Greece crisis intensifies
Sunday is referendum day for Greece. The leftist Prime Minister Alex Tsipras thought the country would reject the terms the EU has proposed for a bailout, but indications are that the country will vote “yes” (accepting the terms) instead. A “no” would mean:
…near-certain departure from the euro, followed by years of further financial pain as Greece reintroduces its old drachma currency, which is likely to start at a low value.
Doesn’t sound like a happy prospect to me, nor apparently to most Greeks—that is, if the polls are right, and polls haven’t had a great track record lately. Tsipras claims “that the terms of the EU-bail out deal are simply too harsh for the country to bear.” The question is, compared to what? Tsipras can’t seem to understand that Greece may be close to running out of other people’s money. That’s a hard thing for socialists to accept, I know.
Here’s a more in-depth article about how Greece and the EU got to this sorry state of affairs. I’ve often said that economics isn’t my strong suit, and I can’t say whether the Business Insider article is correct, but it has a lot of interesting background information in it, such as the fact that Greece got into the EU under false pretenses, having fudged the figures on its budget deficit. And it wasn’t the last time it misrepresented its deficit figures, either.
Here’s the situation on austerity measures for Greece:
Many economists were sympathetic to Greece’s position. They argued that debt payments were onerous, the creditors would never receive full payment, and the programmes were restricting Greek economic growth. It quickly became clear that few finance ministers inside the Eurogroup, if any, agreed.
Unlike during the euro crisis, most other peripheral countries were *finally* making economic progress by the end of 2014, and they weren’t natural allies for Greece. What’s more, every European nation has its own anti-austerity parties (particularly Podemos in Spain) ”Žthat would be emboldened by any concessions given…
Initially there was a gulf between Athens and the creditors on almost everything. Athens asked for outright debt relief, an end to privatisation, stimulus funding from the ECB, and the rolling back of many economic reforms (such as lower minimum wages) made in previous years. The rest of Europe was not impressed.
Over months of tortuous negotiation, there did appear to be genuine progress at times. By early June, the Greek government had conceded on large parts of its initial programme. Issues such as privatisation had been sidelined. It became clear that the major issues that could sink the deal were labour-market regulations, fiscal austerity, and the pension system.
Things were looking up. And then…and then…:
On Sunday, just when it looked as if a deal may be done, Tsipras shocked the country by calling a referendum on the bailout. Having negotiated the deal, he said it wasn’t good enough and didn’t fit with his party’s mandate. So [Tsipras’ party] Syriza is now campaigning against the deal it reached, offering up the decision to the Greek people.
I guess it will be up to the demos.
The Greeks did cook their books. But this was well-known to the German and French, who didn’t seem to mind. Villains and knaves all over the place.
The governor of Puerto Rico has just announced that Puerto Rico can not repay its debts. This default will have a much greater impact on American investors than the default by Greece. Perhaps we should investigate how Puerto Rico arrived at this position, how many retirees will lose much of their live savings there, and how many other American municipal and state bonds will default in the near future.
The question is whether any bonds in any government entity in the entire state of Illinois are safe.
This mess reminds me of the old joke about winos. Why do winos put their bottle in a brown paper bag? They don’t want to know when the end is coming? For Greece the end is near. When the banks close you know they really are out of money.
Neo – Tsipras claims “that the terms of the EU-bail out deal are simply too harsh for the country to bear.” The question is, compared to what?
Compared to doing a deal with China and its little friend russia…
this is hysterically funny.. even more so with the puerto rico gambit… want to go way back when i said the goal was to make PR the 51st state? well, if they become a state, their problems go where? The last time they voted against the game became, give them so much easy money, they get so deep, that becoming a state would be very appealing
neo: Things were looking up. And then…and then…:
they were NOT looking up.. we as people and the world were acting like idiots… if you watched the financials, where not knowing how reality works can destroy you and the ideas are tested daily, you would find that the state was elected to repudiate the austerity…
it was not going to look up at all, as there was no deal to be made, and no one was offering any that would be taken…
merkel was not too bright, in that the damage from not forgiving debt, is going to hurt her and her reputation more than if she gave them one last payment!!!
then there is the movement of a NATO country into the sphere of china and russia… the state would run with arms open like a match.com paramour describing how they run to their loved ones on the beach…
and
This is too funny!!!!
Like someone who sets their farts on fire and burns their own home down…
everything has been said to be happening now was talked about as far back as the 1960s…
who ya gonna call?
the men? ha! i would encourage some to go off and read what young men are saying as to such things… (and how their attitude is informed by the general malaise visited on them by people who are no longer their mating pool after eons)
as we move more and more into what will come soon… it should be evident that people who dont have a place in their own country and are pariahs for being born, are not going to fight for it!!!
i wouldnt be too worried about the greeks
the wealthy greeks are not in greece!!!!
just this weekend i saw two ferraris, and a few others in astoria ny, the center of greek culture in ny… the wealthy greeks are here, and their money is in dollars…
its the poor socialist greeks that wanted to stick it to the wealthy and wanted lots and lots of social programs and paid for them and did this to themselves…
In 1937, the Nazis constructed Buchenwald concentration camp, near Weimar, Germany. Embedded in the camp’s main entrance gate is the slogan Jedem das Seine
literally “to each his own”, but figuratively “everyone gets what he deserves”
The can will be kicked in Greece and elsewhere until it reaches the abyss. The entire global economy has been based on easy credit since the 70s and that never ends well. So while one can predict what event will spark the conflagration, we do know the global financial system is unsustainable. 2 months, 5 years? We shall see.
Artfldgr:
No, of course they weren’t actually looking up. I meant as far as the negotiations were going, and as far as the bailout was going. I didn’t mean in the larger sense.
It’s time to give the ‘third way’ a hearing. Not that third way but this one – Iceland’s :
As a reminder, this year Iceland will become the first European country that hit crisis in 2008 to beat its pre-crisis peak of economic output. In spite of its total 180-degree treatment of nefarious bankers, the banking system, and the people of its nation when compared to America (or The UK), Iceland has proved that there is a different (better) option that western dogma would suggest: imprisoning the bankers and letting the banks go bust. Here’s what happened next:
http://www.zerohedge.com/news/2015-06-11/iceland-imprisoned-its-bankers-and-let-banks-go-bust-what-happened-next-3-charts
Greece ought to stick it to the EU, the Euro, the ECB, the IMF, the banks, banksters, and their enablers – EU members.
@Surellin
It is true that everybody knew that greeks cooked their books. And not only greeks, but spanish and italians too.
The problema is that they didn’t expect the greeks to overcook their books.
Greek numbers were not only fake (that was expected), they were surrealist.
Blaming germans, or EU for it is unfair, though. They were not allowed to audit greek government, They only could trust and hope for the best.
There’s a proverb in my country that says “once the bull has passed, everybody is a bullfighter”. A few years ago, if Germany had tryed to audit Greece, people would have blamed Germany of being totalitarian, bossy and probably, nazi. Now people are blaming germans because and claiming villany they didn’t audit Greece and decided to trust.
One thing I really dislike is people who make new rules when the game changes.
A few years ago, everybody was OK with EU trusting south-european countries. If doing so was a mistake, time to tell was back then.
Yann:
Not trusting Greece would have been racist 🙂 .
Seriously, here’s another example of the follies of the honor system.
I thought that all the “fixes” so far (and presumably this latest EU offer) only really help the LENDING (European) banks, while requiring the Greeks to further tighten their belts/ agree to more “austerity” measures that don’t address the problem/ don’t even begin to pay down Greece’s debt.
Don’t the bailouts consist of rolling-over the old debt, plus adding-in new “finance costs” and other charges (which help the EU banks but impose more-and-then-MORE costs on Greece), and then “extending” the revised/ rejiggered payments out for an even longer term?
It’s like refinancing a car loan- you’ve paid $5000 of the $20,000 loan balance over 2 years, you’ve got 3 years left to pay but you hit hard times. “We can re-fi!!” So the new finance costs get added in to your $15,000 balance, now you’ve got $16,000 of principal to repay over another 5 years- but don’t forget the interest you’ve already paid, and there will be much-much MORE interest due now, since you extended the term of the loan. Do this every couple years and soon you’ve got $30,000 outstanding debt on an 8-year old car and your “final payment date” has been bumped another 8 years into the future; AND by-the-way, you’ve already paid some $40 grand on your $20K car. How can it make sense to keep doing this?
Postponing payments and rolling those nasty accrued-interest charges and “points”-premiums and other fees into the new principal balance, then extending that now-increased debt ever-further into the future –over and over and over– is GUARANTEED to bankrupt ANY entity who tries it. The EU banks know it, Greece knows it… and the longer they play this “numbers game”, the WORSE the final collapse will be. Math doesn’t lie. “That which cannot go on, will necessarily stop -eventually.”
EVERYONE INVOLVED is determined not to be the “first domino” in the hugely over-leveraged Global Market. But the can being kicked down the road is getting bigger and heavier each day. There WILL come a day that no amount of kicking will budge it.
Ouch.
All ‘books’ have been cooked for decades. It is telling that the tiny Greek economy has garnered so much attention when Illinois, for example, is in a far more precarious situation. The juggler has so many balls in the air it is simply impossible to predict which will be the first to fall, but sooner or later all will fall down.
I have the temerity to suggest the Greece problem is about much more than Greece and Grexit. The problem is with the EEU. Greece is hardly the only member country not to have adhered to the agreed-upon annual 3%GDP deficit cap. The EEU has no enforcement mechanisms. Surprise!
Loans (which all bonds are) were made by the ECB via its buying Greek bonds, and by many other entities including other Central Banks. The lenders have some responsibility: Just visit the US mortgage crisis and see who/what were deemed at fault? It was not the unqualified borrowers (who also have votes!). It was the eevil lenders. In the present case, the lenders, being governmental bodies, are somehow blameless. They were taken advantage of!
There is the present biggie of the IMF’s nearly 2 billion, now due. But if the repayment date passes, it is not a hairpulling acute, world-is-ending default. There is a two-year window to sort this out, do deals, etc. If Greece does not repay the IMF? No biggie, since IMF assets exceed $100 billion. The IMF has a notoriously bad track record when it comes to the terms of “help” it has imposed on countries in need. Much more harm than good.
Greece is to redo its culture, its economy, its public employment at the behest of the Frogs and Krauts? More Greek “austerity” and higher taxes at a time of 25% unemployment? Grow its economy on what? Pull bunnies out of hats?
The creditors of Greece need and deserve “Haircuts.”
Jim Cramer is an absolute genius.
The risk for the Germans, per Cramer, is that the Russians finance the Greeks, move troops into Greece and also sorts of Greeks move out of Greece. IOW, chaos.
Ergo, cheap to take a haircut on the debt.
Part of Neo’s introductory citation is worth repeating:
“Many economists were sympathetic to Greece’s position. They argued that debt payments were onerous, the creditors would never receive full payment, and the programmes were restricting Greek economic growth. It quickly became clear that few finance ministers inside the Eurogroup, if any, agreed.”
The few and the ugly. Rule by Titans.
Greece is in a bad position either way. They should leave the Euro and switch back to the Drachma. At least that way, they will control their own fate.
Greece doesn’t have enough of its own money. They are screwed 3 ways from Sunday.
Puerto Rico: How does it compare financially with Illinois? Maryland? California? Detroit? Chicago?
A couple of points to make here:
First, things were not looking up even in the negotiations. Anyone who has been following the situation since the election could see that at no point has there been a real deal on the table.
Second, while the initial Greek problem was of their own doing (cooking the books etc.) the current situation was primarily caused by the Troika deal which has actually made things much worse for the Greeks, and isn’t so much their fault. A more proper deal could have been put in place years ago but everyone was worried about the damage to their own banks and therefore a deal was put in place that was fast more helpful to the banks than it was to the Greeks. Now that the banks are more secure it is seen as easier to let Greece go.
As in so many things Margret Thatcher was a visionary. The Euro is probably doomed. Milton Freidman also had much to say about its unworkability.
The Gods of the Copybook Headings have Greece by the nape of the neck.
Well at least they’re not blaming the Jews…
Hold on…
http://www.businessinsider.com/greek-atm-bank-run-and-queues-person-blamed-a-rothschild-led-zionist-conspiracy-for-greeces-crisis-2015-6
There are a couple of BIG issues that almost uniquely affect Greece that are NOT ever brought up by the pundits — nor the ‘expert’ economists.
1) Due to its location and climate, Greece has attracted a quite extraordinary number of Romanians, and other poverty stricken Eastern Europeans PLUS no minor fraction of Muslims out of the MENA.
This leads to some surreal impacts – both on the street and in the budget.
In crude terms: Greece is over run with dependent ‘bums.’ These impoverished souls are NEVER destined to pay their way.
2) Due to Greek political culture, tax collections have ALWAYS been shaky. So giving Athens a free ‘swig of the swag’ was like handing out smack at a rave concert. Of course the pols became addicted.
3) As to WHERE the money went: infrastructure!
That bridge across the Corinth canal was ONLY viable because Greece entered the Eurozone.
Greece also was COMPELLED to finally upgrade Athen’s sewer system. This upgrade was terrifically expensive, but really represents a TAX upon Greece — in cash flow terms.
Greece also threw a fantastic sum down the drain — via its nationalized railroad system. Whereas, anyone could see that it was high time to abandon countless miles of track — ESPECIALLY in the north west.
You would not believe the operational numbers from that part of the country. It has zilch in the way of paying customers — while it traverses brutal terrain.
It doesn’t even attract tourism. The whole zone is hick ville.
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Putin’s play is a fake.
For those following events: Ukraine has stopped buying Russian natural gas!!!
No one is talking, but it smells like gas discoveries within western Ukraine are taking off. All too soon, Kiev may stop needing Russian gas — and become a rival exporter.
I, myself, figure that just this prospect is what triggered Putin’s invasion. The timing fits like a glove.
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Ultimately Europe and America are going to have to stop accepting immigrants.
Ditto for Australia and Canada.
On a short — intermediate — and long term basis — current immigrant populations are economic drains. They are THAT poor — THAT disconnected — THAT alien.
They are NOT AT ALL comparable to the immigrants of a century ago.
Current immigrants are from societies and cultures that are MILES AND MILES apart from American cultural norms.
Muslims top the list, but are followed by Sikhs, Hindus, Red Chinese — on down the line.
What they have in common are embedded cultural and religious objections to the US Constitution — as written.
They don’t buy into the ‘melting pot’ at ALL.
Of note, the very term “melting pot” is now not PC in California academe!
This morning I read an excellent summary of the Greek financial crisis, written by Anil Kashyap, who’s on the faculty at the Booth School of Business, University of Chicago. For anyone interested, here’s a link http://tinyurl.com/nhymr22.
Kashyap calls his analysis a “primer,” and it lives up to the title. Something so clear and concise is hard to extract, but here’s his last point:
“Greece should have defaulted in 2010. Its debt burden then was unsustainable and nothing since then has changed this. It is true that financial markets were much more jittery at that time, but the money that was raised to pay off the creditors in that bailout could have been diverted to support Greece and other weak countries. Once the bad rescue of 2010 was undertaken, it was inevitable that some form of debt relief was going to be necessary. Imagine how different the political dynamics in Europe would have been if the German and French banks had been explicitly bailed out.”
It’s really hard to sell further aid to Greece in Germany when you consider things like the retirement age (57 in Greece and rising gradually to over 65 in Germany based on demographics). This has been covered 24/7 in Germany, so most Germans are aware of the corrruption. The in-your-face way the Greeks have handled this also doesn’t help. Germany has also had some big strikes this year by airline, train, and postal workers, so the mindset of many here is how hard they have it and how they deserve more.