>They cannot agree on who should bear the cost of today’s crisis: should it be creditors (through a write-down), debtors (through austerity) or the Germans (through transfers to the south)?
In theory it should, of course, be the creditors. You buy an asset (govt bonds), you're implicitly and knowingly shouldering a risk of default. The institutions that bought these assets should have known what they were buying. Caveat Emptor.
Of course in practice you need to ask what the wider implications of default are. Greece _should_ be allowed to default. Absurd austerity budgets are penalising the average Greek whilst minimising the bottom line impact to (arguably wealthy and powerful) European banks. It's no wonder they're pissed. The short-sharp shock of a Greek default will be over in no time. Rolling debt and refinancing terms etc etc is likely to make things worse in the long term.
But of course Italy is different, given the size of the economy. The impact of a default is likely to be far, far wider than a write-down to the creditors. But to be honest I think this worry over contagion is being over-blown. Markets often over-react. It only takes a single hedge-fund these days to move a market - even a big one like Italy debt. It's probably just Bluecrest or Moore selling the market :)
>In theory it should, of course, be the creditors. You buy an asset (govt bonds), you're implicitly and knowingly shouldering a risk of default. The institutions that bought these assets should have known what they were buying. Caveat Emptor.
Indeed. But the reason why you try to avoid a default (or the prospect of one) is that you want to continue to borrow money to finance your deficit spending. Otherwise you get the worst of both worlds: forced austerity and creditors that want nothing to do with you without high interest rates.
Yes, absolutely. I was going to add an edit to this effect. Damned if they do, damned if they don't. Anyway the running of these deficits _does_ need to be curbed. It's clear that Greece has been pretty terrible at collecting taxes and managing it's finances. Even now with "Austerity" the UK is still spending £4 for every £3 it earns. Austerity just means "slow the increase in debt". In fact it's prob not even a first-order change, but second order: slow the rate of increase!
Edit: don't know why you've been dv'd, your point is absolutely relevant.
It's not as simple as that. Greece is in a hole largely because tax evasion is the national sport. The "average Greek" should bear the brunt of it. He or she owes decades of back taxes anyway... The premium Greece will have to pay on it's debts won't go away with dropping out of the Euro.
Except that the loans in question were made to the Greek government, not the average Greek. The creditors should have taken into account the Greek government's inability to collect proper taxes.
Let's be honest, tax evasion is pretty much a national pastime in the US too -- the difference is that here the IRS will come after you if you cross the line.
Yes, whereas it's systemic in Greece - the government will call off tax inspectors in an election year!
The only way forwards I see is for the Germans to take over the collection of Greek taxes, and to control Greece's spending too, at least for a generation.
Yes well that was the problem - Greeks are happy to vote for high government spending, they even vote for high taxes - they just don't pay them.
I think we'll also see them sell their half of Cyprus to Turkey too, for a few billion Euros, once the austerity starts to bite. And the Germans have their eye on a few of the Greek islands too.
It was only recently that Greece stopped openly calling for enosis, enjoining Cypriots to overthrow their own government if necessary. They've been quieter about that crap over the last couple of decades, but Greece still clings to the territorial dispute to justify its overgrown military. It is quite accurate to say that Greece hasn't yet let go of Cyprus, and that doing so would save it considerable money.
To my knowledge, the U.S. has never encouraged Canadians to overthrow their government, nor do they use Canada as an excuse to justify an expensive cold war against, say, France.
It is not just the tax dodging though. The greek people are, at least in Europe, known for being lazy and many of them are in government positions where they get paid a lot but don't work a lot. That they dodge taxes on top of that is just icing on the cake.
The other issue is that Greece couldn't keep up with exports in terms of cost with other EU member states. It isn't able to keep up with other high export countries for the same goods.
All Greeks I've met that had a government job made it a point of pride of how little they worked and how they spent their days openly in leisure or working a second job on government time. The private sector employees envied and cajoled them. It was surreal. Maybe it was the alcohol.
This is a real problem, as far as civil services are concerned. If you want to go to some service to do some work, their opening hours are frequently 10am-1pm. It's ridiculous, and really makes things hard for the public. I'm not familiar with any service that stays open to the public after 2pm, post offices, hospitals, whatever.
Meanwhile, employees in the private sector work 11-13 hour days, 6 (sometimes 7) days a week, so calling Greeks lazy is unfair. Most of my friends are amazed and envious when I tell them I don't work on Saturdays.
I've heard that kind of boasting from Americans working at dysfunctional large corporations also. Get people over beers and they'll tell you about how in all of last month, what they did is played 5000 games of Bejeweled Blitz, made 3 bullshit Powerpoint presentations, attended a few bullshit meetings, and carefully tweaked their .vimrc while pretending to work. It seems to be the sort of culture that crops up when people are in dysfunctional settings and cynical about whether their job is actually doing anybody any good; kind of a coping-mechanism I guess.
Of course telling creditors to suck it up is a great way of guaranteeing that you'll never see a red cent from them - or their buddies - again.
Pissing off your creditors is like pissing off a business partner - you do so at your own risk; the more powerful the partner, the larger the fall out.
I believe that the money lent to Greece is just being funneled back to banks to pay their existing debt obligations. The so called bailout for Greece is really a bailout for banks. Everyone knows Greece will never pay back these loans. The hope of the ECB is that a Greek default can be pushed long enough into the future so that when it does default the banks will be in better financial shape. The fear is that right now the banking system can't handle a Greek default.
Yes, this could be an explanation. But why would the Greek government provide the money to the banks? I mean they could invest the money (that they've got from EU and IWF) in infrastructure and economy and then declare default. If I understand it well Argentina was as well helped by IWF, but in the end they defaulted - and it seems like it was the right step. So I do not really understand what is the EU's interest to absolutely safe Greece from default? They are pumping more and more money at a time where many voices say that Greece will not be able to pay back. Even George Soros thinks: "A Greek default may be inevitable but it need not be disorderly" (http://www.cnbc.com/id/43720940).
So if you could explain, why is it important for the banking system to be able to handle a Greek default? I mean throughout the financial crisis everybody is saying that it is absolutely important to save the banking system - every politician repeats this like a parrot. But why? Most of the middle/lower class population in Europe does not have spare money in a bank account but in contrary has debts for housing or other stuff. And I would guess that this is by far more than 80% of population. These people would not necessarily suffer from banks collapsing, but they are suffering from the economic cuts that the governments are doing everywhere in order to save banks - who are actually responsible because they did not mitigate the risk and triggered the subprime crisis.
So if you have a good explanation, please share with me.
The interests of the ruling elite of Greece do not coincide with the interests of the average Greek. Greece is part of the EU and it's leaders are part of a ruling social group within this context. How they view things is differently than how the average Greek views things. Or how you and I view things.
The Greek government has bond payments to make and needs money to make those payments. The funds recently released by the ECB are for Greece with the understanding that it is just going to take the money and pay make the bond payment. The ECB wants Greece to sell assets. There is money to be made by for foreign companies buying national assets of Greece. The ruling elite stand to make money from this as well. The average Greek stands to lose big time. Hence the demonstrations.
Greece should default. It should leave the euro. Its government should not exist to serve the interests of the banking elite.
That's only part of the picture. You could just as accurately say that the government should not exist to serve the interests of the unions. Taming the banks would not make Greece's problems go away, nor would aligning the interests of the Average Greek with those of the elites.
The population of Average Greeks doesn't maintain economic productivity sufficient for any kind of significant export economy.
The population of Average Greeks doesn't pay enough taxes to finance the government at even a basic level, never mind the more luxuriant indulgences like a bloated military.
To the extent that it's unionised, the population of Average Greeks values job security for themselves above overall employment and economic solvency.
You are right that the average Greek will be on the losing side of any sales of national assets. But from the looks of things, the average Greek is unwilling to consider the structural improvements that that are the viable alternative.
You've hit one of the biggest issues on the head and that is the greek do not pay enough taxes yet each time they are more than willing to vote for tax increases and increases of social services made available to them.
One of the things that the greece government has to do is cut back on those social services and ACTUALLY start collecting taxes it is owed to make up for that debt.
The greek people are unhappy to cut social services and are not willing to pay taxes... that doesn't work.
"Most of the middle/lower class population in Europe does not have spare money in a bank account but in contrary has debts for housing or other stuff."
Actually, unlike their government, most Greek households do not have high debts:
"Greek consumers are relatively frugal, with household debt equal to just 61% of GDP, compared the American household debt of 95.7% of GDP"
Most people in EU invest their money in real estate or some other hard value. But contrary to US, most people do not handle their economics for the retirement by themselves - this is handled by the governments. So there is really not much to lose if some banks will go bankrupt. It would finally clean up the whole mess. Looking at the figures above I ask myself why Americans did bake the US government to bail out the banks - seems they should have even less interest?
The American people wrote in large numbers to their representatives to not bail the banks back when. If you remember, the bill was not passed first time around.
It probably would have been much worse though had it not passed second time around. Tremendously long cues like the British bank Northern Rock worse.
In theory it should, of course, be the creditors. You buy an asset (govt bonds), you're implicitly and knowingly shouldering a risk of default. The institutions that bought these assets should have known what they were buying. Caveat Emptor.
Of course in practice you need to ask what the wider implications of default are. Greece _should_ be allowed to default. Absurd austerity budgets are penalising the average Greek whilst minimising the bottom line impact to (arguably wealthy and powerful) European banks. It's no wonder they're pissed. The short-sharp shock of a Greek default will be over in no time. Rolling debt and refinancing terms etc etc is likely to make things worse in the long term.
But of course Italy is different, given the size of the economy. The impact of a default is likely to be far, far wider than a write-down to the creditors. But to be honest I think this worry over contagion is being over-blown. Markets often over-react. It only takes a single hedge-fund these days to move a market - even a big one like Italy debt. It's probably just Bluecrest or Moore selling the market :)