What will happen to Greece?

[Jason]

Interesting article Joll. Though it leaves all the key questions unanswered!

1) Timetable. Proposals can certainly be put on the table in 2-3 months, but they have to be agreed by all Eurozone members (and presumably also by those nations which have agreed to join the Euro). I don't think this can be done within the Lisbon Treaty, so I can't see it being all that quick. The economic reality might speed this process along, but I really can't see it being just months. i don't see markets waiting around.

2) Presumably Eurozone members will still be contributing to the IMF (if they plan not to that would be pretty shocking, and anyway the IMF is the ultimate bailout for the Euro). So what is being proposed is that Eurozone nations pay twice, once to IMF and once to EMF. Ouch! This is an enormous cost for Eurozone countries.

3) The proposed EMF will "enforce co-ordination". This can only be done by having a veto on the budget of every member state. All member states' budgets would be decided at EU level with just local tweaking - this must include defence budgets (a big issue for Greece) and foreign policy. This is a major centralising step. Basically all home, defence and foreign policy spending decisions to be taken by Brussels.

4) The financial bailout of East Germany by West Germany following reunification took 20 years+, cost over that period something like the whole of West Germany's output for one year, and is still not really complete. This is a benchmark for the scale of the bailout that Greece now needs. It is seeming increasingly likely that Greece will get it. Arguably all the EMF proposal does is provide a framework for this bailout so that it s more palatable to the electorates of Germany, France and Benelux who will be paying it. Basically every citizen of these countries will be several hundred Euro a year poorer for a couple of decades - and that's a tough sell politically.

5) There is talk of regulating CDS trading and the ratings agencies. Seems to me that this sort of thing is doomed to failure. Smacks of the financial illiteracy of the old USSR.

My take on this is that it is a talking shop. It will run and run. It will possibly bail out Greece. But then there's Spain. And no-one thinks Spain can be bailed out. Oh and then there's Italy, Portugal, even Belgium and Austria. It's the last throw of the Euro federalists to try to do the impossible.

 

[798686]

3).The proposed EMF will "enforce co-ordination". This can only be done by having a veto on the budget of every member state. All member states' budgets would be decided at EU level with just local tweaking - this must include defence budgets (a big issue for Greece) and foreign policy. This is a major centralising step. Basically all home, defence and foreign policy spending decisions to be taken by Brussels.

This is my reading of it, too. Another use of a 'beneficial' crisis as a pretext for a Brussels powergrab. It's probably a necessary and unavoidable one - deliberately precipitated when setting up the euro 10 yrs or so ago; but still, a further, and significant, step towards euro-union. :frown1:

I'm not confident though, that it will all collapse as soon as people think - and even if it does, the mantra that 'more europe is the answer to everything' is so ingrained that it will just emerge in another form, possibly with a core of fewer, but more integrated, member states. :redface:

 

[Jason]

I think the proposed EMF may fill the newspaper headlines in the next few weeks and may be the way in which Greece can be bailed out without the German lynch mob actually murdering German politicians. The Eurozone countries will be paying an insurance to to IMF and a second "insurance" to the EMF - except for the EMF policy there is already a claimant (Greece). Think of it as a retrospective insurance - your house burns down, then you take out the insurance.

Even by the double-think customary for the EU the EMF concept proposed is pretty whacky. Will they ask the IMF to fund the EMF for the Greek claim? Is the idea that the IMF money will be packaged through the EMF to save EU blushes? Would the IMF play ball?

The UK has (arguably) being going for banana republic economics with its response to the UK financial mess. Need some money? Lets print it! But this latest EU idea isn't even up to banana republic standards. Rather it is 100% politics and 0% economics. Looks great on a politician's autocue; digs a bigger hole for the EU.

 

[D_Tully Tunnelrat]

Even by the double-think customary for the EU the EMF concept proposed is pretty whacky. Will they ask the IMF to fund the EMF for the Greek claim? Is the idea that the IMF money will be packaged through the EMF to save EU blushes? Would the IMF play ball?

Yes, I don't understand this either. Why add one more layer of bureaucracy to what is arguably an already stuffed system. Additionally where will the funds come from to pay for the EMF capital fund? Is that really then just an EU tax? If the funds are really a pass through from IMF to EMF, as you suggest: why bother?

What's even more worrisome about developed economies' debt is the future pension obligations, which are not currently included on the balance sheet. When they are, the picture is down right scary.

The idea that you can work for 30 years (22-52), then retire for 30+ years at 75% of your wages is an actuarial nightmare; it'll never work even if the next generation wanted to pay for it. Here's more:

Patchwork Retirement Plan Adds to Greece?s Debt Woes - NYTimes.com

In this regard, we're all in deep schtuck. The Greeks are just getting to the line first.

 

[Drifterwood]

I guess you are joking Drifterwood.

I guess you need your eyes testing :smile:. That was Dandelion's post.

The UK is in serious shit. One reason that Global Markets have devalued us by 30%. I don't think that any other country has had this sort of judgement.

The UK's inability to live within its means, and the arrogance of its people to see this, is beginning to really piss me off.

 

[798686]

The UK's inability to live within its means, and the arrogance of its people to see this, is beginning to really piss me off.

There's an article today suggesting pension funds may be plundered to finance big new infrastructure projects such as the high-speed rail link. :redface:
A state bank would be set up to sponsor infrastructure projects, funded by bonds that pension funds could invest in. Does sound slightly dodgy...

I do think the high-speed link is a great idea though - it's just how to pay for it. (And surely it's important enough to warrant putting a rail line through a very small slice of unspoilt countryside, for the economic advances it would bring?).

 

[Drifterwood]

There's an article today suggesting pension funds may be plundered to finance big new infrastructure projects such as the high-speed rail link. :redface:

At the same time, Councils not a million miles from you, are having their capital budgets halved over the next five years. Revenue budgets are going down by a third.

This is the cost of dismantling the Clown's economic performance over the last 13 years.

It won't be pretty.

That said there will be some bargains when Local Authorities have to sell off assets to fund anything they wish to do.

Come to the UK everyone, there's a fire sale going on.

 

[798686]

I think...he went from being one of the most prudent Chancellors ever (pre-2001), to possibly the least prudent. :S

Authorities will be going cap-in-hand to Brussels for grants and handouts - plus objective 1 structural funding (only those areas that are still poor enough).

On a slightly different note (sort of) 2/3 of ppl on incapacity benefit have been chucked off, due to the impossibly strict new criteria intended to save money. Sure - not all those ppl should be out of work, but not all of those 2/3 are suddenly well, either. They'll just turn up on the job-seekers/unemployment figures methinks.

 

[dandelion]

In the 60s 1 GBP = 20 CHF, today 1 GBP = 1.5 CHF. Great solution!

And yet the standard of living has risen markedly in both countries, which seems a far better metric by which to judge, and validates currency rebalancing. If the pound were still at those levels the complaint here would be about UK trying to preserve the empire. Markets are "emperialistic," not imperialistic.

Now what was that argument about devaluing your way out of a crisis? Seems that the actual exchange rate may change, but the real cost of living stays pegged in those countries. The value of the currency changes but the cost of production may remain unaffected, thus no magical competitive advantage. Devaluation is not a magic bullet. It all comes to exactly the same thing in the end, people learning to accept a lower standard of living than what they have become used to.

If we bring that back to the UK economy again there is just one huge glaring spanner in the economical works. Housing. The one big expensive item everyone is forced to have, yet in a so called free market economy, the one thing the free market is not permitted to supply. This has led to a vast credit bubble based on the value of property, which is no value at all. This has still not unwound. Perhaps thats a good thing because i doubt the country could have survived it in one go, but is anyone looking to fix the problem? Anyone talking about this for the election campaign?

 

[Jason]

I guess you need your eyes testing :smile:. That was Dandelion's post.

Oops! Well I got the first letter right. You know what we were told makes your eyesight go funny. Maybe it really does.

The UK economy is absolutely up the creek. Given the strong position Labour inherited from the Conservatives and the great economic climate for most of their tenure the mess thay have created is just staggering. If anyone wants an example of the failure of socialist economic policies here it is.

The horror is that people are still saying they will vote Labour. Vote for a lying toad who gets our troops killed in Afghanistan by not providing the required equipment (then says he has). Vote for a bully who throws a woman staff member out of a chair, who unleashes the "dogs of hell" on Darling when he dares to point out that the economy isn't rosy. Vote for the guy who sells peerages in exchange for gifts to the Labour party. Who channels Labour party funds through illegal intermediaries. Whose party so hounded David Kelly for telling the truth that he died in circumstances incompatible with suicide. Who betrayed the UK by breaching a manifesto promise to hold a referendum on Lisbon. Whose thieving MPs have just said they are above the law and cannot be prosecuted. And people are still saying they will vote for this man.

And it gets worse. If Labour get in or if we have a hung parliament the markets will move against Britain. A vote for Labour (or Lib Dem, or SNP, or PC, or SDLP) is a vote for inevitable poverty. It has nothing at all to do with the actual economic views of any of these parties but everything to do with perceived views.

IF we get Cameron in power there is a way forward for the UK. The markets will probably give some breathing space. Then we make the UK the free-trade mecca for finance (we pay humungous bonuses to anyone in the City who can make money). We up the inflation target to maybe 5-6%. We get rid of a lot of employment laws and regulations which make employing people expensive. We get tough with the EU (UK as a net contributor is unthinkable) We drill for Falklands oil - and sell off the rights very soon.

Desperate stuff. But it is possible.

By contrast there is not a possible scenario to get Club Med out of its problems while the Euro remains intact and while the EU is governed by the soft socialists. Soros thinks it is Spain rather than Greece that will be the trigger. But it really doesn't make much odds which one it is - the result for all will be much the same.

The EMF concept is barking. It takes years of stability in economies to build up the sort of assets the IMF has. An EMF would take say a decade of boom to build up. At best it is a camoflaged name for a bailout of Greece.

:zx11pissed:

There are some amazing smilies: :bad2: :kabong: :scared2:

 

[D_Tully Tunnelrat]

Now what was that argument about devaluing your way out of a crisis? Seems that the actual exchange rate may change, but the real cost of living stays pegged in those countries.

Well, there is a reason they call economics the dismal science... devaluation is no panacea, but it beats the alternative, which is not being able to do so. The cost of living anywhere will rise and fall due to any number of factors, cheap money being the primary driver, but the relative value of currencies is also supposed have some correlation (the efficient market thesis being proved a fallacy..), to the balance of payments between countries, both in terms of imports, and gov. debt.

In the case of the UK, at present, it does not look promising, but being able to devalue makes the UK a more interesting prospect for, as Drifterwood says "firesale," bargains (and future growth) than Greece, where decreasing gov. budgets will put the national economy in a deflationary spiral. When the EU enforces lower spending in Greece, they effectively depress their own economies as Greece is a net importer of goods. Ergo Germany, as the dis-inflationary taskmaster, deflates its own economy, as it seeks to the defend the euro, and make Greece the whipping boy. Ditto the results for Holland and France. It's a loose-loose scenario for all the EU saver nations, and the EMF, as Jason points out, is too probably a too little to late band aid to bind the euro's wounds.

Totally unrelated joke - an Italian and a Greek are having a cultural pissing contest: The Greek says we invented Democracy, the Italian replies we perfected it, and invented the Empire, the Greek says we raised architecture to an art form with the Parthenon, the Italian says, but we went still higher with the Colosseum. The Greek thinks for a minute, and says well, we invented sex, and the Italian replies, yes, but we introduced it to women.

 

[Drifterwood]

If we bring that back to the UK economy again there is just one huge glaring spanner in the economical works. Housing. The one big expensive item everyone is forced to have, yet in a so called free market economy, the one thing the free market is not permitted to supply. This has led to a vast credit bubble based on the value of property, which is no value at all. This has still not unwound. Perhaps thats a good thing because i doubt the country could have survived it in one go, but is anyone looking to fix the problem? Anyone talking about this for the election campaign?

Labour quietly cut the affordable housing programme from 1,000,000 new homes to 400,000.

A lot of real forces (and the ignoramus estate agent class) have too much to lose should property fall by the figure suggested by Ernst and Young, 29%. However, I think the market will out. The Banking mortgage product just isn't there, and you will have no real recovery until the average person is paying less than 66% of their salary in tax and housing.

Then there is the inflation tool I suppose. Your house is still worth £1,000,000, just that figure is now really only worth £700,000. I suppose it will keep Daily Mail readers happy for a while.

 

[Jason]

The UK houing market is precisely as the name suggests: a market - with nothing to do with fair or equitable or decent or nice.

In the UK the old link between average income and average property prices was a feature of the post-war. From roughly 1955 to 2005 it was possible for ordinary people on ordinary salaries to buy their own home. No more. Property is now owned by the new class of private landlords. Demand for property is strengthening. We have far more people living in the UK than even a decade ago and living longer (and needing somewhere to live eiter bought or rented), we have an explosion in unoccupied homes (bought as an investment and often used as second homes), plus flight of money from stock market and savings accounts into property. Supply is static. New building is minimal (few new homes coming into the market in the next couple of years, draconian restrictions on all new building). Basically we are set for a real boom in house prices (over and above whatever happens with inflation).

With the defecit as it is "affordable homes" just aren't going to be funded. We are seeing a re-establishment of a wealth divide unseen in the UK for a couple of generations with the split between those who have their own home (often now mortgage-free) and those who rent without an asset.

 

[Sergeant_Torpedo]

The German public will be hoodwinked into helping Greece, as indeed the Frech have been. Politicians rule. At least the French are supporting Greece on moral and economic grounds. The British politicians will do what the bankers tell them. God save the Greeks from the bankers who are still shafting the Brits.

 

[midlifebear]

The UK houing market is precisely as the name suggests: a market - with nothing to do with fair or equitable or decent or nice.

In the UK the old link between average income and average property prices was a feature of the post-war. From roughly 1955 to 2005 it was possible for ordinary people on ordinary salaries to buy their own home. No more. Property is now owned by the new class of private landlords. Demand for property is strengthening. We have far more people living in the UK than even a decade ago and living longer (and needing somewhere to live eiter bought or rented), we have an explosion in unoccupied homes (bought as an investment and often used as second homes), plus flight of money from stock market and savings accounts into property. Supply is static. New building is minimal (few new homes coming into the market in the next couple of years, draconian restrictions on all new building). Basically we are set for a real boom in house prices (over and above whatever happens with inflation).

With the defecit as it is "affordable homes" just aren't going to be funded. We are seeing a re-establishment of a wealth divide unseen in the UK for a couple of generations with the split between those who have their own home (often now mortgage-free) and those who rent without an asset.

Jason: Sorry to hear such bad news regarding the UK housing market. I had the impression that cities such as South London, Birmingham and Sheffield had these robust, government-sponsored redevelopment projects similar to what has been happening in Berlin, where old factories and industrial buildings are being turned into affordable housing -- with private and public gardens.

I never get the opportunity to stick around in the UK and take a look at what's going on even when my connecting flight is cancelled and I have to stay in a smelly airport hotel overnight.

 

[faceking]

What will happen to California? is part two of this thrilling series of government taxing, overspending, creating a welfare state, and then running out of money.

 

[midlifebear]

Obviously, FaceQueen is confused and believes California is part of the EU. Why am I not surprised?

 

[Drifterwood]

The UK houing market is precisely as the name suggests: a market - with nothing to do with fair or equitable or decent or nice.

I agree with some of what you say, but I don't think it's that simples and there are massive geographic anomalies. For example you can buy three bedroomed terraces in parts of Merseyside at auction for £35K.

Then there is the question of the Baby Boomers either wishing to trade down or needing to sell to fund care. Who can afford their apparent values? And at the top end, you need people to be earning big money and frankly alot of those have withered away. I think property prices need go no further, because they are already unaffordable. So what you will see is a small number of areas rising, some remaining static and a lot falling. The previous rises lauded by the idiots, came from 9 UK postcode areas. Wow

Where I do agree, and as a left leaning person I am disgusted, is that Labour have laid the foundation for an extremely divided Britain.

 

[Jason]

Hi Drifterwood, we agree!
I need a stiff drink...

PS I live in one of the nine postcodes. £35k is more or less the entry price for a garage.

 

[798686]

I used to live in one of the 35k per house places (well...almost ).