There is no surplus. It is entirely fictional. The Greek economy is bankrupt and if it was a company, the receivers would have moved in long ago to sell their assets.
This is a country where people who pay tax are considered stupid. Where a huge proportion of the employed people are employed by the government, which should mean the taxpayer, but actually means the German taxpayer.
Canny Greeks are heading for the ATMs daily, to withdraw Euros and either stow them under the mattress, send them to their cousin elsewhere for safekeeping or to but consumer durables like cars and motorbikes. Apparently the Greek Mercedes dealers are having a boom in sales.
What nobody has mentioned-Greece is being invaded by economic migrants for the ME, Africa, North Africa. Many of the Greek islands now have refugee camps housing thousands of people. This has put a dent in the tourist trade.
Argentina went into a four-year Great Depression after their default and GDP contracted by more than 10%. Brazil staved off default in the late 90s by a whisker and saw a hyperinflation. I can’t think of any country that defaulted and had good times afterward.
For one thing, you seem to be under the misapprehension that other countries own all the Greek debt. About 17% is owned privately, and at least 10% is owned internally. That money simply vanishes.
What about other loans? Business runs on loans - Apple has tens of billions in cash reserves and still runs its business on loans. Where do they get that money? You can’t say that Greek banks can supply them all. Nobody wants to do business with a country in default unless they can exploit it.
You seem to think that Greece can just withdraw from the world and everything will function exactly as before, except that they are now debt-free. It doesn’t work like that. If all the money in Greece could have stayed within its borders then it wouldn’t be in any trouble now.
Those are called ‘warrants’. They look like, and operate like a check, except they can only be cashed when there is money in the account. If not, they don’t bounce – they are just given back to you for you to try again later.
These were commonly issued by state governments, local school districts, etc. in the USA during the Hoover Depression. I had relatives who were teachers in California at that time, and they were paid this way. Why did they continue to work? well, what else are they going to do? It isn’t like there were a lot of jobs out there. So they thought it was better to keep working at a job they had and count on being paid eventually. (And they did in the end, every penny was paid.)
Not really germane to the topic, but they didn’t always have to wait to be paid. There grew up a thriving underground market for these warrants. People with a bit of cash money would buy them up for less than face value, then hold them gambling that they’d eventually be able to cash them for full value. The late Idaho multi-billionaire J.R. Simplot made his start in business that way during the depths of the depression… cashing the scrip of starving teachers then holding it until he was able to redeem it for full value. If Greece does begin to issue warrants, it’s probable that someone in the world financial market will find a way to cash in on it.
As they find their way out of this financial quagmire, I wonder if Greece will (once again) see fit to restore their monarchy as a means to find stability. Don’t laugh, it might help.
SS
One big plus for Greece, if it it exits the EU, will be that it can re-establish its own central bank. A Greek central bank will make balanced budgets a non-issue for the Greeks. It will no longer have to borrow from abroad. It can finance its own deficits.
The downside, as has already been mentioned, is that their new currency will have a very low value on international markets. That’s a big problem for importers and anybody who wants to buy imports.
On the other hand, it’s a boon for exporters. Effectively, everything Greek-made will be on sale, as far as the rest of the world is concerned. That will, assuming Greece can function without imports - or with very high-priced imports - also help with employment. Greek exporters will enjoy a substantial advantage compared to other exporters. Not only will Greek-made products sell for substantially less (as far as non-Greeks are concerned) it would kick off a huge boom in tourism. Americans and Europeans, for example, would find their currency would go a long way, in Greece.
Finally, the Greek government would be free to pursue job-creating national policies, rather than the job-killing austerity that’s currently being forced on them.
Iceland has done quite well since defaulting. However, I do think Iceland is a different barrel of fish to the likes of Greece, Argentina etc. An otherwise well run economy defaulting on a “one time only” debt is easier than a defaulting state/economy with serious long term structural problems.
Iceland, Population: 323,002 is basically a small spread out city.
It can get away with things more ponderous states cannot.
Greece is currently sized at 10.8 million.
What you say is mostly ture; except that Greek industry basically shut down when Greece entered the EU. German manufacturers put the small greek firms out of business. It is pretty hard to restart manufacturing, once it has shut down.
Thank you, I figured it might be something like that. This is a strategy commonly used by companies to fire people without firing them: pre-retire them instead, it’s a lot cheaper for the company. In Spain, bank workers have for decades been getting pre-retired at 55 (10 years earlier than other workers); the main reason that’s not so common nowadays is that nowadays you rarely see bank office workers that old.
So one question would be, why are people retiring (or being forced into retirement) that early.
Actually, that doesn’t seem to reflect anything about what happened to industry in Greece in recent decades. The relevant statistics can be found here. Greek industrial production grew slowly from 1995 to 2001, took a small hit in 2001, and then plateaued and remained pretty constant to 2007, and took a nosedive in 2008 with the financial crisis.
Annual Greek industrial production in constant US dollars, seasonally adjusted, from the World Bank Cross Country Data set (link above):
1998 - $2.45 billion
1999 - $2.5 billion
2000 - $2.68 billion
2001 - $2.61 billion
{Greece joins the Euro in 2001}
2002 - $2.62 billion
2003 - $2.63 billion
2004 - $2.65 billion
2005 - $2.61 billion
2006 - $2.63 billion
2007 - $2.69 billion
2008 - $2.58 billion
2009 - $2.34 billion
2010 - $2.2 billion
2011 - $2.08 billion
2012 - $2.04 billion
2013 - $1.97 billion
2014 - $2.04 billion
The problem isn’t that the Greek industries were destroyed by German industries upon joining the Euro in 2001, it’s that Greek industry was never a very large segment of the economy to begin with, and has been seriously shrunk by the Financial Crises of 2008 and the recession that followed.
Sorry for getting slightly OT, but why is it that Germany is basically the only Euro country negotiating with the Greeks? Did they buy most of the Greek bonds?
I’ve read that private banks and investors have decreased their Greek exposure enormously, and that the bulk of risk now resides with public agencies. Unfortunately, I can’t find good cites on who is actually at risk in the case of default.
With regard to warrants: they only work within Greece. Greek public servants and pensioners have to take the warrants. They don’t have a choice.
Not so for outside Greece. Anyone dealing with the Greek government could say “Hard currency or no deal. There’s lots of other customers in Europe and the Med who can pay hard currency, so you have to match it.”
Sorry, I may have missed this part - do they have to be accepted by grocery stores and landlords of public servants within Greece? Because that’s where the rubber hits the road.
If Larry Leukos the chemistry teacher can’t get groceries or pay the rent, that’s when he’s going to start a meth lab, as mentioned upthread…
A warrant is essentially a replacement currency. The burning question is if/how it will ever be paid. Like any currency, it will quickly find its own value relative to other currencies, based on public perception of its value.
The Icelandic issue, IIRC, was that Iceland’s banks, like the rest of the world, overinvested in those wonderful US mortgage bonds. The Icelandic banks also expanded too fast. When things crashed, the government basically said “we aren’t going to cover the banks’ losses.” It wasn’t a case of the government spending beyond its means, it was a case of “You did business with the banks. Why should the taxpayers bail you out?”
The problem is the world is interconnected. A grocery store buys stock from abroad, but now the stock is selling for script to the locals. How do they buy more bananas? Flour? Cash register paper rolls? Repair parts for their freezers? So the local stores close up, can’t run, no stock. Or they use script to buy Euros at “pennies on the Euro”, so they raise prices by a huge amount, or close up. Every import dealer- same problem. No more car imports, no more car parts. What about gas? The local gas station won’t take script. Half the gas stations close, the traffic stops moving, Athens becomes remarkably pollution free, the old Greek Acropolis ruins are preserved… but like sucks for the average man in the street.
Exactly. The interesting case is that from the American perspective, we have some amount of faith that warrants will be repaid in familiar currency. The Great Depression warrants were repaid in dollars, and the warrants issued by California in the 1990s were repaid in dollars.
But the Greek perspective may be very different - warrants very well might have to bear the load of either a transition to or of becoming the new drachma. And who knows what that might entail? It’s a risk that appears somewhat difficult to quantify.