Greece on a Death spiral?

Discussion in 'Politics' started by D_Andreas Sukov, Aug 19, 2010.

  1. D_Andreas Sukov

    D_Andreas Sukov Account Disabled

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  2. Jason

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    Thanks for posting the article Lemon. The media has gone a bit quiet on this one.

    A sober reading of the coverage on Greece over the last few months - for example in the FT- is that the austerity proposed for Greece cannot work. If Greece implements 100% of the required cuts it will have a broken economy and a broken society. If the Greek government doesn't act there will be law and order problems - and yes a revolution is thinkable.

    So what are the alternatives? Well there are three:

    * The austerity is forced on Greece despite the meltdown it will cause to the economy and to Greek society. The Greek army will need to be mobilised to keep law and order and may need to take additional powers. It may need support from other EU armies. I trust we can rule out this one as unthinkable.

    * The Eurozone agrees long-term subsidy of Greece. Problems are legion. The Lisbon Treaty specifically rules out subsidies (a way round is to make loans even if you know they won't be repaid). There are problems around just how big the subsidies would need to be. Germany would be the biggest payer - hence German interest in the Greek story. And while the German economy is doing okay it needs a bit of help itself. Why should Germans increase their retirement age so Greeks can retire early? Then there are issues around Portugal, Spain, Italy and Ireland - all with major problems. I think the conclusion has to be that while the Eurozone is willing to fudge the issue (some loans it knows won't be repaid) it cannot subsidise long-term.

    * Greece goes broke, ie it defaults on sovereign debt.

    My view is that the last option is the only one that makes any sense. The Greek government will decide when. It does need to get some austerity measures through first, and in view of the fallout it would suit Greece to demonstrate to the world that it has tried the EU's medecine and failed. It would presumably necessitate an exit from the Euro. The Greek government needs its parachute in place and to default at the time that suits it best.

    After default on sovereign debt and a currency devaluation it is reasonably straightforward to map out a way forward for the Greek economy and society. I see it as a no-brainer. The loss is to the Eurocrats' beloved Euro project - and a Greek default may well be followed by other Eurozone defaults. But even here the same logic follows. Spain has youth unemployment of over 40%, which is not acceptable. It is hard to see how the Spanish government can justify this. The Euro is presented as the solution but is in fact the problem.
     
  3. Drifterwood

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    I am in Greece and so can confidently ignore most of what Jason is saying.

    There is a total lack of trust between Greeks and their Government, And with very good reason. I don't have time to explain in detail, but suffice to say that Greeks who can, will not pay their taxes. There is fiscal breakdown. Added to this is the fact that Greek Politicians use Government jobs, not civil service providers, as a means of client system, and each party protects these jobs for life. The end result is that perhaps as many as a million people out of a population of 11 million are on the gravy train.

    This has to stop and an uncorrupt flow of tax revenue has to be developed.

    Greece does not have to be a basket case and there are rumblings of a "revolution" amongst the younger generation to stop this self perpetuating system. There is enterprise here and resources, people have to be prepared to work though and the process will be harder than the transformation that stopped the UK declining after disasterous social policies of the 60's and 70's.
     
    #3 Drifterwood, Aug 20, 2010
    Last edited: Aug 20, 2010
  4. vince

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    They could always petition Ankara to re-join the Empire they foolishly turned their backs on 160 years ago. :evilgrin02:
     
  5. Drifterwood

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    I visited a holocaust memorial to those who made that foolish decision the other day.
     
  6. Jason

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    I agree that Greece is making enormous progress. The problem is that even if they do everything it will still not be enough.

    Greece will almost certainly get its next massive "loan" - any other option would be the end of the Euro project. But while it is called a loan it isn't a loan. It is not that there are doubts about Greece's ability to pay it back; rather there is certainty that Greece cannot pay it back. And there's the rub. Sooner or later the Eurozone is going to have to recognise in law that it is a subsidy (and this probably needs a treaty change). And sooner or later the electorates in the donor countries are going to scream.

    The UK (as many countries) is making large aid donations to Pakistan, a country wrecked by a natural disaster. They are measured in millions. The donations Greece is getting are measured in billions and are made necessary by Greece both failing to balance its budget and publishing false national income accounts. It is terribly hard to see how such donations can be justified. And it is terribly hard to say why the other Club Med countries and Ireland should not have a similar gift.
     
  7. vince

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    I can't say I have spent a ton of time in Greece, just five times since 1980. The last time was in 2007 when we rode our motorcycles from Istanbul to Igoumenitsa in northwestern Greece and then back again. We stopped a lot in many towns and it took about a week in each direction. My Turkish friend and I were really struck by how little enterprise was going on in these towns and small cities. We would ride in at mid-morning and the place was dead. There were few people on the streets, but open businesses seemed scarce. The places that were busy, were the coffee shops. That's where all the adult men were. They just hung out playing cards and chatting.

    I'm not saying everyone was laying around, someone has to be working there. But there wasn't very much happening outside of Athens. Especially compared to the 1980's and 90's.

    When this crisis came to light, my friend and I talked about it and agreed that we were not surprised.

    We were also impressed by all the new highways, freshly paved older roads and new infrastructure (especially coming from Turkey with our crummy roads). We figured the Germans had bought them a lot of asphalt. Turns out it wasn't exactly a free gift I guess.
     
  8. Jason

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    A story that has had remarkably little media coverage is that Eurozone member Slovakia has refused to contribute to the bailout fund for Greece. The decision was made in the country's parliament by an overwhelming vote - from memory 64 to 1 with around a dozen extensions, but I cannot now find the figures. This means that the contribution from the other Eurozone countries will be increased to cover the part that Slovakia will not be paying.

    It appears that there is no mechanism to force a Eurozone country to contribute. Rather all (exept Slovakia) are doing so from choice (though in many it seems to be a decision by a cabinet rather than a vote in parliament).

    Slovakia's contribution is of course very small. But Slovakia's decision may be the first crack in the willingness of the Eurozone to subsidise Greece. Given that many more subsidies will be needed it seems likely that other Eurozone countries will find their parliiamentarians and people wanting them to act as Slovakia has done.

    (eca057): INTERVIEW: Slovak government defends Greece bailout "No" vote - Monsters and Critics

    INTERVIEW: Slovak government defends Greece bailout 'No' vote | Earth Times News
     
  9. Drifterwood

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    One of my Greek friends believes that there will be serious shit in a couple of weeks. The Government put up VAT, so everyone has stopped spending, the Government put up fuel duty, so everyone has stopped buying petrol/gas, the Banks have stopped lending, so people have stopped repaying debt. Stories are now everywhere about the amount of corruption at all levels. Everyone knew it before, but no one really spoke about it. It was just the way things were.

    Politicians and officials have been bleeding the country for thirty years and the latest inflow of EU grants etc has lead to a feeding frenzy. This party is now over.

    Personally I would root and branch dismiss every politician and official and make them restand for election and reapply for genuinely needed posts. You then need proper audit trails. The European experiment has shown that there is a limit to how much you can tolerate the "idiosyncrasies" of individual members.

    I have often heard "but this is Greece", my answer now is "fine, but it ain't Europe, so change or fuck off." I think a lot of younger Greeks, most who are now educated abroad, are seeing this, and whilst the communists and anarchists will kick off badly as usual, there may well be a push for proper government.
     
  10. Jason

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    This might be correct. Or it might not. I've given up trying to predict a timetable for the Greek tragedy. But the unarguable point is surely that there will be serious shit sometime - that much is surely inevitable.

    Even if Greece gets its act in order - taxes come in, corrupt politicians go out, state expenditure is cut, books are kept fair and square - it is all too little, too late. The debt which Greece faces is daunting for any economy and absolutely cannot be supported by a Greek economy which is grinding to a halt. "Death spiral" is a dramatic name for this thread but it seems to me it defines the problem. On the best case scenario Greece still crashes.

    A government's primary responsibility has to be to its own people. What Greece is doing is causing enormous social problems which will continue for years and which does not have the possibility of a good outcome for Greece. Greeks are having a miserable time, and for no good reason. This is not acceptable. My view is that the Greek government has a moral obligation - possibly a constitutional obligation also - to do what is right for Greeks. The essential plank of any recovery plan has to be devaluation. No plan works without devaluation. I guess this should happen on Greece's timetable. Just after they get their next subsidy (called a loan) might be a good time for Greece.
     
  11. B_Nick8

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    What say we all spend Labor Day in Mykonos.
     
    #11 B_Nick8, Aug 23, 2010
    Last edited: Aug 23, 2010
  12. F_Man

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    It was interesting reading in Finland, a country with fairly strictly "lutheran" work "ethics" and fighting serious economic slmp, where currently the age limits for retirement are in the process of being pushed from 63 to 67 and beyond, and semi-retirement is the recommended plan with certain benefits till the age 70, that in Greece the retirement age is well under 60. Also the Greek inheritance tradition/laws seem truly odd to us: that the unmarried children of deceased parents can keep collecting their parents' pensions. With laws & attitudes like this, Finland would be nearing bankruptcy as well. :rolleyes:
     
  13. Drifterwood

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  14. Drifterwood

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    With all due respect, Jason, I don't think that you understand Greece and it's "economy".

    Greece is a great example of the Warren Buffet adage that it is interesting what you see when the tide goes out.

    Whilst painful for Greece, this is great for a stronger better run Europe. Greece's old system of wealth "redistribution" through corruption and the cash economy has been clearly shown to be inappropriate within the European model. Greece has a choice, go your own way with your own way of doing things or comply to a straight economy and be part of Europe.

    The cost to the European economy is practically irrelevant compared to the long term benefits of all member nations learning this lesson. When they have, I expect the UK to become a full EU member. :tongue:
     
  15. vince

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    Good idea. But wait a year... it'll be really cheap.

    I hope this means that in the near future properties in Greece will be affordable again. I missed out years ago (1980) before they joined the EU and prices jumped and it all went to shit.
     
  16. Drifterwood

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    You weren't allowed to buy them in 1980. That is why it didn't matter in the past when they devalued, you couldn't take advantage of what really mattered, now that you can, the prices have gone up to stop you :smile:.
     
  17. Jason

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    With the greatest respect (the gloves are really off now!) I don't claim to understand the Greek "economy", a term which you understably put in speech marks. It is truly Byzantine - pun intended. I doubt the Greek government understands the Greek economy. Part of the Greek problem is that it is not fully comprehensible even by the ECB experts - for example they don't have information about Greece's "black" military expenditure and they don't have full disclosure of some of the skeletons which are now rattling, chiefly the extent of future pension liabilities.

    The idea that Greece has a choice between its own way of doing things and the EU way of doing things seems to me to have face validity, but to fall to bits on further analysis. It misses adequate consideration of the damage that has already been done. If Greece really does embrace the EU way of doing things then it is still sunk. The level of debts with which the economy will be saddled are beyond the ability of the Greek economy to repay.

    Had Greece been forced to confront its problems a decade ago then it could have become a state conforming to the EU norms. Now I don't believe this is a possibility. Even a country that is a model of fiscal rectitude could not deal with these particular debts. Greece absolutely has to devalue. This is the "emperor is in his birthday suit" issue. No (serious) politician of financier is going to say this because it risks talkiing down the Greek economy, and without a name to hitch a story to the newspapers really don't have a story. But Greece is naked, and devaluation has to happen. :tongue:
     
  18. vince

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    Really? Even with a Greek partner? I have a German friend who owned a house there in the 70's and made a killing when she sold it mid 90's. She bought a huge place here with the proceeds.
     
  19. dandelion

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    Which is precisely the issue with Turkeys attempts to join the Eu. They arent willing to follow the accepted rules (though I think different ones to Greece)

    I think the issue has been, serious shit, but for who? greece has been bailed out for fear of its debts bankrupting banks across europe (again). Purely a selfish action, for those who compared the billions to Greece with the millions to pakistan. The Greek money is to safeguard our banks, so we are willing to pay rather more.

    As to Greece fixing its own problems, theres two ways to go. Either they knuckle down and accept massive changes, or the government is allowed to go broke and they get the changes anyway, only worse. Or a bit of both, more threatened collapse to discourage the rioters. It all sounds very much like pre-thatcher britain, but there is more than a sniff of it about cameron's Britain too.
     
  20. vince

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    Don't worry Dandelion. Turkey joining the EU is only a dream of the elites in Ankara. It will never happen.

    I only know one Turk who thinks it would be great and he is a true idiot.
     
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