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Greece's future in balance as creditors reject aid extension

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By DEMETRIS NELLAS and DEREK GATOPOULOS

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30 Comments
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Hi WilliB, we are in twilight zone territory, Raymond Chang is spot on about the political corruption in Greece and their overly-generous social programs, little doubt about that, infesting public and political life.

Tax evasion is a national pastime, what I find remarkable is Brussels political elite chose to actively and dare I say this criminally ignore the fact continuing to throw good money after bad...

1 ( +1 / -0 )

rocknroll:

That money is gone anyway. The real scandal is that the politicians are still claiming it will be paid back. In the private sector, delayed filing of insolvency is a crime. Why do politicians get a free pass on that?

1 ( +1 / -0 )

Hi Raymond Chuan, 'Minor blip' begins with liabilities of upwards of €115bn to the Eurozone alone, this is unprecedented, the effect to UK pensions losses of between 5% - 8%

0 ( +0 / -0 )

..cut them loose. If the euro is in danger from a single dead weight, there's more disaster on the horizon and the WTO knows it. This seems like a plan that was meant to fail from the onset.

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Raymond Chang:

No, Greece with its corruption and social programs was getting along just fine with its Drachma, remember? What did Greece was the Euro. And inside the Euro system, Greece should have defaulted long ago --- but the Euro politicians did not allow and chose to violate the contracts they all signed under with their illegal and open-ended bailout programs.

Which they might do again no, unless the Northern European taxpayers finally wake up and rebel.

The whole mess is not a problem caused by Greece, it is a problem caused by the stupid Euro system.

0 ( +0 / -0 )

In the end, the political corruption in Greece and their overly-generous social programs did the country in. And unlike Spain and Italy, they don't have the diverse economic base to help in recovery, either.

In short, Greece will likely default, and given that European banks have substantially beefed up their liquid asset reserves for this eventuality, the result will be only be a minor blip on Europe's economy.

2 ( +2 / -0 )

In Contract Bridge there is a play called Morton's Fork Coup, because it presents a defender with two losing options.

Prime Minister Alexis Tsipra, and his erstwhile Greek Finance Minister Yanis Varoufakis have presented the EU/ECB/IMF two clear options except a 50% debt write off and refinance at Greek terms,or default, the losses will reach close to 10 billion Euros within 12 weeks accumulating month after month, plus a messy and chaotic exit from the eurozone, markets will view the bonds of vulnerable countries Spain, Portugal, Italy as unstable moving the rates unsustainably high.

Any denial from the ECB of aid in the form of emergency funding to Greece’s banks will be politically suicidal, the ECB will attempt to cap, just listen to Varoufakis twisting the knife 'capital controls is incompatible with monetary union' ........Ouch!!!!!!

0 ( +0 / -0 )

Diversity is a created nature's way to reduce risks of destruction. EU integration of so many diverse nations into one currency was flawed; though its only good for the strongest nations, as they gradually swallowed up the smaller and weaker nations without a bullet fired. The sweets of integration were taken, now the price will be paid. Its like Hotel California....once you checked in you cannot check-out. Greece may adopt its own currency and the inevitable chaos and hyper-inflation will follow. Staying in EU means the sales of all its important assets to the creditors.

"I see an evil under the sun".

-1 ( +1 / -2 )

25psot

" Only 5 billions debt can screw up small country Greece has to repay over $330 billions how they are going to repay this its a big puzzle. "

No puzzle. They can´t and they won't. The only question is: what will it take for our Euro politicians to admit that? Give us the haircut now and end this drama!

(And it is not like this hasn´t been played before... read up on on the Latin Monetary Union, and Greece role in it.)

1 ( +1 / -0 )

Only 5 billions debt can screw up small country Greece has to repay over $330 billions how they are going to repay this its a big puzzle.

0 ( +0 / -0 )

Keep in mind, Syriza overriding demand debt relief to be included along with a investment package to secure a deal. Of course the exit from the Euro-zone and a return to the Drachma (currency devaluation) can rectify a uncompetitive economy. However guardedly, the spreads are pricing Greek government debt as a default.

Now envisage this assumption, without political union, the entire premise behind the single currency, the very foundations is no state/country would ever default.

So there is no legal or financial mechanism for what is about to happen. Let's break down 'default' and invoke ‘voluntary rollover’. Indebted Troika institutions will be scalped but permit a 'rolled over' into a 'long' loan, it warts and scabs for lenders, give us more money, or we will turn you over on the money you’ve already lent. That is original plan a.

Greece joined the EEC in 1981 creating a 'client state'. Direct subsidies through transfers from the then EEC leveraged by banks loans, political patronage plays a significant underlining role, fundamentally an economy joining the Euro based on phoney data.

Since 2010 the Greek Government borrowed another €150 billion, each occasion the 'bondholders' took debt roll over, a remarkable behaviour as any possible debt repayment is arithmetically impossible. Now ‘bailouts' are primarily taxpayer funded capital injections 'HBOS giveaways'.

The Greek ‘bailouts’ are loans, no more no less, repayment terms at one point 5.2% Greece and a eye watering 5.8% Ireland. The main purpose is to underline a disciplinary red line to other governments. In essence the problem was make significantly worse.

So Greece has spat 'can't pay won't pay' and will default, but the losses have grown to the largest sovereign default in history for loans that should never have been made in the first place.

Now I have deliberately not referred to contagion to periphery southern states in the wake of a Greek sovereign default, one step at a time.

1 ( +1 / -0 )

The Troika position seems to be "We're going to make you an offer you have to refuse!!!". Either they are not very good at the gangster game and are confused about how to play it, or they are trying to force Greece out of the Euro and expect that will cause Greece to crash and burn. This will then serve as an example to the likes of Spain and Italy, who are much more serious problems for the EU. If that is in fact the plan, then it is going to blow up in their face. WilliB is correct, the only solution for Greece is to get out of the Euro. Hopefully sooner rather than later, and if not for the corruption of previous Greek Quisling/Vichy governments would have happened already.

0 ( +1 / -1 )

The debts will not be re-paid anyway; continuing the current system simply means that they will grow.

Completely agree, WilliB, and this is what confuses me about the EEU's stance. Greece is already running a primary surplus (surplus of receipts over spending sans debt payments) of something like 5%. Forgiving the debts would allow Greece room to restructure and stay in the EEU.

Either way, Greece will never repay the money. The question is whether the powers that be are willing to bring down the EEU just to make a point.

1 ( +1 / -0 )

rocknroll:

" There will be inflationary after effects from the devalued Drachma, which will manifest in import costs "

Of course, that is the point! Imports become more expensive, and exports more competitive. Which means that Greek vacations and olives will suddenly become massively attractive. Greece will have an economy again. Stronger economies have stronger currencies, and vice versa... this natural compensation mechanism was destroyed by the Euro.

Laguna:

" Greece would still have its debts, but with a greatly devalued Drachma, repaying them in Euros would be all but impossible. Frankly, leaving the Euro means default. "

The argument sounds logical, but is based on wishful thinking. The debts will not be re-paid anyway; continuing the current system simply means that they will grow. And grow, and grow, and grow... I understand that the German and Dutch politicians hesitate to admit to their populations that the money is gone, but it is. The haircut is unavoidable. (In fact, a Grexit and keeping the Euro debt on the books offers a slight chance that some of it will be paid back one day, once Greece has an economy again. The current system guarantees that the transfer payments must continue forever.)

0 ( +0 / -0 )

the U.K, was smart to keep the Pound Sterling and if Greek leaves the Euro do not be surprised to see Spain, Italy, Portugal and Ireland eventually follow suit. They are all having troubles of their own and not getting any help from the EEU...in fact the only benefactors from the Eurozone and Euro have been the German banking cartel.

2 ( +2 / -0 )

WilliB - Greece would still have its debts, but with a greatly devalued Drachma, repaying them in Euros would be all but impossible. Frankly, leaving the Euro means default.

Also, as I mentioned above, markets seem to have considered that the integrity of the Euro system would trump any other concern (as I still consider it will, after the brinkmanship is played out); sacrificing Greece would force investors to turn a very skeptical eye on other weak Euro members, possibly leading to a domino effect and resulting in a Euro only composed of a few core states.

Now, the Euro is a flawed system. They can fix the system, or they can scrap it. At the moment, they do not seem willing to do either. This is the definition of crisis: Either decide, or events decide for you.

2 ( +2 / -0 )

Hi WilliB, There will be inflationary after effects from the devalued Drachma, which will manifest in import costs, which are sure to rise. All can be offset with reforming the inefficient tax collection system. Plus if structured withdrawal from the Euro, a velvet divorce........fingers crossed

When you have a moment a comprehensive OECD breakdown, plus indicators..

https://data.oecd.org/greece.htm

0 ( +0 / -0 )

itsonlyrocknroll:

" It odds on Greece will be forced into a range of capital controls as soon as Monday to stem the flow of capital flight. Indeed a vastly devalued Drachma would have many positives as much as negatives. "

Im am curious where you see the "negatives" with a vastly devalued Drachma. Since the Euro caused the problem, returning to its own currency and re-gaining the freedom to devaluate is the only way out of the problem. The Euro is the cause of the disease, removing the Euro is the cure. Where are negatives`?

4 ( +4 / -0 )

Hi Laguna, a crucial point, fiscal integration across EU countries/states, complemented by a tax collected at federal level.

The US has a impressive fiscal union. Tax collection up to 22% at a federal level, over a 50 year cycle averaging out at approximately 16.2%, enabling large yearly level transfers between States. In contrast, 2008/9, the period when the wheels economically fell off the EU cart, Greece received net transfer of less that €300 per capita, proportionally 13 times lower in the similar 2008/9 cycle in relation to the transfer to the then 12 poorest US states.

This is rough, to seriously nail the figures one would need to calculate an exact fiscal multiplier, but had EU followed US model, this would have raised Greek GDP by 6 to 8%.

Food for thought, I am not advocating fiscal union, for many European countries would be politically undesirable, and to suggest as much is enough to provoke ranting and raving in disgust.

Eurogroup President Jeroen Dijsselbloem is known to fly into rages at the mere hint of eurozone debt mutualisation, Eurobonds.

It odds on Greece will be forced into a range of capital controls as soon as Monday to stem the flow of capital flight. Indeed a vastly devalued Drachma would have many positives as much as negatives. I wish the people of Greece well, and hope the UK looks to the bloated overseas aid budget to show the EU what solidarity look like.

1 ( +1 / -0 )

Greece should follow Iceland's example. Iceland found the right solution, and we don't hear much about them these days.

0 ( +2 / -2 )

If Greece FINALLY exits the Euro, it has a future. If the stays in and creditors make yet another promise, we will only see more of the same misery, and a replay of the current situation, consecutively more expensive each time.

3 ( +3 / -0 )

The 21th. century Greek's tragedy is in full display. Any lesson learned from deficit & spending without accountability under the banner of socialism policy? Politicians always wash their hands, for the mass always pay the heavy burden. The Greek voters chose the image over substance with Alexis Tsipras and facing this reality of uncertainty. Fiscal responsibility and accountability are missing concepts that have been demonized by liberalism as anti-humanity? Guess what, the mass of humanity are paying the steep prices everyday. Beware, many nations are in same path as Greek!!!!

-1 ( +0 / -1 )

A common currency without a standardized system of transfers between prosperous and needy areas and without the flexibility of an entity able to assume debt will fail. Even during good years, rich states in the US like California transfer billions to less well-off states like Louisiana; during the Great Recession, states (which are unable to run deficits) received a huge amount of funding from Washington, which can borrow.

It may be best for everyone to let Greece leave the Euro so that a vastly devalued Drachma can restore their competitiveness (though they'd still have Euro debts unless they defaulted). The problem is that markets would than see that Germany and other EU powers are willing to sacrifice unity for profits, and other weak countries such as Spain and Italy would take an immediate pounding. Where that would end is anyone's guess.

2 ( +2 / -0 )

The lower classes have been punished for being seduced into owning a home by the financial industry and then they are left to pay the cost of believing in a better life while the capitalists go unpunished for their predatory practices.

It can't be helped. There is no bail out agreement in the EU, but it is not the worth of the paper it is printed on. No government has  left VOLUNTARILY its banks to go bust in the modern times. (They may have sacrificed some to scare the rest, but some banks know they are too big to collapse and act like it.

On the other hand the lower classes can blame themselves. The ancient Romans used to say Panem et circenses and it is still true.

0 ( +0 / -0 )

Let them go. The Greek state is a welfare haven and they've gone bust before. No need to worry about them doing it again. It was a mistake to let them into the Euro to being with.

3 ( +4 / -1 )

"Greece is likely to be in arrears on a debt payment Tuesday and its banks face the risk of collapse."

Whose fault is this?

1 ( +1 / -0 )

taiga,

I was in Greece last summer hanging out on an island with the anarchists and communists and I think the "brainwash" charge is just an easy way to dismiss their very real and practical grievance with their previous governments and with the funding institutes.

Germany can complain, and yet they love pumping money into all the EU economies through lending in order to then pump up consumers to buy all their cars and other trinkets. The Greeks I talked with don't seek handouts and they know they have to reject the consumer lifestyle since their country does not have the higher value-added industry to pay for the value-added goods. They are willing to make sacrifices but they feel it is only fair that the capital class that seduces with marketing and provides the debt drug and then punishes when the people get hooked should also take responsibility.

With the sub-prime fiasco in the US, the same thing played out. The lower classes have been punished for being seduced into owning a home by the financial industry and then they are left to pay the cost of believing in a better life while the capitalists go unpunished for their predatory practices.

2 ( +4 / -2 )

Meanwhile it seems, and I have to be pessimistic here, that a run on the banks is on the schedule for Monday. They've already limited the amount that can be taken out of ATMs. Some people will lose everything they've saved. Others will not be able to pay mortgages, and will lose their house. It's going to get messier before anything gets better. Whether all this drags down any other countries remains to be seen.

1 ( +1 / -0 )

it is warispeace, but there are other problems in greece my friend. Greece a once upon a time democratic country now is 65 % brainwashed by russian media, is close to a dictatorship country like serbia believes that simply hating eu and usa is a fine desicion even if its simple choice like paying ur debt. greece did use lots of germany's money for no reason and like every other person or country they pay their bill, greece its up to its task. but im sure that they will be in favour to pay that tax.

-2 ( +2 / -4 )

The PM of Greece should be respected. It would be great if all our leaders properly represented the people who voted them into office and went back to the voters to get their approval on decisions that have huge impacts for their lives and country. So often leaders hide their true agenda, making all kinds of pledges, and once elected go their own way to help their silent financial backers. Tsipras was elected to find a way of protecting the living conditions of poorer Greeks and has rejected austerity measures that would abandon this duty. In too many other countries where class warfare rages, the number of poor have risen in unison with widening income and wealth gaps as leaders betray their duty to all the people. What is distressing is that the workers of the EU do not rise up against their own governments in support of Greek labourers.

3 ( +4 / -1 )

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