Exasperated lenders get blunt with Greece

Scofflaw

For three days earlier this month, senior inspectors from the troika of the International Monetary Fund, European Commission and European Central Bank rushed in and out of ministers' offices with their heads down, clutching files and avoiding reporters.

Sources from both sides said the meetings reviewed a track record of two years of broken promises to international lenders, who have pledged a total 240 billion euros ($294 billion) to pull the euro zone member back from the brink of bankruptcy.

The coalition government, which was cobbled together in June after two national elections failed to produce a clear winner, is racing against the clock to come up with cuts and reforms before the troika returns for a formal inspection to decide whether to grant another loan installment in September.

"As we suspected, they have fallen quite badly behind due to the election campaign and they are trying very hard to put the train back on track. The troika's main task next week is to see how we can get restarted," said a troika official who did not want to be named.

ANGRY AND FED UP

The first visit did not try to resolve specific problems but set a new tone for the relationship between Greece and its partners, making clear there was no time to waste on diplomatic niceties, and not much trust in the bank.

"They were clear and direct - as long as we produce results they will continue to support us, otherwise they will not," said a minister whose predecessor had fallen behind targets.

At another ministry, the message was equally no-nonsense, an aide said: "They were angry but mostly fed up. They said Greece would not get any money unless it showed some progress."

Among a long list of failures, Athens has not completed any substantial privatizations and is behind on tax reform, restructuring the public sector and properly opening up markets and professions. Poor tax revenues mean it will likely miss a 2012 deficit target of 7.3 percent of GDP.

http://www.reuters.com/article/2012/07/19/us-greece-troika-idUSBRE86I0XU20120719

Will Greece manage to get its finger out before September? Will the troika blink? Has everybody managed to firewall Greece sufficiently to take the hit if the Greeks don't get the finger out and the troika don't blink?

cordially,
Scofflaw

poeticseraphim

Scofflaw wrote: »

http://www.reuters.com/article/2012/07/19/us-greece-troika-idUSBRE86I0XU20120719

Will Greece manage to get its finger out before September? Will the troika blink? Has everybody managed to firewall Greece sufficiently to take the hit if the Greeks don't get the finger out and the troika don't blink?

cordially,
Scofflaw

Targets have been consistantly unrealistic. Greece has no more ability to meet this one than any others.

'ANGRY AND FED UP' - Someone has missed their mid morning bottle and cookie. When Troika officials miss their afternoon Nap they get cranky and Greece crys a lot and they they all throw their toys out of their pram.

September is now legitimately unrealistic considering how far off course thy are I don't think it is a threat of withdrawing support it is nnow a wish.

No i don't think that they have accurately audited Spannish banks in particular to even know how exposed certain banks are. Firewalling is not just around the bomb of Greeks banks they need EU banking reform and in inidividual countries to shelter banks against a Greek default. Tenntrating too much in Greeewhere not much gets doe. Strengthening the assest vulnerableto aGreek default thatare ableandwilling to refor makes more sense.

I don't think Greece has a a hope of meetingit's targets. I could be wrong. But we are vulnerable to a Greek default I think. as is Cyprus,Portugal and Spain I am not sure about Italy. But I am uncertain if the Troika will blink. I think there wish would be to stop funding Greece with no fallout to other economies. But is completely unrealistic.

jonniebgood1

Greece needs its own currency back.
It then needs at least 3 seperate devaluations of approx 10% each spread over 2 years. This would solve a great deal of her problems. It would allow greek produce to be more affordable, thus creating employment as exports rise. It would also bring some of their more ridiculous public service situations down a few notch's as other catch-up. The Germans will not want this as it starts to close down market place to them (their goods would not be affordable with the devaluation). It would also provide a template for more important marketplaces like Spain and Italy.

Scofflaw

jonniebgood1 wrote: »

Greece needs its own currency back.
It then needs at least 3 seperate devaluations of approx 10% each spread over 2 years. This would solve a great deal of her problems.

If it happened that way, perhaps...but I can't really see neatly controlled drachma devaluations happening. I would see as much more likely a rather dramatic plunge towards the toilet paper end of the scale, probably accompanied by money printing and galloping inflation. Similar to Turkey in the Eighties - if you were exchanging money, you waited until you needed to do it, because you'd get noticeably more lira for your pound in the afternoon than you had that morning...

jonniebgood1 wrote: »

It would allow greek produce to be more affordable, thus creating employment as exports rise.

I'm not sure the problem there is affordability - it seems to be rather more a lack of production. Look at Greece's top ten exports to Germany:

Imports|Trade balance in bn USD|Exports|Trade balance in bn USD
1 Cars|1.06|Wool products|-0.21
2 Pharmaceuticals|0.34|Fresh vegetables and fruit|-0.2
3 IT|0.31|Processed fruit|-0.06
4 Plastics|0.3|Non-ferrous metals|-0.05
5 Vehicles excl.cars|0.29|Non-ferrous ores|-0.02
6 Paper|0.25|Unprocessed ores|0
7 Machine tools|0.25|Cement|0
8 Misc. equipment|0.24|Natural gas|0
9 Beauty, cosmetics|0.22|Oil|0
10 Car parts|0.22|Coal|0
Top ten products|3.48|Top ten products|-0.55


Wool products, vegetables, fruit, metals, ores, cement, gas, oil - primary products. Making those more affordable probably won't give Greece any greater market share, because I doubt there's a lot of elasticity in production - the effect will mostly be just to reduce Greece's national income.

jonniebgood1 wrote: »

It would also bring some of their more ridiculous public service situations down a few notch's as other catch-up.

Unless they start printing drachma hand over fist...and oddly enough I can see that happening.

jonniebgood1 wrote: »

The Germans will not want this as it starts to close down market place to them (their goods would not be affordable with the devaluation). It would also provide a template for more important marketplaces like Spain and Italy.

I don't really get the impression that the loss of some of the Greek market would hurt Germany much, because we're basically talking about a few billion a year, much of which is probably bought out of the proceeds of shipping - which won't be affected very much by devaluation.

I have to say that I think looking at Greece as if it were a somewhat sunnier version of Ireland produces highly misleading results. We think of ourselves as a primary producer, earning money from agriculture, tourism, and hosting other people's services - but we're actually an high-tech exports country, with the second or third largest positive balance of trade in the EU. They actually are a primary producer. They export about $22bn annually, mostly primary production, we export $122bn annually, mostly high value added high-tech.

This is us: http://upload.wikimedia.org/wikipedia/commons/6/64/Ireland_Export_Treemap.jpg

This is them: http://upload.wikimedia.org/wikipedia/commons/e/eb/Greece_Export_Treemap.jpg

Very different ballgames.

Moving on - while we grumble about our public sector, we actually have a highly efficient and relatively small PS - while theirs is more bloated, padded, inefficient, and self-serving than the wet dreams of a boards.ie PS-basher. Their government lives beyond its means in a way that, again, only happens to the Irish government in libertarian fantasies: http://cib.natixis.com/flushdoc.aspx?id=52172

Any 'quick fix' for Greece is going to go horribly wrong - and even if it didn't, it still wouldn't pull Greece into the 21st century. They're a developing world country trying to cut it in a first world country club where Ireland is one of the flashiest and techiest and recently self-made. Our problems aren't the same as their problems, and what would work for us would be, in Greece, a reprise of the development follies of Victorian interventions in Africa.

cordially,
Scofflaw

jonniebgood1

Scofflaw wrote: »

If it happened that way, perhaps...but I can't really see neatly controlled drachma devaluations happening. I would see as much more likely a rather dramatic plunge towards the toilet paper end of the scale, probably accompanied by money printing and galloping inflation. Similar to Turkey in the Eighties - if you were exchanging money, you waited until you needed to do it, because you'd get noticeably more lira for your pound in the afternoon than you had that morning...

The ultra-conservative Euro leaders have already shown their colours. When we get to the stage where this is possible it will certainly be neatly controlled. That assessment is based on how they have behaved thus far.

Scofflaw wrote: »

I'm not sure the problem there is affordability - it seems to be rather more a lack of production. Look at Greece's top ten exports to Germany:

Imports|Trade balance in bn USD|Exports|Trade balance in bn USD
1 Cars|1.06|Wool products|-0.21
2 Pharmaceuticals|0.34|Fresh vegetables and fruit|-0.2
3 IT|0.31|Processed fruit|-0.06
4 Plastics|0.3|Non-ferrous metals|-0.05
5 Vehicles excl.cars|0.29|Non-ferrous ores|-0.02
6 Paper|0.25|Unprocessed ores|0
7 Machine tools|0.25|Cement|0
8 Misc. equipment|0.24|Natural gas|0
9 Beauty, cosmetics|0.22|Oil|0
10 Car parts|0.22|Coal|0
Top ten products|3.48|Top ten products|-0.55


Wool products, vegetables, fruit, metals, ores, cement, gas, oil - primary products. Making those more affordable probably won't give Greece any greater market share, because I doubt there's a lot of elasticity in production - the effect will mostly be just to reduce Greece's national income.

I take your point RE the greek exports although the point I am making is that currently goods produced/ manufactured in Greece are to expensive to make them worthwhile. A devaluation would do alot to get industry moving, if theres money to be made... . Most interesting though in relation to this point is the imports from Germany. They are the reason why Germany is resisting this.

Scofflaw wrote: »

I don't really get the impression that the loss of some of the Greek market would hurt Germany much, because we're basically talking about a few billion a year, much of which is probably bought out of the proceeds of shipping - which won't be affected very much by devaluation.

It would'nt hurt Germany much on its own. The problem is when Spain and Italy follow. A drop in German exports to Greece, Italy and Spain (Portugal also) would most likely bring recession home to roost.

Scofflaw wrote: »

Any 'quick fix' for Greece is going to go horribly wrong - and even if it didn't, it still wouldn't pull Greece into the 21st century. They're a developing world country trying to cut it in a first world country club where Ireland is one of the flashiest and techiest and recently self-made. Our problems aren't the same as their problems, and what would work for us would be, in Greece, a reprise of the development follies of Victorian interventions in Africa.

At this stage would it really be a 'quick fix'? 4 years of austerity + 2 years of gradual devaluation.
I would not equate our problems with Greece. The devaluation solution to Greece's problems would have very negative connotations for us though. I dont see any success or end to the current methods of solving the eurozone problems- Spain in particular as I point out in a separate thread is only starting on a new scale of austerity and the market reaction shows no faith in it being successful. From a starting point (now) of 25% unemployment I cannot see current policies in Spain getting them anywhere over the medium term (20-30 years). So naturally to find a solution to similar problems we can look to examples from modern history. The most successful method of economic recovery in the past 100 years almost always involves a rebalancing of currency exchange rates. This is what Greece needs.

Scofflaw

I take your point RE the greek exports although the point I am making is that currently goods produced/ manufactured in Greece are to expensive to make them worthwhile. A devaluation would do alot to get industry moving, if theres money to be made...

Well, no, I doubt it - those exports accurately reflect Greek industry. There's clearly money to be made in Greece making the things the Germans sell the Greeks, but they don't, and more importantly they haven't at any point in the last 20 years, even though for pretty much that entire time Greek unit labour costs have been lower than German labour costs.

The problem is more a question of what Greece makes and produces, not of the cost of those exports:

We believe that this is where the real problem of the peripheral countries lies. Their lack of competitiveness vis-à-vis Germany is not due to the fact that they are expensive (their wage rates are substantially lower), or that labor productivity has not increased. The problem is that they are stuck at middle levels of technology and they are caught in a trap. Reducing wages would not solve the problem.

http://www.levyinstitute.org/pubs/wp_651.pdf

Neither reducing wages nor devaluation will make a Greece a more high-tech country, and that's its problem.

Most interesting though in relation to this point is the imports from Germany. They are the reason why Germany is resisting this.

Germany are resisting what exactly? The Greeks don't want to leave the euro - it's not a case of the Germans keeping them there.

cordially,
Scofflaw

jonniebgood1

Scofflaw wrote: »

Well, no, I doubt it - those exports accurately reflect Greek industry. There's clearly money to be made in Greece making the things the Germans sell the Greeks, but they don't, and more importantly they haven't at any point in the last 20 years, even though for pretty much that entire time Greek unit labour costs have been lower than German labour costs.

Yes, and devaluation would get this moving.

Scofflaw wrote: »

The problem is more a question of what Greece makes and produces, not of the cost of those exports:

Money makes the world go round. Of course it is dependant on costs. If production costs go down then these more valued products become viable. If production costs go down then foreign companies see it as an attractive destination (compared to now).

Scofflaw wrote: »

Germany are resisting what exactly? The Greeks don't want to leave the euro - it's not a case of the Germans keeping them there.

Resisting any significant policy that would genuinely help.

Scofflaw

jonniebgood1 wrote: »

Yes, and devaluation would get this moving.

Money makes the world go round. Of course it is dependant on costs. If production costs go down then these more valued products become viable. If production costs go down then foreign companies see it as an attractive destination (compared to now).

The same argument applies - in spades - to sub-Saharan African countries, yet it somehow doesn't work out like that. Come to that, we're not a cheap FDI destination, yet we're consistently one of the most successful in the world.

Money is an important factor, but I don't think it's the only factor, nor even the dominant factor.

jonniebgood1 wrote: »

Resisting any significant policy that would genuinely help.

...such as?

cordially,
Scofflaw

jonniebgood1

Scofflaw wrote: »

Originally Posted by jonniebgood1 View Post
Resisting any significant policy that would genuinely help.

...such as?

Quantitive easing, Better terms, 2 tier Euro, anything to help them become viable. They currently are not a viable entity under the current bailout no matter how much they have been granted thus far. If Greece are to remain in the Euro to keep the currency stable then the Eurozone leaders need to be realistic in return. I see them leaving as being the best option for Greece, as outlined already this is the historic proven solution to their problems. The main beneficiaries of the Euro are those currently in a strong position with Germany at the head of this. If the Germans had their own currency at the moment it would be so strong that their exports would not be sustainable or affordable in other less strong currencies. This was always a natural type of balancing mechanism between nations and that changed with the Euro. So if it is to remain there needs to be a compromise of some kind which given the influence of national interests on political leaders is becoming more likely. Its similar in ways to parish pump politics in Ireland.

Scofflaw

Hmm:

The German news magazine Spiegel reports that the IMF has told the EU it will provide no additional funds for Greece. The report has sparked fresh fears that Greece could fall into bankruptcy by the autumn.

A report by a German news magazine on Sunday sparked fresh concerns about the possibility of Greece being forced into insolvency.

In an article published on its website, Spiegel cites unnamed senior European Union sources in Brussels who told the news magazine that the International Monetary Fund (IMF) had signaled it would not contribute to any further aid for Greece.

and

In a further indication that patience may wearing thin among Greece's paymasters, German Foreign Minister Guido Westerwelle on Saturday ruled out the possibility of relaxing the conditions of Athens' second bailout.

"I see desires emerging in Greece to renegotiate and substantially question the country's obligations to carry out reforms. I have to say simply, that will not do. It is a Rubicon that we are not going to cross," Westerwelle told the mass-circulation newspaper Bild.

Such 'desires' are no secret; Greece's current coalition, led by conservative Prime Minister Antonis Samaras has pledged to renegotiate the conditions of the bailout in an effort to soften the blow of austerity on ordinary Greeks. The coalition has also said that it intends to keep Greece in the eurozone.

http://www.dw.de/dw/article/0,,16117892,00.html?maca=en-rss-en-all-1573-rdf

I don't think Germany is "keeping" Greece in the euro to keep the currency stable - they're most certainly not assisting in any such thing anyway.

cordially,
Scofflaw

jonniebgood1

Scofflaw wrote: »

I don't think Germany is "keeping" Greece in the euro to keep the currency stable - they're most certainly not assisting in any such thing anyway.

Well tell me then why are Greece still a part of the currency. If there was no consequence for European leaders in this eventuality then it would have happened long ago.

Also why do you think Germany is supporting the bailout of Greece?

Scofflaw

jonniebgood1 wrote: »

Well tell me then why are Greece still a part of the currency. If there was no consequence for European leaders in this eventuality then it would have happened long ago.

Also why do you think Germany is supporting the bailout of Greece?

Greece are still part of the euro because they want to be - there's no mechanism for removing them.

As to why Germany is supporting the bailout of Greece - is Greece not part of the EU? After all, it's not just Germany that's supporting the Greek bailout - we are, and all the EU countries are. Germany was in fact probably the most reluctant to do so - by your lights, it should have been the most enthusiastic:

Germany has been the most reluctant to bail out Greece, but its Economy Minister Rainer Bruederle said there was a "good chance" of getting German parliamentary agreement by Friday.

http://news.bbc.co.uk/2/hi/8656649.stm

and:

http://www.bbc.co.uk/news/10090578

One of the major reasons Germany has been able to call the shots is because it is both absolutely necessary to any bailout efforts and also deeply reluctant.

The amount of money Germany is risking in Greece as part of the bailouts is multiples of its export earnings to Greece.

cordially,
Scofflaw

poeticseraphim

The German stance has changed
http://uk.reuters.com/article/2012/07/24/uk-germany-greece-coalition-idUKBRE86N0K820120724
A sugestion was made todayby Alexander Dobrindt, general secretary of the more influential Christian Social Union (CSU) - the Bavaria-based sister party of Merkel's Christian Democrats (CDU) that Greece should start paying half of its pensions and state salaries in Drachma.

FDP leader Philipp Roesler, who is also Germany's Vice Chancellor and Economy Minister has said it is no longer a taboo subject.

It is possible that Greece could regain competitiveness after an exit and default.

Could the Euro regain stability? And is the problem with th Euoreally Greece though? WE inthe Eurozone still have to deal with Spain Italy portugal and ourselves. Along with most Eu countries entering into a negative econmy phase with a genral downgrading of ratings accross the board.


Some of this might be helped by a Greek exit in th long term...but really the main problems appear to be Spain and Italy and a slow action to enforce true reform and cuts. And we have to ask is the money even there at this poin.

Greece might be better off and it looks as if it is no longer envisioned as a worst case scenario.

jonniebgood1

Scofflaw wrote: »

The amount of money Germany is risking in Greece as part of the bailouts is multiples of its export earnings to Greece.

Indeed, 27% of the european contribution according to RTE radio today. It is not a multiple of their exports to the PIIGS though.

Scofflaw wrote: »

Greece are still part of the euro because they want to be - there's no mechanism for removing them.

As to why Germany is supporting the bailout of Greece - is Greece not part of the EU? After all, it's not just Germany that's supporting the Greek bailout - we are, and all the EU countries are. Germany was in fact probably the most reluctant to do so - by your lights, it should have been the most enthusiastic:

I must point out the difference between reluctance to make a financial contribution to helping Greece out, and being happy to let them fall out of the Euro (You don't expect them to jump for joy do you!).
If Greece are to leave the Euro it is essential for the German interest (I say German but am referring to the stronger nations such as Netherlands, Finland, etc, I just thought it was simpler to write German rather than a list of countries as they are the primary force amongst these) that the situation is controlled in their interest. This is as explained before due to the more damaging prospect of Spain or Italy leaving. Imagine the problem if they just let Greece go without keeping control over them, 2 years later Greece is back on its feet while Spain and Italy are still stuck in reverse. Then there would be a problem.

Scofflaw

jonniebgood1 wrote: »

Indeed, 27% of the european contribution according to RTE radio today. It is not a multiple of their exports to the PIIGS though.

No, but then they're not currently risking any money in Italy or Spain. Either way, the point stands, and makes it obvious that Germany are not bailing out Greece in order to provide the Greeks with money to buy BMWs.

jonniebgood1 wrote: »

I must point out the difference between reluctance to make a financial contribution to helping Greece out, and being happy to let them fall out of the Euro (You don't expect them to jump for joy do you!).
If Greece are to leave the Euro it is essential for the German interest (I say German but am referring to the stronger nations such as Netherlands, Finland, etc, I just thought it was simpler to write German rather than a list of countries as they are the primary force amongst these) that the situation is controlled in their interest. This is as explained before due to the more damaging prospect of Spain or Italy leaving. Imagine the problem if they just let Greece go without keeping control over them, 2 years later Greece is back on its feet while Spain and Italy are still stuck in reverse. Then there would be a problem.

Because Greece is really so very likely to be back on its feet within a couple of years - after all, they have no problems but the euro, yes?

It's kind of hard to put into words how silly an idea that is, so I won't. Greece's extensive range of issues has been covered elsewhere, but even absent all those issues their sheer dependence on imports means that a plummeting New Drachma will drastically reduce their standard of living, while the absence of competitive non-primary production means exports won't go up to compensate, because the Greeks simply don't make enough exportable goods. Nor will the Greek military be willing to reduce its expenditure, which makes it likely that any extra export earnings will be largely recycled into the purchase of more expensive foreign arms. Classic third world stuff, really - primary production used to earn hard currency which is then spent on an oversized military.

On the other hand, taking something you didn't say but might more sensibly have done - yes, it's obviously in everyone's interests if a Greek exit were managed as smoothly as possible, but it's most of all in Greece's interests, obviously.

cordially,
Scofflaw

McDave

It seems to me that politicians (esp. Germans) ramp up the threats every time developments on Greece come into the frame. This is obviously a way to encourage the Greeks to up their game. But with every passing milestone it seems that Greece keeps falling further off the pace.

IMO, the EZ is in a position to jettison Greece without tearing the currency asunder. Politically they've heretofore been able to provide enough funding without fundamentally alienating their electorates. But I reckon they're close to the end of the road in terms of the full extent of taxpayers' resources they can sign over. They'll keep postponing the evil day a little longer, and so long as there isn't a further major call on resources they'll concentrate on cajoling better compliance.

However, one can't help but feel that the Greeks are one spoof away from a final crystallisation of sentiment against them.

My guess is that the current delay of the entry into force of the ESM is being largely orchestrated. And that it will enter into force when the EZ has enough information on peripheral compliance. For me, Ireland, Italy, Portugal and Spain will pass the test. I doubt Greece will ultimately cut the mustard. And if they continue to play silly buggers, the New Year could well finally herald their exit.

McDave

jonniebgood1 wrote: »

Well tell me then why are Greece still a part of the currency. If there was no consequence for European leaders in this eventuality then it would have happened long ago.

Also why do you think Germany is supporting the bailout of Greece?

At this stage everyone pretty much knows the Euro was set up without a due diligence. Greece turned out to be a far worse basket case than anyone imagined. I don't think many realistically foresaw the extent of the crisis we're in (although it was generally clear enough the bubbles of recent decades were never truly mastered, nor lessons learned).

Greece is still part of the currency for a number of reasons:

1. The EZ has played for time to ascertain the full consequences of the crisis and the willingness and ability of all member states to cooperate in solving it;

2. Considerable losses would crystallise across the EZ economy with a Greek exit. These losses are IMO manageable, but would cause various local problems and generally push down Euro-wide growth prospects;

3. If Greece can ultimately stay in, it's a strong statement of the integrity of EZ membership.

There's no immediate rush to push Greece out. But I think the rest of the EZ knows that when the problem has become too intractable to live with, a decision will have to be made. So Greece will stay in the hope that it will finally bite the bullet. But once the decision is taken to let it go, that decision will be irrevocable, and the EZ will need to be able to persuade the rest of the world that it is an exception.

In short, if there's no immediate systemic need to kick Greece out, it stays on board. Until such time as it becomes economically or politically unsustainable. A rushed decision would be the wrong one.

jonniebgood1

Scofflaw wrote: »

No, but then they're not currently risking any money in Italy or Spain. Either way, the point stands, and makes it obvious that Germany are not bailing out Greece in order to provide the Greeks with money to buy BMWs.

I already asked you why Germany was funding Greece already and you fudged a moralistic type european brotherhood argument.

Scofflaw wrote: »

As to why Germany is supporting the bailout of Greece - is Greece not part of the EU? After all, it's not just Germany that's supporting the Greek bailout - we are, and all the EU countries are. Germany was in fact probably the most reluctant to do so - by your lights, it should have been the most enthusiastic:

Its a totally unconvincing argument yet now you tell me that "Germany are not bailing out Greece in order to provide the Greeks with money to buy BMWs" (which of course would be morally wrong of Germany). It does bring about the obvious repost however that what is going on in Greece is totally immoral. Soup kitchens, Suicides, sleeping rough, etc. So what makes you assume that morals play any role in this? With regard to your point on the BMW's I again make the point that it would be the knock-on effect that they are afraid of. Would you agree that if Greece were to leave the Euro that it is logical that at least Spain, Italy and Portugal would follow them?

Scofflaw wrote: »

Because Greece is really so very likely to be back on its feet within a couple of years - after all, they have no problems but the euro, yes?

It's kind of hard to put into words how silly an idea that is, so I won't. Greece's extensive range of issues has been covered elsewhere, but even absent all those issues their sheer dependence on imports means that a plummeting New Drachma will drastically reduce their standard of living, while the absence of competitive non-primary production means exports won't go up to compensate, because the Greeks simply don't make enough exportable goods. Nor will the Greek military be willing to reduce its expenditure, which makes it likely that any extra export earnings will be largely recycled into the purchase of more expensive foreign arms. Classic third world stuff, really - primary production used to earn hard currency which is then spent on an oversized military.

On the other hand, taking something you didn't say but might more sensibly have done - yes, it's obviously in everyone's interests if a Greek exit were managed as smoothly as possible, but it's most of all in Greece's interests, obviously.

I fail to see what is difficult to grasp on a country devaluing to help it regain fiscal stability. Look at Finland in the early 90's for a recent worked solution albeit with out the noose of monetary union. Finlands competitiveness improved rapidly after devaluation; but wage moderation and productivity growth were crucial in the medium term. As for the claims on Greek military I think its a bit far fetched to proposed that devaluation would not work because the Greek military would seize any extra money earned from improving exports. As you might say yourself:

Scofflaw wrote: »

It's kind of hard to put into words how silly an idea that is, so I won't.

jonniebgood1

McDave wrote: »

Greece is still part of the currency for a number of reasons:

1. The EZ has played for time to ascertain the full consequences of the crisis and the willingness and ability of all member states to cooperate in solving it;

2. Considerable losses would crystallise across the EZ economy with a Greek exit. These losses are IMO manageable, but would cause various local problems and generally push down Euro-wide growth prospects;

3. If Greece can ultimately stay in, it's a strong statement of the integrity of EZ membership.

There's no immediate rush to push Greece out. But I think the rest of the EZ knows that when the problem has become too intractable to live with, a decision will have to be made. So Greece will stay in the hope that it will finally bite the bullet. But once the decision is taken to let it go, that decision will be irrevocable, and the EZ will need to be able to persuade the rest of the world that it is an exception.

In short, if there's no immediate systemic need to kick Greece out, it stays on board. Until such time as it becomes economically or politically unsustainable. A rushed decision would be the wrong one.

It is notable that the reasons are for the benefit of the Eurozone rather than Greece.

BKtje

Just because he didn't mention them doesn't mean that they don't exist. A bank run leading to the collapse of the Greek banking sector and high inflation would be just two reasons why the greeks want to stay in the euro.

Scofflaw

jonniebgood1 wrote: »

It is notable that the reasons are for the benefit of the Eurozone rather than Greece.

And yet the Greeks want to stay in the euro.

cordially,
Scofflaw

jonniebgood1

Scofflaw wrote: »

And yet the Greeks want to stay in the euro.

With respect, what point are you arguing against?
Did someone say Greece want to leave the Euro or are you mixing up what I said they need with what they want?

It seems you are disputing a position that nobody has taken.

jonniebgood1 wrote: »

Greece needs its own currency back.
.....

View

jonniebgood1 wrote: »

With respect, what point are you arguing against?
Did someone say Greece want to leave the Euro or are you mixing up what I said they need with what they want?

It seems you are disputing a position that nobody has taken.

What Greece needs are well-run properly functioning economic and political systems (just like we and everyone else does).

The currency in use when the above is achieved is less important and currently Greece wants to use the Euro while attempting the difficult tasks needed to reform their economic and political systems.

That after all is the choice of the Greek people who presumably - unlike you - believe that a "mere" currency conversion isn't going to bring about a miracle cure as their underlying problems would still remain after such a decision.

jonniebgood1

View wrote: »

That after all is the choice of the Greek people who presumably - unlike you - believe that a "mere" currency conversion isn't going to bring about a miracle cure as their underlying problems would still remain after such a decision.

Who proposed a miracle cure? Currency devaluation is a worked solution in solving balance issues between countries. Hardly a miracle or some kind of off the wall solution. Try Argentina in 2002 or Russia in 1998. I've already referred to Finland in an earlier post. There was no miracle in these countries by the way, just alot of bother.

View

jonniebgood1 wrote: »

Who proposed a miracle cure? Currency devaluation is a worked solution in solving balance issues between countries. Hardly a miracle or some kind of off the wall solution. Try Argentina in 2002 or Russia in 1998. I've already referred to Finland in an earlier post. There was no miracle in these countries by the way, just alot of bother.

To clarify - the Greeks don't believe changing their currency will result in a miracle cure. They have a lot of fundamental problems, such as failing to collect their taxes, over-staffing in the PS etc, which won't get resolved "just" by re-denominating the currency they use when failing to do so.

PS Russia and Argentina's recovery were heavily influenced by an international rise in prices for oil and soybeans respectively (which they produced). Finland's by the rise of Hi-Tech (Nokia). Those aren't factors that the Greeks presumably feel can guarantee their recovery and it is their decision as to how they want to proceed.

Scofflaw

jonniebgood1 wrote: »

With respect, what point are you arguing against?
Did someone say Greece want to leave the Euro or are you mixing up what I said they need with what they want?

It seems you are disputing a position that nobody has taken.

It's an argument against your claim they "need" their own currency back - on the basis that the Greeks might just be in a better position to identify what they need than you are.

I've already pointed out that their own currency and devaluation is unlikely to address any of Greece's problems, which are neither caused by a lack of export competitiveness nor curable by that route, and I don't see that you've offered any evidence-based contradiction of that. You've basically held to the point that if they had a low value national currency, they would somehow change their entire economy from its current near-third-world status as a relatively undiversified primary producer to something else. I don't think any such claim is supported by evidence - Greece had such a low-value national currency for many more years than it has been inside the euro, and it doesn't seem to have had such an effect. Similar observations apply to a wide range of other primary producer states.

I'm not sure how you cover the large discrepancy between your analysis of what Greece needs, and Greece's evaluation of what Greece needs. They appear to feel they're better off inside the euro, and given your main argument for the advantages of being outside it is so weak, I'm inclined to go with their apparent view.

cordially,
Scofflaw

cordially,
Scofflaw

poeticseraphim

Greece, politically, socially and economically is a basket case.They have no option of alternative funding. They have been exposed to the political and economic world as having a corrupted political system.

They cannot make reforms either through incapability incompetence or unwillingness. Or more likely a little of all three.


The Greeks have lost faith in themselves , i they they are largely holding on to the Euro simply because they want their politicians to be bound by something. For someone or something to spurr reforms.


But lets ask a question, is Greece going to be able to do this or will this simply go on? If the failure of reform is assured, then actually, a managed exit is preferable to a long dragged out battle which damages the Euro and therefore Greece also. The more the Euro is damaged the more Greece is damaged the more Greece (and other countries) is damged the more the Euro is damaged. It's circular causation.

Politically more and more radicalized views are being accepted there (and here quite frankly) and that is also adding fuel to the fire. They cannot control the damage done to their reputation. Is that reputation going to spread to the Euro.

Well in way rating agencies have already said it has. Germany, the Netherlands and Luxemburg now have a negative outlook rating. Now the accuracy or motivation of this can be debated. However one thing is clear Greece and the problems of peripherals are tarnishing the reputation of stability of traditionally titan economies. And they will not continue to stand for that and in fact the Dutch and Finns have acted on that already.

In the end i don't think they can do it and the current situation can't go on and on indefinitely. They keep asking desperately for more and more without achieving goals. And i don't think the world believes that they are capable.

The question i think is how could they leave with the least amount of damage to the most vulnerable in Greece. Well i would suggest allowing Forcing them to leave the Euro but stay in the EU with a partial or total write off of debt. Forcing a country to leave the currency for not following the rules without damaging perceptions and judging which would be mre damaging to the Euros reputation Greece staying in or out is tricky i suspect it would depend on ho the other EU countries reacted whether it was support or not.

jonniebgood1

Scofflaw wrote: »

I'm not sure how you cover the large discrepancy between your analysis of what Greece needs, and Greece's evaluation of what Greece needs. They appear to feel they're better off inside the euro, and given your main argument for the advantages of being outside it is so weak, I'm inclined to go with their apparent view.

Firstly not all Greeks think the same on this.
Secondly since when is a countries not open to questioning (particularly Greeces in this instance).
Thirdly I don't see the huge faith you seem to be placing on Greece democratically elected government making the choice that is correct for its people. Seems an erroneous assumption.

jonniebgood1

poeticseraphim wrote: »

But lets ask a question, is Greece going to be able to do this or will this simply go on? If the failure of reform is assured, then actually, a managed exit is preferable to a long dragged out battle which damages the Euro and therefore Greece also. The more the Euro is damaged the more Greece is damaged the more Greece (and other countries) is damged the more the Euro is damaged. It's circular causation.

Politically more and more radicalized views are being accepted there (and here quite frankly) and that is also adding fuel to the fire. They cannot control the damage done to their reputation. Is that reputation going to spread to the Euro.

Well in way rating agencies have already said it has. Germany, the Netherlands and Luxemburg now have a negative outlook rating. Now the accuracy or motivation of this can be debated. However one thing is clear Greece and the problems of peripherals are tarnishing the reputation of stability of traditionally titan economies. And they will not continue to stand for that and in fact the Dutch and Finns have acted on that already.

This is likely to be what brings about the possiblity. It is even being more openly discussed in the media in the last week- since the downgraded outlook although I suspect that had more to do with Spain than Greece. As usual the political leaders will be a few steps behind.

McDave

jonniebgood1 wrote: »

It is notable that the reasons are for the benefit of the Eurozone rather than Greece.

Of course! The EZ has to make its way in the real world. It isn't a charitable undertaking.

The EZ is composed of states and civil societies which are supposed to take responsibility for their affairs. If Greece isn't prepared to reform it's economy and society, no-one can really help them. The EZ has put out a lot for Greece to date. But its electorate wants to have its cake and eat it - i.e. to be in the Euro but almost give majority support to parties who oppose reform.

Ultimately EZ rules are there for individual states to adhere to. Further steps, such as mutualisation, will only come about when *all* constituent members have demonstrated their willingness to adhere to minimum standards. If Greece can't see the benefit for itself in dragging its sorry ass into the 21st century, it's Greece's loss alone.

McDave

jonniebgood1 wrote: »

Firstly not all Greeks think the same on this.

It's a theoretical point. What matters is the message Greek voters give to their politicians. Not what individuals subjectively feel after the event.

McDave

poeticseraphim wrote: »

The question i think is how could they leave with the least amount of damage to the most vulnerable in Greece. Well i would suggest allowing Forcing them to leave the Euro but stay in the EU with a partial or total write off of debt. Forcing a country to leave the currency for not following the rules without damaging perceptions and judging which would be mre damaging to the Euros reputation Greece staying in or out is tricky i suspect it would depend on ho the other EU countries reacted whether it was support or not.

I think Greece's goose is cooked. Of all the GIIPS states, they're the only ones not really grasping the full nature of the problems they face. The only other state that came close was Italy under Berlusconi.

Sovereign debt write-offs have been organised for Greece. A large proportion of the EFSF has been assigned to their problems. The EZ has put out for Greece in a big way. But still Greeks try to blackmail the EZ into further concessions.

It was reported recently that the cost of further EZ support for Greece and the actual cost of a Greek exit was roughly equivalent (e.g. circa €80 billion for Germany: http://www.ft.com/intl/cms/s/0/022ac9fa-d736-11e1-a378-00144feabdc0.html#axzz21r3vuK6m). That's a pretty strong message that there's in fact little net economic cost to Greece leaving the Euro. That reduces it to a question of politics.

Personally, I think it's time to push the button.

jonniebgood1

McDave wrote: »

Of course! The EZ has to make its way in the real world. It isn't a charitable undertaking.

The EZ is composed of states and civil societies which are supposed to take responsibility for their affairs. If Greece isn't prepared to reform it's economy and society, no-one can really help them. The EZ has put out a lot for Greece to date. But its electorate wants to have its cake and eat it - i.e. to be in the Euro but almost give majority support to parties who oppose reform.

Ultimately EZ rules are there for individual states to adhere to. Further steps, such as mutualisation, will only come about when *all* constituent members have demonstrated their willingness to adhere to minimum standards. If Greece can't see the benefit for itself in dragging its sorry ass into the 21st century, it's Greece's loss alone.

This is basically the line that is being pushed at the moment. These policies have been followed for 4 years now and the situation, particularly in social terms since you mention society is getting worse and worse. It is ignoring the obvious for people to keep restating a policy that is not working as the only way forward.

McDave

jonniebgood1 wrote: »

This is basically the line that is being pushed at the moment. These policies have been followed for 4 years now and the situation, particularly in social terms since you mention society is getting worse and worse. It is ignoring the obvious for people to keep restating a policy that is not working as the only way forward.

Threats have been issued to Greece at many crucial junctures in recent times. Maybe the current one is just more gasbagging and cajoling.

But somehow I can't help feeling that we're close to a point where the EZ-16 is prepared to write off the money they've thrown at Greece, and start again with a clean slate - i.e. recapitalising the ECB and devoting the ESM to the hopefully diminishing needs of Spain and Italy. Getting Ireland out of the Troika programme would be a nice little pressure release as well.

The social ramifications for Greece will be immense. But there is a price to pay for political and economic inertia.