Very simple: Greece has been living on borrowed money.
Greece produces almost nothing-its a tourist economy, with a huge government payroll (and widespread tax evasion). How does an economy that produces little but olive oil, wine, and tourist hotels live a 1st world lifetstyle?
The government runs enormous deficits, year after year. How did Athens host the Olympics and build a subways system? Borrowed money.
Can Greece ever pay its own way? Unlikely-there are not enough productive jobs for those who can work.
The solution is for the young people to move to Germany and get jobs there. There are none in Greece.
If the voters told them to jump off a bridge …
They had a better excuse to be rational than most - they were operating under the rules they agreed to when they entered the Eurozone. Now of course they could have done the right thing and been voted out, but they got voted out anyway and pulled the country down with them.
As for who goes to jail or gets a Hasapiko danced on their head - the higher the better.
But the banks weren’t fooled - they were complicit in the charade. Or at least one was.
I have a question - what good is any of this going to do? Sure the banks put off the day of reckoning a bit longer. But dealing with a situation like this requires growth. That is often done by devaluing currency to make exports more attractive, but that can’t be done as long as Greece is in the Eurozone. It can also be done by government stimulus. But the government is laying off people into an economy with 21% unemployment, and consumption is not going to grow when lots of other people are getting pay cuts. I suppose the elite of Greek science and culture will be leaving soon. I have a friend who is a professor of electrical engineering in Athens. I suspect he could get lots of jobs in the US if his salary got cut 20% also.
You are saying they loaned money knowing they would lose money by doing so? Or what?
It’s easy to be all judgmental about the Greek-on-the-street whining about losing all the perks that he took for granted. But the very notion of “perk” is relative.
We would be rioting if the US took the same drastic measures that Greece is doing. Imagine what we would do if we raised SS retirement age to 75. Or laid off tens of thousands of federal employees (with concomitant lay-offs at the state and local level). Or lowered the federal minimum wage to $5. Or capped unemployment insurance benefits at 32 weeks. All of this in an economy that hasn’t grown at all for five years, and has an unemployment rate at 21%? And the government is warning that it will only get more “austere” if things don’t improve?
Someone in a third world country would tell us to stop complaining, look at how good we had it all those years, we’re being spoiled crybabies who don’t want to “pay up”, blah blah blah. That wouldn’t make me stop being angry at all. Would it make you feel better?
This is exactly right. Greece has no choice but to do what the technocrats say, and their medicine is killing the patient. Remaining tied to the Euro is a suicide pact.
I’m amazed at how many folks still interpret debt as some kind of moral failing, that Greece deserves to be punished for the sin of borrowing too much. A loanshark still doesn’t collect if he beats the borrower to death.
The beauty of austerity lies in its perfect equality. If a man struggling to feed a family of four on $20,000 per year loses $5,000, and the man struggling to feed his family on $200,000 per year loses an exactly equal $5,000, their contributions are precisely and arithmetically equal! Like the Universe itself, austerity is indifferent to social class.
A similar situation obtains in America, belying the empty complaints of lefty whiners. Our Congressgits are, by a vast majority, middle class in income and outlook. Well, maybe not really a vast majority, just a majority. A plurality. Many. Some.
But then again, who better to judge the efficacy of such stern medicine as “austerity”, if not them? Their views on the subject are perfectly objective, they won’t be having any.
Those, and the latest dispute over ownership and size of territorial waters and national airspace in some of the Aegean Islands. More importantly, remember that it’s the Balkans. Hating your next door neighbor over something that happened a thousand years ago is practically de rigueur.
Actually, the veil is a very good idea. The thanks of a grateful nation, and all that…
I was referring to the banks who cooperated with the government in cooking the books to make the debt load look like it was within EU limits. But it was not like the state of the Greek economy was a secret, it was not like they suddenly woke up and discovered the tax evasion and high number of government jobs. No European country ever defaulted, so it had to be safe, right?
If you read The Black Swan you’ll get the psychology behind all this stuff, written before the crash and scarily on target.
I guess you don’t consider it from the point of view of the lender. If I lend you $500 dollars, and then you spend it all on My Little Pony figurines, and when the time comes for you to pay me back and you don’t have the money, what then?
It isn’t the same moral failing as if you had stolen $500 from me, but it’s a moral failing, because I gave you the money expecting to be paid back, and you took the money agreeing to pay me back. If you knew you weren’t going to pay me back when you took the money, that makes you a jerk, right? Now, if I knew that you’re the kind of degenerate who wastes her money on pony figurines, then I’m a jerk for lending you the money.
And so, the “bailouts” aren’t so much bailouts of Greece, as bailouts of the people who lent money to Greece. Like, when I come by for my $500, and you don’t have the money, and your Mom gives me $500 because she knows you can’t pay. She’s kind of bailing you out, but in reality she’s bailing me out. And in the analogy, you’re Greece, I’m the banks, and Germany is your Mom.
But, since Greece is a sovereign country, they can just tell their creditors to go screw. The trouble is that Greece is dependent on getting more loans in the future to maintain their current levels of spending. So either they agree to the austerity, or they get cut off completely. Surely even if you sympathize with a debtor, you realize that they’re not likely to find people willing to lend them even more money after they refuse to pay the people they already owe. So once the loan spigot gets shut off, then you’re in for austerity whether you agree to it or not. Or are German taxpayers morally obligated to pay the debts of the Greek government? Is your Mom morally obligated to pay off your debts to your pony-dealer?
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Actually, the veil is a very good idea. The thanks of a grateful nation, and all that…
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No worries, 'luci. It really works both ways. Being mobbed by my adoring fans can be quite the trial…
-XT
I was raised Methodist, and we didn’t have such frippery as veils. Besides, if you can’t handle ugly, you’d best leave Texas.
If I’m a country, I borrow $500 from Charlie and pay you off. That’s how sovereign debt works.
I
Here’s the point you are failing to understand: There are plenty of investors willing to lend money to cover the debt Greece holds–that happens every day in sovereign debt. The problem is that the interest rate for managing this debt has shot up substantially, so Greece has to pay a lot more just to keep its sovereign debt going.
Greece, in fact–comparing year-to-year for the second half of 2011–increased tax revenue 1.4% and cut non-interest spending by 7.4%–estimates are that during this period the Greeks actually managed a 1.8 billion Euro surplus.
So today, it really looks like most (all?) of the current budget deficit is caused by the debt interest. Austerity was supposed to cure that problem; with Greece’s finances in order, markets would demand less interest to lend. The fact they haven’t seen this reward is taken as proof that more austerity is needed, and to a lot of Greeks that seems ridiculous.
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But, since Greece is a sovereign country, they can just tell their creditors to go screw.
This is exactly what Peru did to its lenders a few years back.
The trouble is, you usually suffer a downgrade and consequent rise in the interest rates that yor creditors demand.
The real problem is that Greece consumes too much and produces too little. The guy who tried to start a brewery fond this out-it took him years to launch his business-he was harrassed by competitors and nealy driven out of business.
This situation is exacerbated by the huge size of the government, and high taxes.
I’m curious, how does tax collecting work in Greece? If so many people were avoiding taxes like its the national sport, and they knew this, why wasn’t anything done about it?
I wouldn’t be angry at the lenders who wanted their money back. Why shouldn’t they want their money back? That was always the deal. The lenders wouldn’t be “taking away” something illegitimately (as the post I was responding to appeared to imply).
Cite? I think conspiracy theory stuff like this inevitably gets spouted after big debt gets called in, but I don’t believe most of it. I’ve seen far, far too many incidents where borrowers make clear and definite decisions that they want to borrow, right up till they have difficulty paying back, at which point suddenly they started coming up with reasons why it was the lender’s fault for giving them what they wanted. Consequently, I am skeptical right off the bat when stuff like this is said.
Lenders will only lend if they believe they will be paid back, with interest. It’s not in borrowers’ interests for lenders to be so concerned about default that they won’t loan to those who need money, or will only loan on harsh conditions. There is no moralising. It is just a matter of what the various obligations need to be for the the system to function efficiently. Your views are shortsighted.
The Greek government basically had no idea how much money it was spending, literally.
And pulling out of the Eurozone, which you are recommending, will send that interest rate through the Parthenon’s roof.