This may all turn out to be a negotiating ploy by Greece. It’s like that saying “if you owe the bank $1 million, you’re screwed; if you owe the bank $1 billion, they’re screwed.” Things have gone so bad for Greece that they can credibly threaten to default and abandon the euro, because the consequences aren’t likely to be any worse than what they’re experiencing now (and in fact, Argentina and Iceland have shown that default can end up working out better than bailouts and austerity). This may allow them to extract a better bailout deal.
Long term, I don’t think the euro is going to survive. These bailouts have become less effective, and the need for a more effective central bank response pushes the EU towards less democratic thinking.
Yeah, the outlook for Greece if it stays in the Euro is absolutely dire, and things are already really bad. There must be many Greeks looking at the example of Argentina when they abandoned dollar parity a few years back and devalued. It was no picnic, but within a couple of years they started to recover strongly. [edit: beaten to that point, I see]
Was that in response to Sitnam’s “Besides general outrage at their own government’s fiscal irresponsibility why do they feel they’re in the right here?” ?
Because if it was, I really don’t see how that was an answer. Greeks (as a country) cooked their books in order to siphon money from EU for decades. The game is over now. So, whether they vote for the EU bailout or not, it is time to pay. How exactly will the vote change this?
The ability of Greece to borrow massive sums is the root of their problem…that, and being in the eurozone. Because they cannot devalue their currency, they cannot reduce their deficits by cutting wages (through devaluation).
Basically, Greece is a 3rd world country that has been living a 1st world lifestyle (through borrowing).
If Greece rejects the “bailout”, I can see calls for them to revert to the drachma-in which case they wil experience hyperinflation, and eventually, depression.
Probably, after years of austerity, the Greek economy could become healthy…but only when its massive debts are written off.
My understanding of the EU though is Greece was able to borrow money because it’s debt was cosigned by Germany and France, without that the EU means nothing.
It wasn’t the Greek people as a whole. It was certain segments of society that benefited from the fraud and rampant tax evasion that led to the current crisis, however the pain is applying equally to those that didn’t benefit.
There is an economically valid argument that austerity measures are simply driving Greece away from growth and that growth would be the most beneficial course in this sector.
There is a politically valid argument that winning a referendum on austerity measures will make it far more possible to actually implement those measures rather than tear the country apart.
Greek default is meaningless by itself. The vanishing of the entire debt would be negligible for the European economy as a whole, the trouble is that investors would feel there money was unsafe it Italy and Spain which would be a big problem. So in a way Greece is being made to pay not just for its sins but also for other countries. In addition Greek default would enact the CDS’ that AIG was so proud of (remember that bail out America?) which could possibly expose further flaws in a ‘too big to fail’ banking system.
So a lot of Greeks see their problems as not entirely of their own making at all. If it was just them they could simply default (admittedly they would have to cure their deficit rapidly) but if they were to do so its the knock on effects that would be the problem. And that’s not their fault.
Hairdressers (!!!) were retiring at 50 with full pension. Do you include them in “certain segments of society”?
Maybe. I personally don’t see it if 51% vote for and 49% against. Sounds like the recipe for tearing the country apart right there.
The LACK of default while forcing the “voluntary” write downs of the debt would completely destroy the CDS system. Who would buy that insurance if they see that the governments are cheating so that it is never collected?
No, it is not. But if they default, and the country is forced to live within its means with no external inflow of funds, the current “austerity” will seem like paradise.
That’s actually happening, which I think is a good thing, because a CDS is not the same as an insurance policy. Mainly because anyone can make a bet on a Greek default, not just those who would be directly affected by one. I don’t see the value in that.
Well quite, this is human nature. If there are no consequences to tax evasion, a tacit approval by government and lots of “free” EU money to inflate the economy, then this is exactly what can happen.
An Gadaí, your own country has suffered similar problems (though I don’t think tax evasion was an issue). The outcome is perhaps less severe but still a bailout was needed and it was a major shock to the system.
Ireland has probably dodged a bullet by getting in there early, lord alone knows what the implications are if Italy comes under the spotlight.
The greek took the load off and the rest of europe let them. Which comes as no surprise when you look at mediterranean lifestyle in general and non-enforced european economic policies.
Leave any financial market unregulated, or even worse pretend it is regulated when it’s really not, and bad things will happen.
“The world is big enough to satisfy everyones needs, but will always be too small to satisfy everyones greed.”- Ghandi
All we can hope for now is that the greek pawn off their ancient monuments to the chinese and those having a stake in greece get 50% off their greek holidays
Greek guy in Greece chiming in with my 2 cents here (or 1 cent now, following the write-off).
About the referendum, there are a lot of theories going around as to why the PM decided to call for it. To start with, I personally consider this a cowardly and cynical move from our PM who has shown that he is either clueless to the wide-ranging effects of his actions, or doesn’t care about them. In any case, he is either criminally stupid, or criminally irresponsible.
My opinion is that he declared the referendum for two reasons:
get public opinion off his back. If the public votes YES, then he can claim “Hey, look, you guys voted for it, so don’t complain”. I don’t think this very likely though since there appears to be a concensus from the public that this is a god-awful idea and amounts to tantamount blackmail - unless the PM really miscalculated public reaction.
He wanted to push the main opposition party in a corner. Since the beginning of the crisis here, the opposition party has resolutely voted against the austerity measures proposed by the governing party. However, the opposition is firmly pro-Euro, pro-EU. By putting this referendum forward, it forces the opposition to either urge its followers to vote in favor, thereby giving the governing party a political victory “See, even the opposition agrees with me!”, or to urge its followers to vote against, thereby become the reason Greece defaults and gets kicked out of the Euro. Not surprisingly, the opposition party is trying to find a way to block the referendum from happening. I find this the more likely reason of the two.
Basically, the PM wants wants to share the burden around and get the pressure of his back. This does not appear very likely though given the worldwide reactions to his master-plan.
On the referendum itself, the Greek constitution if Greeks are asked to vote in favour of critcal national issues, it requires 40% participation to be valid. If they are asked to vote on laws that have already been passed, then the government needs to have a supermajority of 180 out of 300 votes in parliament to pass the law, and it requires 50% participation. All bets point towards option #1 given that the government has a very slim majority of 152 (or less depending on if some MPs go through their threats of no longer supporting the government).
My personal opinion? Greece is totally and absolutely responsible for the mess it’s in. It is absolutely vital that we get our economic house in order, however, apart from raising taxes and cutting pensions, the government hasn’t implemented any needed structural reforms whatsoever nor done anything to fight the endemic corruption and inefficient of the State. Implementing tough measures and reforms is absolutely required, but this government is unable to do so. However, calling a referendum is an act of reckless stupidity, irresponsibility and just in case I forgot to mention it, reckless irresponsible stupidity.
How do you own equity in a country? Surely you mean debt.
I agree with One and Only Wanderers. The bonds that will get a 50% haircut don’t consitute all of Greece’s debt. The result of the haircut will reduce Greece’s total indebtedness form 160% of GDP to 120% of GDP.
I"m more interested in what would happen if Greece really decides on a total default. They just say " 'Eff it, we aren’t going to pay." I don’t think we’d see the amount of investor meltdown that some are predicting. There are always people willing to take advantage of the situation for some increased risk. Considering that Greece is , generally speaking, politically stable and of first world status, I imagine that investors would appear like mushrooms fairly quickly.