reason for their dysfunctional culture today.

Please don’t turn this into a morality play.

Please read what I write, not what you THINK I’m writing. I said that the German PUBLIC thinks this. And your cite doesn’t refute it, it merely shows that Germans have a higher standard of living, not that their standard of living has increased substantially WHICH IS WHAT I SAID.

I’m not turning this into any sort of morality play…merely pointing out that this is the German’s perspective.

[foolsguinea]

Yeah, that was not clear in your post,** XT.**

[XT]

@foolsguinea

Yeah, that was not clear in your post,** XT.**

Um…ok. I guess it wasn’t. I actually cribbed that from a video I linked to earlier in the discussion that was talking about the German perspective, so thought it was clear. If it wasn’t I guess I shouldn’t be so snappish. My apologies.

[Terr]

@CarnalK

Terr, are you arguing that a sales tax has no effect on sales?

I am arguing that high VAT (even higher than the one imposed on Greeks now) is very common in Europe, and arguing that it is something extraordinary for Greece is incorrect.

[CarnalK]

@Terr

I am arguing that high VAT (even higher than the one imposed on Greeks now) is very common in Europe, and arguing that it is something extraordinary for Greece is incorrect.

Ok. But it’s certainly arguable that raising a consumption tax and also disallowing the exemptions for certain industries (say tourist focused purchases) is an utterly insane thing to do if you are trying to boost the economy.

[Terr]

@CarnalK

Ok. But it’s certainly arguable that raising a consumption tax and also disallowing the exemptions for certain industries (say tourist focused purchases) is an utterly insane thing to do if you are trying to boost the economy.

It’s either raise taxes or cut spending in order to meet the goals that the creditors require. Greek government (especially this one) really doesn’t want to cut spending to the levels required (I mean, seriously, do they think Turkey will invade them? Really? They are spending on the military like there’s no tomorrow) so taxes need to be raised.

(And no, I am not pro-raising-taxes. I am pro-cutting-spending. But if you don’t want one, and you’re in hock to your ears, and you cannot pay your debts, you will have to do the other.)

And as I pointed out, there are lots of European countries with high VATs (and even no exemptions for certain industries) that are doing fine, economically. WAY better than Greece.

[usedtobe]

Buying guns from your creditors using the money they lent you is an old practice of using foreign aid to boost your weapons manufacturers.
It may or may not mean the buyer actually wants the weapons. And they really can’t threaten anybody larger than maybe Albania.

But yeah, the Turky-Crete-Greece drama flashes over from time to time.

Turkey usually wins.

[camille]

@Terr

And as I pointed out, there are lots of European countries with high VATs (and even no exemptions for certain industries) that are doing fine, economically. WAY better than Greece.

One country with no reduced VAT is not “lots”. And not mentioning the reduced VAT in your cite was still misleading.

But the most important point is that the other countries have a choice of offering reduced VAT and even setting their standard VAT rate (within certain guidelines). That decision wass taken from Greece, with no consideration of how it will effect their economy. It’s like they are setting Greece up to fail to grow their economy.

[camille]

@Terr

Denmark’s economy is in horrible shape, isn’t it?

@Terr

And as I pointed out, there are lots of European countries with high VATs (and even no exemptions for certain industries) that are doing fine, economically. WAY better than Greece.

**One chart that shows Greece isn’t the only economy being strangled by the euro
**
Of the 21 euro countries (including Denmark and Bulgaria, whose currencies are pegged to the euro), almost half have seen their economies shrink, in inflation-adjusted terms, since 2007.

The shrinking euro economies include two of the largest: Italy and Spain. **Also included are Denmark and Finland, which — unlike Greece — have reputations for honest government and sensible economic regulation. **Non-euro Iceland was one of the hardest-hit countries in the 2008 financial crisis, yet it still managed to outgrow most of the euro countries over the past eight years.

There’s a Greek saying (transliterated): “The one who isn’t dancing has the breath to sing a lot of songs.”

[CarnalK]

@Terr

It’s either raise taxes or cut spending in order to meet the goals that the creditors require. Greek government (especially this one) really doesn’t want to cut spending to the levels required (I mean, seriously, do they think Turkey will invade them? Really? They are spending on the military like there’s no tomorrow) so taxes need to be raised.

(And no, I am not pro-raising-taxes. I am pro-cutting-spending. But if you don’t want one, and you’re in hock to your ears, and you cannot pay your debts, you will have to do the other.)

And as I pointed out, there are lots of European countries with high VATs (and even no exemptions for certain industries) that are doing fine, economically. WAY better than Greece.

Lots of people walk to work. Doesn’t mean the guy with the broken leg should. And is it not curious how few and far between calls for military cuts have been?

[Terr]

@camille

But the most important point is that the other countries have a choice of offering reduced VAT and even setting their standard VAT rate (within certain guidelines). That decision wass taken from Greece, with no consideration of how it will effect their economy. It’s like they are setting Greece up to fail to grow their economy.

You takes their money, you dances to their music.

[usedtobe]

One item in the blur of “things needing fixes in the Greek economy” was a 30% discount on VAT on the islands (where much of the tourist money is collected).
The parade of “things to fix” just keeps getting more bizarre. I wonder how many car dealers have offices on an island where all the sales are recorded and taxed.

[foolsguinea]

Simon Wren-Lewis has made some interesting observations of late:

Imagine if the USA had responded to the subprime mortgage crisis the way Europe has responded to the Eurozone crisis:

Pandemonium erupted in Congress yesterday as senators disagreed on how to deal with the subprime problem. Borrowers are still finding it difficult to repay, despite the government buying these mortgages from the banks seven years ago and imposing strict conditions on the borrowers. Some senators favour continuing the program of compulsory community service and self-improvement lessons, but now others in the senate are openly talking about revoking the US citizenship of these borrowers.

[snip]

If borrowers get into difficulty in a way that threatens the solvency of lending banks, there are at least two ways a government or monetary union can react. One is to allow the borrowers to default, and to provide financial support to the banks. Another is to buy the problematic loans from the banks (at a price that keeps the banks solvent), so that the borrowers now borrow from the government. Perhaps the government thinks it is able to make the loans viable by forcing conditions on the borrowers that were not available to the bank.

The global financial crisis was largely dealt with the first way, while at the Eurozone level that crisis was dealt with the second way. Recall that between 2010 and 2012 the Troika lent money to Greece so it could pay off its private sector creditors (including many European banks). In 2012 there was partial private sector default, again financed by loans from the Troika to the Greek government. In this way the Troika in effect bought the problematic asset (Greek government debt) from private sector creditors that included its own banks in such a way as to protect the viability of these banks. The Troika then tried to make these assets viable in various ways, including austerity. Two crises with the same cause but very different outcomes.

Here he denounces ECB’s behavior:

[…] Why should the failure to reach an agreement influence the solvency of the Greek banks? Is it because without an agreement there would be a Greek exit? But Greece does not want to abandon the Euro, and the other Eurozone countries have no formal grounds to expel Greece. Greece will only leave the Eurozone if the ECB stops supplying Euros. We reach exactly the same self-fulfilling logic of a bank run. Is it because without an agreement the Greek government would default on some of its debts, and that might adversely influence the solvency of Greek banks? But the fact that the Greek government will not get money from the Troika to pay back the Troika seems to have no implications for the underlying solvency or either the Greek state or its banks. […] If the Troika can make Greece insolvent by itself withholding money we have another self-fulfilling justification.

The real explanation for the ECB’s actions is much simpler. Limiting funding on 28th June was the Greek government’s punishment for failing to agree to the Troika’s terms and calling a referendum the day before. The ECB was not, and never has been, a neutral actor just following the rules of a good central bank. It has always been part of the Troika, and right now it is the Troika’s enforcer.

As Charles Wyplosz recounts, this is not the first time the ECB has chosen to bow to political pressure. There will be some on the left who will say of course - what else do you expect of a central bank? In response, let me go back to my hypothetical example involving Scotland [leaving the UK] and the Bank of England. I may be wrong, but I think in that case the Bank of England would have supplied unlimited cash to the Scottish banks. I may be naive, but I believe it would have realised that to do anything else was an overtly partisan political act, and recoiled from doing that. Just as I do not think it was inevitable that the Eurozone committed itself to austerity, I also think it was possible that the ECB could have been a more independent central bank. The really interesting question is why it has turned out not to be such a bank.

[LinusK]

@yoyodyne

5% unemployment in the US is a statistical lie. The true rate is currently 10.5%.

The current rate of unemployment in the US is 5.3%, down from 10% as of Oct. 2009. Link: US Dept. of Labor.

A shout out to camille: I know less about European tax policies than I’d like. Consider ignorance fought. Thanks.

[CarnalK]

@Terr

You takes their money, you dances to their music.

If they ask you to dance off a cliff, you just take the money. Unless you’re a sap.

[up_the_junction]

@LinusK

The current rate of unemployment in the US is 5.3%, down from 10% as of Oct. 2009. Link: US Dept. of Labor.

It’s a lie

Clifton, the Chairman of Gallop, explains, accurately, that the Labor Department counts someone as employed even if they are working part time but want a full time job. It also considers people who have no job and haven’t looked for one in the past four weeks as “not in the labor force,” rather than unemployed.

[Measure_for_Measure]

@up_the_junction

It’s a lie

This issue comes up during every downturn. The BLS’s position is, “Hey we just provide the numbers.” They actually have about 8 definitions of unemployment, conveniently labeled U-1, U-2, etc.

Ok, this is from their website: [INDENT] Is there only one official definition of unemployment?

There is only one official definition of unemployment—people who are jobless, actively seeking work, and available to take a job, as discussed above. The official unemployment rate for the nation is the number of unemployed as a percentage of the labor force (the sum of the employed and unemployed).

Some have argued, however, that these unemployment measures are too restricted, and that they do not adequately capture the breadth of labor market problems. For this reason, economists at BLS developed a set of alternative measures of labor underutilization. These measures, expressed as percentages, are published every month in The Employment Situation news release. They range from a very limited measure that includes only those who have been unemployed for 15 weeks or more to a very broad one that includes total unemployed, all people marginally attached to the labor force, and all individuals employed part time for economic reasons. More information about the alternative measures is available on the BLS website. [/INDENT] http://www.bls.gov/cps/cps_htgm.htm

If you are discussing changes in the economy of course, you want to use a consistent definition.

[Lord_Feldon]

The unemployment rate is “a lie” because it doesn’t count people who are employed? What?