I understand that Greece has about $8 billion in bond payments that are going to come due next month, and right now it doesn’t have the money. What happens if they can’t pay up? Will there be bank failures? Will other countries default on their debts? What would the practical effects of a default be?
Strictly speaking, they will probably just reschedule payment, but the markets will count it as a default.
Greece should never have been allowed to join the Euro. They didn’t meet the convergence criteria, but it was fudged to let them in anyway.
I understand there are financial bailouts being planned for Greece - could someone give me the Idiot’s Guide to Bailing Out Greece?
No one knows and no one seems to want to find out.
However, I am told that this possibility was anticipated when the Euro was created (not Greece per se, just any country using the Euro). Under the rules if a country can’t follow the financial regulations regarding borrowing and deficits, they are kicked out of the EuroZone and have to print their own currency again. Of course untangling the situation will be very difficult but that is what the treaty calls for. But such a backward step in European integration would be very unpopular and the other countries will try to avoid that.
The moment such a step was even hinted at, everybody would pile their money into foreign-based euro accounts. There would be no sense in keeping it in depreciated New Drachmas.
It’s not entirely set, yet, but they are planning to pony up some big bucks to bail out Greece. Germany is pissed about this. While they have a generous welfare state by American standards, they are a model of austerity compared to Greece. It’s true that the Euro central bank favors their economic style, but that’s basically what everybody asked for back in the day. And now they may have to pay a lot of money to pay for Greeks retiring at 55 and evading all taxes possible.
What this means is that either the bailout will fail, or the IMF will step in and reorganize the Greek economy. But that’s a very tough political pill to swallow assuming it even works.
A few weeks ago, I heard that Greeks rioted at the suggestion of some very modest cutbacks – like skipping the annual Christmas bonus, or something along those lines. If Greeks can’t even swallow that, then there isn’t going to be any meaningful reform until things get really really dire.
What would happen is that those who loaned the Greeks money would lose some of it. Many European banks did and some of these might fail. Greece would find it very hard to borrow money which would force Government to spend considerably less. The willingness of Germany and France to let Greece would mean higher interest rates for other struggling European economies such as Portugal, Ireland, and Spain. Higher lending costs might lead to their defaults which would put more banks in danger. Other countries might get lower borrowing costs as a result of a flight to safety or countries might get higher borrowing costs as a precedent has been set.
I saw that on the news last night - it looks like Greece is about to head into the “junk” financial sovereign credit rating.
A-yup. This could be very bad, because a default is likely to trigger a wave of them across the Med.
I think you were presented… slightly skewed coloring of the facts. It’s not that they’re whiny crybabies that can’t deal with losing 3 days out of a mandatory 6 week vacation package. (Sorry, the following is well into GD territory, but I think it still bears fleshing out.)
They are rioting partly because they are the working class who are asked to take things on the chin when their “economic betters” run off scott free.
Imagine if the federal government starts balancing its budget by using social security receipts to fund general expenditures, cuts payment of social security, and refuses to raise taxes on the top 10% income earners. Shit will hit the fan.
Many states are now dealing with some variants of these issues - budgets in many states are deeply red, public sector pensions are chronically underfunded and in the next 10-20 years, there will be hell to pay - either someone’s going to have to renege on promises made at contract time, or the lower and middle classes are going to face higher taxes because the people that run the show and who have the money will try as hard as they can to prevent themselves from having to pay for this. Some societies (ahem) are better placated (fractured) and have been successfully wedged and lolled into distraction; some, who have more homogeneous societies (so you cant wedge them as much), a stronger history of leftist politics, won’t easily take that shit laying down. that is Greece.
The other part of this is that Greece is a far more corrupt country than many of its OECD peers. Parts of the problem here are that the upper classes have been very good at not paying taxes for a long time by greasing the right palms (and, also, it’s always an endemic problem to tax the rich people in a non-apex economy - they will simply move elsewhere and take their capital with them). So they haven’t been able to tap the wealthy to help them out of the money debt.
And then, yes, part of it is that politicians took the easy path to re-election in a time of economic expansion by gorging themselves on debt and doling out political pork and promises paid for with that debt, instead of being presumably more pragmatic and cautious with their money.
Sure. If you bail out Greece, you’re an idiot.
Greece’s problem is that it is handing out government benefits like candy, and the people are all addicted. They won’t scale back, they won’t accept any reasonable reforms, but they’re kicking and stamping their feet demanding that the rest of Europe pay for their perks.
Germans are rightly mad about this. Why should someone who has to work until they’re 67 cough up their money to give to Greeks so they can retire at 55?
Without reforms, if Greece gets bailed out now it’ll only buy them something like ten months of operations, then they’ll be broke again. Bailing them out is just denying the inevitable and pissing money down the drain.
Greece is only the first one on the list, though. Portugal, Italy and Spain aren’t far behind. In the U.S., California is on borrowed time. None of them will make reasonable compromises to get their fiscal houses in order.
Sovereign countries have defaulted in the past and will do so in the future. Greece would be better off outside the Euro zone; then they could set their own monetary policy.
What would happen if they actually defaulted is that holders of Greek government will be SOL. They will be told they will get, say, 50% of their money in ten years; take it or leave it. They won’t be able to borrow for a couple decades then they will look solvent again and people will lend them money again. I guess it is similar to personal bankruptcy, although more complicated and it takes longer to re-establish credit.
Paul Krugman claims that if Greece gets the bailout, the austerity imposed will lead to high unemployment and a poor economy for years. If they are out of the Euro zone, they cam spread the misery without imposing high unemployment. I don’t know if Krugman is right, but what do I know?
I’m not sure that’s what he meant. Here is the relevant paragraph:
So, I think he’s saying, if Greece (and/or Spain and/or Portugal) defaults, there’s gonna be a run on its banks whether it stays with the Euro or not. But I don’t understand, then, how if they left the Euro, it would avoid high unemployment (which is what you claimed he said in your post that I cited above) since abandoning the Euro would lead a run on the banks so there’d be little or no cash or credit left in the country, with unemployment skyrocketing as a result. And, of course, if there’s high unemployment, its debt problems will only get worse.