What will happen to Greece?

[eurotop40]

Greece needs the drachma back.

Yes, and Pericles and the Persian wars. What a ridiculous victorian view of things. We are in the XXI century and no longer in the rule britannia ages.

 

[D_Tully Tunnelrat]

Yes, but you don't throw the baby out with the bath water.

Always good advice, provided the baby's actually clean....

Jason, you maybe right about UK housing prices going up, but with avg. prices at 5X wages, it will only make it all the worse when the easy money prop is removed. BTW - your quip about Turkish troops being ready to defend EU member Greece, was wickedly funny.

Back to the Greeks (btw the root of their crisis is they simply spent too much. The US, at least on this one, having nothing to do with it)... the lack of a coherent message from all corners of the EU is really starting to unfold. Even Germany has come forward to say that an IMF solution maybe acceptable; Italy, and Holland already supported such a view. Politically it also gets Merkel off the hook, as any partial German sponsored bailout would have repercussions with the judges in Karlsrhue who blessed the transition to the euro, but only on the basis of no bailouts. After all, Germany's bailout of the former East Germany took 10 years of growth from their economy.

On the plus side for Greece, despite the blow to the ego, IMF loans, similar to those taken by other EU members, Hungary, and Latvia, are being offered at a rate of 1.26%, which even if they have to pay a slight premium, is quite the bargain compared to the 6%+ they have to pay now. The IMF deal will decrease confidence in the euro, but a cheaper euro makes European goods more competitive.

Greece has a ton of obligations coming due shortly, followed closely, on a percentage basis, by Italy, Ireland, and Spain, who have to refinance 20% of their national debt. That's a lot of refinancing. Over 500 municipalities in Italy are on the hook for massive derivative exposure: 30% of all Italian municipal debt. Narvik, a tiny fishing village at the top of Norway, arguably the richest member of the EEA (not EU), is now having to borrow to pay municipal wages, as it too borrowed short for long term obligations, aka CDS. There are other towns in Norway in the same state, which is ironic given Norway's $500B sovereign fund. You can see where this is going, there's going to be a lot nations, and cities, towns, and municipalities who have to refinance this summer; what if there are not enough buyers, or liquidity to refinance all the debt? It's not a pretty picture.

 

[D_Gunther Snotpole]

Except, as I said, the boom is predicated on the assumption prices will always rise in real terms. Thats what makes it an investment. But it is impossible for this to happen. The only possible result is a massive collapse and total devastation of the british economy. Just a question of when. All those people presuming their house is their pension are going to be disappointed if the slump hits just when they need the money.

Will that not be the work of the cold dispiteous market?
I'm somewhat confused now.

 

[Drifterwood]

Will that not be the work of the cold dispiteous market?
I'm somewhat confused now.

A significant difference between the UK and the USA (don't know about lovely Canadia) is that if the value of a house goes below the mortgage amount in the UK, the borrower is still liable for the debt (negative equity). In the US, I believe, the negative equity is the problem of the lender, which means I presume that Peeps just hand the keys back, dust down and start over.

I prefer the US system because you would hope that it would instill sensible lending practices (oooops). This allows a market to fall to it's market level. If this happened in the UK then some Banks would fall over. This is what our Gov is trying to avoid, and hence the constant propaganda that prices will always go up. We wait to see, but as I said in an earlier post, you need to look at auction prices compared to 2008 prices to see what the real market looks like outside parts of London and the South East, but the Gov doesn't nclude these in the official stats.

It's a conspiracy I tell you :biggrin1:

 

[Drifterwood]

Yes, and Pericles and the Persian wars. What a ridiculous victorian view of things. We are in the XXI century and no longer in the rule britannia ages.

Shout it loud from the Minarets :wink:.

PS - Pericles was in the Pelopnnesian War.

 

[dandelion]

Back to the Greeks (btw the root of their crisis is they simply spent too much. The US, at least on this one, having nothing to do with it)...................... what if there are not enough buyers, or liquidity to refinance all the debt?

You provide yourself the explanation why the Greek crisis is the fault of the US. Anything which goes wrong at the moment cannot have the usual fix, which is to throw money at it, because all the money has already been thrown at fixing the hole made by the US loans crisis. If we did not currently have this world recession the Greek problem would have been papered over by now.

Sovereign nations have assumed the banks debts, and the even bigger knock on debts caused by the economy stagnating and lost tax revenue. im not sure how we come to live in a world where budgets presume that every year tax revenues will automatically rise, but I guess it is because politicians always pander to electors who they think want personal bribes. This has kept the ball flying for another couple of years. It remains to be seen whether countries can sustain the debts they have taken on.

You can't devalue yourself out of this crisis because you just end up in a race with every other country which is also doing the same. The euro is not high because its members are doing well, just better than some of the others around the world.

 

[dandelion]

Originally Posted by dandelion http://www.lpsg.org/images/buttons/viewpost.gif
Except, as I said, the boom is predicated on the assumption prices will always rise in real terms. Thats what makes it an investment. But it is impossible for this to happen. The only possible result is a massive collapse and total devastation of the british economy. Just a question of when. All those people presuming their house is their pension are going to be disappointed if the slump hits just when they need the money.

Will that not be the work of the cold dispiteous market?
I'm somewhat confused now.

maybe it depends what you mean. This is not a free market problem. Free markets never provide socially just solutions, only economic ones but in this case the housing shortage was artificially created by government intervention. If this had not happened there would be more houses in existence now at much lower prices. There would be a bit less countryside, but I don't believe it would be a significant proportion. There is nothing wrong with green belt policies to protect specific sensitive areas, for example to stop a city growing too much, but the whole country has been declared inviolable.

There are other rationing mechanisms which could have been adopted. Limiting the amount banks are allowed to lend compared to salary. Limiting the percentage of a property value which can be lent. Limiting the ability to impose a legally recoverable mortgage to a maximum proprtion of the properties value. Remove tax breaks for property investment companies. reestablish council house building: councils are uniquely placed to grant themselves planning consent on land which without such permission is worthless, thereby halving the cost of building. Place the banks more at risk of losing money and they may suddenly get shy about lending.

Or address it from the opposite direction. A ban on second homes: some countries already do this, we give a subsidy. Ration the square footage an individual is allowed to own. One of the big problems here is that this is a problem which affects the rich ruling classes least. If you have more than average money you are in a position to buy your way out of the immediate problem so don't care.

 

[eurotop40]

Shout it loud from the Minarets :wink:.

PS - Pericles was in the Pelopnnesian War.

We can try from the four ones we still have on our national territory. Btw, who told you that I voted for the initiative?

There was no direct association between Pericles and the Persian wars. It is just that this boring mentioning of the drachma etc. shows an antiquated - yet very arrogant set of mind - in which the world order is dictated from beyond the channel and over the atlantic (or at least this is what some people still desperately try to push through). WE are the best and perfect: whatever happens at home it's just the way it is, we have no corruption, no injustice, our standard of living is the measure of everything etc. Whatever these mediterranean (or catholic, or orthodox) pigs do is per se flawed: they are anyway racially inferior. If we move there, we keep the attitude of the white man who colonized Africa (i.e. prudent distance from the locals, segregated housing, ignorance of the language, etc. - with due exceptions, obviously).

 

[dandelion]

It would seem that the Greek populace is STRONGLY AGAINST austerity measures. It seems like anything short of shoot on sight orders for the army is not going to prevent protests etc. So what is the solution? It cannot go the way of Zimbabwe or the Euro (and the EU) are finito!

Jason was proposing the solution to Greece's woes is to abandon the euro. The euro does not have a problem, which Jason argues is exactly Greece's problem because it needs a weak currency. My response is that if Greece did have its own currency it is hard to see why it would not be working more like that of Zimbawe than the pound. The more the Greeks refuse to change anything, the more their currency would collapse. Perhaps the only way they might get away with behaving like this is because they use the euro. So it doesn't matter if the government goes bust, it no longer has the power to drag down the people with it by destroying their savings.

 

[midlifebear]

What will happen to Greece? Well, first threatening dark clouds will form all over the country. Lightning will begin to strike for several hours and the --KABOOM!! -- there will be a volcanic explosion of such magnitude never seen in modern times. Once the tsunamis retreat back into the oceans and the volcanic ash is dispersed throughout most of the Earth's atmosphere, scientists will venture across the waters to check on what's left of Greece. There won't be much. Just a few steaming volcanic peak islands and about half of Crete will be left. Voila! The problem with the Euro will be but a tiny memory. :smile:

PS: I saw this all predicted on a Discovery Channel program about the caldera that remains under a thousand meters in the middle of the Grecian Isles. :biggrin1:

 

[Gillette]

What will happen to Greece? Well, first threatening dark clouds will form all over the country. Lightning will begin to strike for several hours and the --KABOOM!! -- there will be a volcanic explosion of such magnitude never seen in modern times. Once the tsunamis retreat back into the oceans and the volcanic ash is dispersed throughout most of the Earth's atmosphere, scientists will venture across the waters to check on what's left of Greece. There won't be much. Just a few steaming volcanic peak islands and about half of Crete will be left. Voila! The problem with the Euro will be but a tiny memory. :smile:

PS: I saw this all predicted on a Discovery Channel program about the caldera that remains under a thousand meters in the middle of the Grecian Isles. :biggrin1:

:frown1:
My pipe dream is to run a bed and breakfast on Santorini. Are you telling me it's set to blow again?

 

[midlifebear]

:frown1:
My pipe dream is to run a bed and breakfast on Santorini. Are you telling me it's set to blow again?

Supposedly, not for about another 500 or so years, but ya never know. :smile:

 

[D_Tully Tunnelrat]

You provide yourself the explanation why the Greek crisis is the fault of the USwhich is to throw money at it, because all the money has already been thrown at fixing the hole made by the US loans crisis..

Well... money isn't exactly a finite resource. Over borrowing was, and is a global problem - see Japan for 20 years. The canary in the coal mine is still merely a canary.

You can't devalue yourself out of this crisis because you just end up in a race with every other country which is also doing the same. The euro is not high because its members are doing well, just better than some of the others around the world.

Huge debt is deflationary, you can devalue the assets, the currency, or reflate, which is the usual choice. The euro was merely the best looking contestant in an ugly beauty pageant. The wrinkles are starting to show now. We'll see how well it ages further.

It may well be that we enter an era where currencies are pegged to a global basket of good and services.

 

[dandelion]

It may well be that we enter an era where currencies are pegged to a global basket of good and services.

You mean there will be just one world currency, maybe different names in different places but with fixed exchange? As things stand the value of money is already a factor of a national basket of goods and services.

 

[Jason]

The more the Greeks refuse to change anything, the more their currency would collapse.

Yes. Not quite collapse (which implies a bottomess fall) but depreciate year on year. This has long been the norm for the nations of Club Med. From memory it was something like 2,500 Italian lira to the pound when the Italians joined the Euro. Yet in the inter-war years there was something called "Quota 90" which pegged the lira to the pound at 90lira=£1, and right up until the 2ndWW the lira was divided into 100 bits (cent...something or other - can't quite remember) which had value. The whole way in which Club Med economies were run was predicated on inflation and devaluation, along with expectations of wage rises. This mind set cannot suddenly be changed - and events have shown that it wasn't.

The old currencies worked for Club Med. By contrast the Euro has delivered a short boom and now a bust, with the horrors of austerity as the only way out. The misery is already present in terms of mass youth unemployment (particularly in Spain and southern Italy). And the cure is ... more misery. If the success of the Euro were measured in terms of the happiness it brings then for these countries it has already failed.

The EU bailout is already looking flaky. Some sort of EMF (IMF for Europe)has been mooted but is surely a nonstarter - it needs massive assets built up in years of prosperity. The political fall out in Germany of any bailout would be severe. Right now the EU has come up with a form of words which mean something different to every country in the EU. It has staved off problems for the moment.

The UK position is of coursedire. The housing market is a key. There is a view that the decoupling of residential house prices and incomes which has been seen in many of the world's most expensive real estate areas could be happening in London and the SE. We've always had the idea that the housing market works because people buy houses to live in themselves, so house prices are related to what mortgage people can get, basically salary times a multiplier. An average property was 3 or 4 times average salary. But this does not apply in some real estate markets, and it may now be wrong to apply it in Britain. Hong Kong, Singapore and Tokyo are examples of cities where it is just not useful to try to relate property prices and salaries. HK and Singapore have space restrictions - which is a feature of much of the UK market. If you stop almost all building (as we have done) and enact laws which make it sensible to leave property empty (as we have done) you end up with a space restriction in many ways comparable to HK and Singapore. The London and the SE of England is a radius of about 60 miles from London, but that includes London's Green Belt, a new National Park (South Downs), quite a bit of sea, plus very many areas with draconian building restrictions. The actual square mileage of land given over to building is maybe a quarter. It is tiny! And even in this area new building is all but stopped.

 

[lipollo]

Alot of illegitimate and downright stupid dictums about the Greek crisis being put through by some of you.

One person who I would like to single out is duc10023 who states rather impressively that the root of the greek crisis is that they spend too much, something which is not a US problem. - which is puzzling to say the least.

People need to understand that when we say Greece is bankrupt you must look at the reasons for the huge deficit. A primary causeof the deficit has been the infrastructure works that Greece put into play for hosting the Athens Olympics. Which not only saw a host of stadia be built, but state sponsored refurbishments of hotels, brand spanking new yacht marinas, and not to mention a european state of the art metro link - all of which can be argued validly are one time expenses which were worth the debt (especially in the case of the metro).

Now 65% of the Greek debt could be paid off if people in Greece who should pay the correct amount of tax - did pay tax. To have private surgeons at some of the leading hospitals declaring an income of 40,000 euro a year is just rediculous. Can someone please tell me a doctor at a top class private hospital in the US getting paid 40,000 a year?

Moreover, this lack of accountability not only would reduce the deficit from 13% to around 5.5% - it would simply show that whilst there are structural imbalances they are not on the level that some here postulate.

If Greece did not feel pressure to compete in a mini cold war set up with Turkey - who almost forces Greece to send militarily due to constant airforce and naval excursions into Greek territory - the latest being a turkish military shit travelling within a few kilometres of Athens! - the whole Greek deficit would be wiped clean.

When people discuss the 14 month salary, or the retirement age they do not realise that these are symbolic sacrifices - they serve no causal link to the deficit.

 

[D_Tully Tunnelrat]

You mean there will be just one world currency, maybe different names in different places but with fixed exchange? As things stand the value of money is already a factor of a national basket of goods and services.

No, it's the Big Mac theory of exchange. A possibly a more honest metric than central bank IOUs, which are muddled by feelings of patriotism.

One person who I would like to single out is duc10023 who states rather impressively that the root of the greek crisis is that they spend too much, something which is not a US problem. - which is puzzling to say the least.

Well your theory maybe correct (it also maybe incorrect since no one made Greece host the Athens games...). As many point out the Greeks are unlikely to change their ways overnight, if ever - as evidenced by their 50% default rate on national bonds since the mid-1800's.

I think you misunderstood my earlier point, perhaps I was unclear. The Greeks do spend more than they can afford. The US, for the last 10 years, has done this as well, but the US's junky like addiction to living beyond it's means did not cause the Greeks spending crisis, nor does it sop up all the global capital which may have been used to bail out Greece. After all Norway could buy up Greece's entire debt overnight with a 1/10th of their sovereign fund, if they wanted to, but they don't as it's a risky offering without an ECB guarantee.

In Greece's case, they hid spending off the books (entire military budget..), and the ECB did not properly audit them. The reason why Greek debt is at issue is based on whether or not they will have the ability (+will) to pay it back (and black market % theories about how much tax could be recaptured are only speculation), a challenge which the developed world is collectively struggling to meet.

Ironically if Greece had been able to convince the EU to take in Turkey, their military budget could have been greatly reduced... have the Turks ever voted to rescind their '95 casus belli against Greece?

 

[dandelion]

Yes. Not quite collapse (which implies a bottomess fall) but depreciate year on year.

The way you and others have been describing this, 'collapse' seems correct.

The whole way in which Club Med economies were run was predicated on inflation and devaluation, along with expectations of wage rises. This mind set cannot suddenly be changed - and events have shown that it wasn't.

Then what is needed is that conservative mantra 'A short Sharp Shock' (though it was originally W S Gilbert in the Micado?)

The old currencies worked for Club Med. By contrast the Euro has delivered a short boom and now a bust, with the horrors of austerity as the only way out.

No, the US bank fraud and collapse delivered a bust.

The misery is already present in terms of mass youth unemployment (particularly in Spain and southern Italy).

Unemployment is grossly overrated as 'misery'. Havn't you noticed the UK employment statistics where the 'unemployed' (as defined by claiming benefits) is static, but the 'not economically active' (dont have a job but not claiming anything) is going up? Basically that means the last lot have some other form of financial support, theyre not broke or theyd be on benefits. Retired bankers and paid off hospital managers?

And the cure is ... more misery. If the success of the Euro were measured in terms of the happiness it brings then for these countries it has already failed.

More 40 year old retired bankers living on their bonuses, or others falling back on their black market occupations the inability to tax same which has caused the Greek budget shortfall?

The EU bailout is already looking flaky.

There is no point the EU or anyone else pumping in money unless there is a realistic scenario how the country will become self financing in a foreseeable future. The theory of borrowing your way out of a recession is nice, but unless the financial infrastructure exists that the government can get the share of the revenue it needs, it just cannot work. If you keep borrowing even when you know it cannot work, all you are doing is postponing and increasing the ultimate pain. At least Greece has a safe environment, the euro and the EU, in which to recover after the collapse. The Greek government cannot impose this. Everyone else has to refuse to keep giving alcohol to the alcoholic.

The UK position is of course dire. The housing market is a key.

Thats what I have always thought. It is hard to say if it is 'dire'. We have been literally throwing away billions of pounds on replacing kitchens every six months and generally a wild lifestyle, based on taking out loans on property. This is unsustainable. I presume it has essentially stopped, which is why the government is now borrowing in our name to make up the income shortfall. What percentage of UK growth has been due to borrowing to spend over recent years I don't know, but as I said it had reached the point where there was no longer sufficient savings in the country to finance it and it relied upon inflow of money from abroad. It is not clear to me that private borrowing as before can resume, so how is the economy to be guided to a steady lower GDP level? I have not heard any politician explain this.

There is a view that the decoupling of residential house prices and incomes which has been seen in many of the world's most expensive real estate areas could be happening in London and the SE.

You mean people borrowing not merely the very most they could afford, but more than they could afford, on the assumption the rising prices will pay the eventual interest bill? Very dangerous. Legislation called for to stop this? Anything on the horizon?

HK and Singapore have space restrictions - which is a feature of much of the UK market. If you stop almost all building (as we have done) and enact laws which make it sensible to leave property empty (as we have done) you end up with a space restriction in many ways comparable to HK and Singapore.

I have seen no suggestion that there is a significant proportion of empty houses except as turnover during letting (which if it was just 1 week per year on the normal 1-year contracts would be 2%) or selling, or where a buyer wants to demolish or majorly renovate. Houses can remain empty for years because the owner wants to demolish and build something more valuable. Perhaps a law about that, but the problem would disappear if the overall shortage was fixed.

The London and the SE of England is a radius of about 60 miles from London, but that includes London's Green Belt, a new National Park (South Downs), quite a bit of sea, plus very many areas with draconian building restrictions. The actual square mileage of land given over to building is maybe a quarter. It is tiny! And even in this area new building is all but stopped.

Again the obsession with bankers in the city. In the 50s and 60s there was a central policy to depopulate London and move things to the provinces. Whatever happened to that? Now we have people demanding new London runways. and better trains so they can commute further.

Perhaps this is not a good time to raise the pensions crisis, which is not about people failing to save enough for their old age, but about however much they think they have saved, care in old age can only be provided by others around you doing the caring. There is no mechanism whereby a vast amount of wealth can be carried forward. The value of assests is is only as much as can be purchased with them, and if there is nothing to purchase then they are worthless. Prisoners paying their guards diamonds for a meal. This is another very difficult issue which although not immediately urgent might suggest we should fix the other mess while there is still time (maybe).

 

[dandelion]

Ironically if Greece had been able to convince the EU to take in Turkey, their military budget could have been greatly reduced... have the Turks ever voted to rescind their '95 casus belli against Greece?

Turkish entry to the EU is a bit of a problem. Aside from the turkish-Greek conflict there is the fact that Europe doesn't need yet another drain on its budget right now, and some real problems about incompatibility with Turkish views on citizens rights. If the US has done such a good job in Iraq, maybe they will join first. Another oil producer inside the eu might be handy.

 

[798686]

Looks like the EU is awarding itself sweeping new economic powers in return for a Greek bailout package. (Well predicted, Jase).

France and Germany thrashed out a plan before the summit, which will put Van Rompuy in charge of "the economic governance of Europe", and give the EU power to co-ordinate all EU economies as part of the 30bn euro bailout package for Greece.

The initial Franco-German proposal was for a new "economic government" of Europe, but this was watered down by Gordon Brown.

Merkel has also suggested a new treaty would be needed to give the EU extra economic powers - despite earlier promises that Lisbon would be it, for a decade. Quelle surprise?

*Also, German polls suggest one third would like to see their country leave the euro - with a far greater percentage in favour of a Greek exit from the single currency.
*As many will already know, Portugal is the latest EU economy to have it's credit rating downgraded by Fitch's (to AA-).