Greece on a Death spiral?

[Drifterwood]

Why have banks become the sacred cows of the developed world?

They funded the increase in notional values that gave the illusion of growth. Wrap the bull in $70 trillion of derivatives and hope you can brush it under the carpet.

Capitalism doesn't work without growth. Now we also know that it disasterously fails when you bullshit that growth as well.

 

[D_Tully Tunnelrat]

They funded the increase in notional values that gave the illusion of growth. Wrap the bull in $70 trillion of derivatives and hope you can brush it under the carpet.

Capitalism doesn't work without growth. Now we also know that it disastrously fails when you bullshit that growth as well.

Absolutely true. In the case of NYC and London, the financial industry grew to about 40%-50% of both cities highly paid work forces, and in the US contributed about 35%-40% of all the profits in the S&P 500. The derivative market is still so opaque that two years on from the meltdown, I seriously doubt any regulators still know exactly who is counter party risked to whom.

The issue underlying this is still exchange rates (ER). The EU entered into a notional value based upon a fixed exchange rate, which works until it doesn't. In the case of the US, we made a deal with Asian countries that we won't fix our exchange rates, as they do theirs, which has dramatically fueled their growth. ER is that last lever left in QE, and the most dramatic. We've already run through deficit spending, and monetary policy in the West.

Fixing both currencies exchange rates in proportion to the intervention on the part of Asian economies would result in a very different economic picture than we have today, the most notable outcome being lower unemployment in the West. Pure capitalists will scream foul, but no one is practicing pure capitalism anyway. Fixed exchange rate economies always result in deflation, which is what Asia has been exporting to the West since 2001.

And finally back to Greece; several Greek friends, in the shipping business, say it's the worst civil unrest they have ever seen. They have lost their pensions, health care, in short everything. They also say it's no longer safe to go out after dark. They are leaving as fast as they can. That's a real Greek tragedy.

 

[Jason]

And finally back to Greece; several Greek friends, in the shipping business, say it's the worst civil unrest they have ever seen. They have lost their pensions, health care, in short everything. They also say it's no longer safe to go out after dark. They are leaving as fast as they can. That's a real Greek tragedy.

It can only get worse. Right now the Greek government does not have in the public domain an economic plan that has any possibility whatsover of working. If the Greek government do what they say they will do it is inevitable that Greece will collapse, both in economic terms and in social terms. Perhaps the reality is that the Greek government is trying to use the stick of the EU to get through key changes (which are needed) and will default when it suits Greece. This might possibly be a correct policy. But it is a difficult one. It is also possible that the Greek government is playing a wait and see policy. If for example there were a wider failure of the Euro project it would be easier for Greece than simply a Greek failure.

Prodi has very recently said that the EU knew that the Greek budget for the last decade or so was fraudulent and for political reasons decided to accept it anyway. In this the Eurocrats have a responsibility for the misery Greeks are now enduring. While the Greek government was wrong to submit accounts which were deceitful the Eurocrats were also wrong to allow Greece to wreck itself by playing along with this deception.

There is a need for the Eurocrats to be held to account for their errors of judgment which have led to so much human misery. I mean by this that there should be trials and people thrown into gaol for criminal activity. The economic misery inflicted on Greece is comparable to the economic damage of a war. For this level of damage to happen in peacetime is the most extreme manifestation of Eurocrat hubris.

 

[D_Tully Tunnelrat]

Prodi has very recently said that the EU knew that the Greek budget for the last decade or so was fraudulent and for political reasons decided to accept it anyway.

Shocking!

The economic misery inflicted on Greece is comparable to the economic damage of a war. For this level of damage to happen in peacetime is the most extreme manifestation of Eurocrat hubris.

Agreed. Unfortunately, it's getting virtually no reporting (here) now that the imminent collapse of the euro is momentarily off the table. Also, the very nature of bureaucracy is such that no individuals will be held accountable. As humans, when guilty, we effectively hide behind a collective screen... until mob rule come into play, and, from what I hear, it's regularly gotten to that point on the street.

 

[dandelion]

Im afraid I really dont see what the collapse of greece has to do with the EU. Its all about how the greeks ran their own affairs, not how the eu ran them.

There are some other very questionable assumptions in here too. It is assumed growth is good and this economic restructuring is bad. This, when theres a news item this week that rather than the Uk having reduced its energy consuption over the last 20 years, it has actually increased it, by outsourcing production to other countries. If you dont believe in global warming or peak oil, then no worries. If you do, then we'd all better have a lot more restructuring and cutbacks pretty quick. Pakistan, here we come.

 

[Jason]

Im afraid I really dont see what the collapse of greece has to do with the EU. Its all about how the greeks ran their own affairs, not how the eu ran them.

It's only partly about how the Greeks ran their affairs. The ECB was acting as an auditor on the Greek budgets. The ECB knew they were fraudulent but signed them off anyway - which is fraud by the ECB. The ECB's actions gave investors the confidence to invest in Greece - the very investors who are suffering from the present economic woes of Greece. The ECB is in up to its neck. In part this is why the Greek problems are a crisis in Eurozone confidence - one massive fraud by the ECB has come to light and investors will wonder what else is out there.

Economic restructuring for Greece could be a good thing - and moving towards a more sustainable economy would also be good. But right now Greece is seeking to impose a restructuring that cannot work. Yes there are elements that are right, for example in getting rid of some of the public sector excesses, dealing with pension irregularities and persuading Greeks to pay tax. But the fundamental is wrong because what is now being tried has no possibility whatsoever of working. If the Greek government defaults soon on its own timetable we might come to see the process as politically expedient, using the EU stick to get some reforms through. But a simpler policy with integrity would have been to default around Easter for the good of the people of Greece.

 

[dandelion]

It's only partly about how the Greeks ran their affairs. The ECB was acting as an auditor on the Greek budgets. The ECB knew they were fraudulent but signed them off anyway - which is fraud by the ECB. The ECB's actions gave investors the confidence to invest in Greece

No. Sovereign debt right downs are because of the economic crash caused by fraudulent US banks. (or arguably not fraudulent, just immoral) The EU was and is an added protection for those lenders, as we now see. But it is only now in crisis we are talking about a Greek problem. There wasnt one before.

one massive fraud by the ECB has come to light and investors will wonder what else is out there.

No doubt. Very wise of them. Who ever thought they cared about consequences for anyone or anything except their own bottom lines? The ratings for national debt were only concerned with risk of default, not wise policy. Banks dont care how much fraud is going on just so long as they reckon it will come good for them. You are saying they didn't know?

Economic restructuring for Greece could be a good thing - and moving towards a more sustainable economy would also be good. But right now Greece is seeking to impose a restructuring that cannot work.

I thought we were agreeing on this! stop gap action now, some formal rearrangement when the immediate crisis has been defused. Lots more loans to be written off.

But a simpler policy with integrity would have been to default around Easter for the good of the people of Greece.

I'm not sure. What is the practical difference for greece between defaulting a smaller debt now or a larger one in the future. You just get to write off a bit more.At someone elses expense. The someone elses have their own reasons for going along with it.

My prediction? The EU may consolidate its postion, ie become more centralised so as to deal with this perceived euro crisis. Or we may continue with fudge, but the euro is here to stay. Britain will eventually join and will have suffered for joining so late. Unless global warming/ oil crisis gets us all first.

 

[Jason]

I thought we were agreeing on this! stop gap action now, some formal rearrangement when the immediate crisis has been defused. Lots more loans to be written off.

Yes there is a measure of agreement here - as long as this is what the Greek government is really doing. Possibilities are:

* The Greek government intends to default, but on its own timetable (maybe mid 2011?) - and the Eurocrats know this. This does seem most likely and is what the speculators are pretty confident will happen.
* Greece will (or has already?) de facto lose economic independence to the ECB/EU, and the ECB/EU may decide that the economic and social collapse of Greece and the descent of the vast majority of Greeks into grinding poverty is a price worth paying to defend the Euro project. The end justifies the means; the Euro is perceived as a "thousand-year" project and is more important than mere subject peoples.

I don't have a problem with the first as such, though I think there are risks. I fear there is a Barosso/Prodi view in the EU that supports the latter. I think that it may be that Greece plans to default next year sometime but just before it defaults will face a battle to assert its sovereign independence.

I'm not sure. What is the practical difference for greece between defaulting a smaller debt now or a larger one in the future. You just get to write off a bit more.At someone elses expense. The someone elses have their own reasons for going along with it.

It may be that we are now looking at a default that is managed, and if this is the case then we have financiers and politicians doing what they should be doing. The best case scenario is that a managed default is fire-walled so that the contagion is not too great. The worry is that I do not trust the Eurocrats to put people above ideology. Had Greece defaulted at Easter the deed would now be done. A default next year may well be obstructed by the Eurocrats. I can see that the Greek government may need to take extreme steps, eg masive anti-EU rallies to demonstrate the will of the Greek people and some sort of revolutionary government which tears through legal obstacles to default. It may be "Greece against the world" and the only way that a country gets through that is with a lot of flag waving and whipped up zenophobia, all dangerous stuff.

If Greece defaults the Euro has had it. The world will see the ECB as corrupt in ignoring years of false national income accounts and impotent in defending the Eurozone in the face of economic problems in a small part. The assumption will be that the peripheral economies (if still in the Euro) will fail. Managing the Greek default means managing the unwinding of the Euro project.

If Greece doesn't default it will be because the Eurocrats are de facto running Greece. The markets just won't stand for such a sham - it will take a while, but on this scenario we will be looking at a Euro crash.

 

[Drifterwood]

But the fundamental is wrong because what is now being tried has no possibility whatsoever of working.

You throw these hyperboles in, Jason. Can you support this assertion?

 

[Smaccoms]

hhhmmm this looks intriguing, I'll have to read up on this later guys

 

[Jason]

You throw these hyperboles in, Jason. Can you support this assertion?

Yes. The prescription for getting out of a sovereign debt crisis is austerity+devaluation+ IMF loans. It is possible to manage without the IMF loans. But both austerity and devaluation are essential. No one has ever done it without both planks.

Greece has the austerity and the loans. It does not have currency devaluation. There is a theoretical posibility of using internal devaluation when currency devaluation doesn't happen (or as an add-on to currency devaluation). But while the theory is fine the practice is not. Currency devaluation is changing just one price in a market place, while internal devaluation requires downward movement on all prices within an economy, including all wages. To get the economy right ALL Greeks should agree to work for less than half of their present wages. It just won't happen.

Without devaluation Greece enters a period of stagnation characterised by high unemployment, inflation, falling production, industrial unrest and social misery. The economy will be incapable of generating the income needed to service debts, let alone pay for social services and investment. The "death spiral" of the title of this thread is right - and it doesn't need a question mark The present policies must kill Greece.

Greece will only get out of the mess when it devalues. There's plenty of argument about just how much, but ball park is E1 should become about E0.40. The whole Eurozone isn't going to do this (and a few cents off the value of the Euro is neither here nor there for Greece). So Greece has to leave the Euro, default on its sovereign debt and launch a fiat currency - lets call it the drachma. Curiously the Greek economy could then come right very quickly indeed. The right policy for Greece is a no brainer. Presumably Greece is using the EU pressure as a stick to make some necessary reforms and will take the right decision (for Greece) at a later time.

 

[dandelion]

Yes. The prescription for getting out of a sovereign debt crisis is austerity+devaluation+ IMF loans. It is possible to manage without the IMF loans. But both austerity and devaluation are essential. No one has ever done it without both planks.

What you mean is that nowadays countries find it more convenient to decline to pay back debt by reducing the real value of the debt, say devalue their currency by 50%, rather than simply saying they will agree to pay back half, but only half. The result is the same as defaulting and renegotiating, and maybe we just need to return to this traditional method used by ordinary citizens. You favour dismantling the euro. Those that favour retaining it have the choice of either bailing out Greece or arranging its gentle default. Given that the euro isnt going to change, it will be one of these two options, or both. The logic of the euro is inescapable that this was always what should happen. Not to say it is fundamentally more honest. An object lesson to countries that they will not in the future be able to devalue themselves out of a crisis will be no bad thing. It will be very interesting to see how Greece takes to the new world model. All you are saying by invoking devaluation, in effect creating inflation, is that the whole country continues in denial and refuses to deal with its problems. It never worked in the UK.

 

[B_nyvin]

Not every country in the world wants to have "yo-yo money" like the pound is....

 

[Jason]

In the end time will tell on the fate of Greece and the fate of the Euro.

By the way the best currencies are all "yo-yo" currencies - the pound, the US dollar, all the national, floating currencies. They respond to the needs of their country. Fixed currencies require a command economy. The mess the EU has got itself in (monetary union without fiscal union) requires either a command economy (which we haven't got) or economic illiteracy. But in the end time will tell.

In passing I note how far we've moved in less than a year since the ratification of the Lisbon Treaty. Then the EU ideal was riding high with EU integration seeming just a step away. Now the Eurozone has a sovereign debt crisis (in five countries) and the euro has been on a steady slide for months despite the most audacious financial guarantees. The Lisbon Treaty does not provide a framework for dealing with present problems - indeed in part it exacerbates the problems.

 

[B_crackoff]

The Lisbon Treaty does not provide a framework for dealing with present problems - indeed in part it exacerbates the problems.

It's all deliberate anyway! You really need to go back to all the pre setup Euro commentary around 97-98, some of my glorious university years.

All the problems with the Med countries were known and anticipated then. No one cared, well not at the top, because, the ultimate aim was always a political union. And the EU is run by unaccountable bureaucrats.

Disasters, conflict, diminishment (even ridicule) of Nationality - all part of getting the populance to have looser ties & connections, political & social, in order to become more pliable, & compliant.

Financial chaos, social unrest etc, are all part of a long term strategy to speed up complete unification. At some point, a crisis will appear, & the message will be clear -we are stronger as one than alone - & people will go along with it - willingly - in their ignorance that it has been plotted.

Shit, Hitler did it - this is just on a grander scale.

Try to name one important politician who is truly anti federalistic, & you realise just how weakly any sovereign European country's citizens are defended, & how useless this form of democracy is.

 

[Drifterwood]

Financial chaos, social unrest etc, are all part of a long term strategy to speed up complete unification. At some point, a crisis will appear, & the message will be clear -we are stronger as one than alone - & people will go along with it - willingly - in their ignorance that it has been plotted.

But we are stronger as one than alone. What are our political leaders supposed to do? Ignore the world? Or plan for the sustainability of our best interests?

If the majority seem to be coming to the same conclusion, what does that tell you?

 

[Jason]

But we are stronger as one than alone. What are our political leaders supposed to do? Ignore the world? Or plan for the sustainability of our best interests?

If the majority seem to be coming to the same conclusion, what does that tell you?

We are stronger working together, but that need not mean that we become one nation. Our political leaders have to walk the tightrope between leading and reflecting the views of the electorate. They need leadership to get us all working together but also to be alert to views within the electorate which are so set against the loss of national sovereignty.

Which majority are we talking about? There can be little doubt that a majority of the half billion people of the EU were against the Lisbon Treaty - but of course they mostly didn't get a vote, and those who did had their views ignored in an otrageous anti-democratic coup. A majority of politicians? This implies that our politicians know better than the electorate and can reflect what the electorate would want if they were informed not what they think they want, an interesting rewrite of democracy. Alternatively I think we have a spirit of pragmatism among EU politicans. The power is now within the EU so right now they want in, but as the EU cracks they will change their minds very quickly.

Greece should leave the euro and perhaps also the EU. The former is a compelling moral case. The misery inflicted upon the people of Greece is not acceptable. There are arguments that other countries should leave. A better argument is that the EU is fundamentally restructured as a multi-speed body with clear entry and exit routes.

 

[798686]

We are stronger working together, but that need not mean that we become one nation. Our political leaders have to walk the tightrope between leading and reflecting the views of the electorate. They need leadership to get us all working together but also to be alert to views within the electorate which are so set against the loss of national sovereignty.

Which majority are we talking about? There can be little doubt that a majority of the half billion people of the EU were against the Lisbon Treaty - but of course they mostly didn't get a vote, and those who did had their views ignored in an otrageous anti-democratic coup.

Thanks to new powers in Lisbon, the EU has it's first 'State of the Union' address around now. Also, MEPs are being forced to attend (on pain of financial penalties), possibly to make it seem more popular, lol?!

Also, new murmurings about the UK having to lose its rebate, ahead of the next round of 'financial perspective' discussions, due to begin next yr. If the UK lost its rebate (already down from £6bn to £3bn by 2011), it will mean the UK pays 1.5x as much as Germany as a % of national income. Not sure what the latest raw figures are tho.

George Osbourne will have his work cut out defending the rebate (and also resisting the calls to increase Brussels' budget, at a time when national capitals are being compelled to drastically cut theirs).

 

[Drifterwood]

We are stronger working together, but that need not mean that we become one nation.

Which majority are we talking about? A majority of politicians? This implies that our politicians know better than the electorate and can reflect what the electorate would want if they were informed not what they think they want, an interesting rewrite of democracy.

I have a different view of the created Nation State and am not wedded to it as some are. It is the little britain mentality of the Daily Express et al. Just not my cup of tea and frankly a device of control for previous interests. It is an anachronism.

A rewrite of democracy? Really? What does your MP do? You vote once every five years and then that person votes on thousands of issues with almost no recourse to you, even if it was the person whom you voted for.

 

[Jason]

It is an anachronism.

Yes. But an anachronism is better than the alternative.

Greece is being crucified to satisfy EU pride; the ideal of the EU is being put before the good of millions of individual Greeks. Greece needs to be a fully sovereign nation. It needs to break free of the EU yoke just as nearly two centuries ago it broke free from the Turkish yoke.