Just read that the Greek Government is going to put the needed Austerity measures to get the next Tranche of the bailout to a vote.
Everyone knows that a rejection would mean bankruptcy for Greece and a lot of banks holding Greek Toilet Paper (sorry...I mean bonds), push the world into recession again, and maybe topple the Euro itself.
Any bets that the voters will indeed reject the Austerity measures...???
After all its "not my fault...make the rich pay" etc. }:>P
Even if the Greeks don't do it, the recession can't be stopped. We'll see a global financial collapse. If they do it, it will come faster. It's simple, the Greek debt is cancelled, which means that the corresponding bonds debt are worthless, which means that there is less money in the world. Since there always needs to be constant growth of money for the current monetary system to remain, this will be a dent, which can cause a chain-reaction of failed debt contracts and further money destruction.
I don't think it's avoidable at this point. I expect it to come within the next 15 years at least. The debt has grown for about a century by then - time for yet another collapse of an inherently unstable system.
Current polls reveal that 60% of them will reject it. But I don't know if its going to push the world into recession again.
We had a very similar crisis situation in Turkey in 2001 and we were almost going bankrupt. Luckily for us, we could devaluate our money (Turkish lira). At the end of the day, Turkish people paid for corrupt politicians' actions.
However in Greece they don't have the luxury of devaluating their money (Euro). They'll either leave Euro and go back to Drahmi with a devaluation, or they'll not pay their debts.
In either way Greek people will continue their protests. Life in Greece will not get any easier for those people.
I believe they'll reject it, because Turkish people are more obedient to their governments than Greeks. No government can control those people, and they don't seem to pay any price for the crisis.
It's really the same old debt-deflation cycle we have been dealing with since 2008.
I don't think there is any way out of this except sovereign defaults and major bank restructurings. But it may play out for some years until people are willing to face that reality.
Greece is a relatively small place/economy and would not matter so much if its creditors (largely European banks) were in better shape themselves. Small countries go belly up all the time and Greece itself seems to default every 25 years or so. But even if the Greek problems were to be solved tomorrow, the larger issues would still remain.
I agree with Felix. It's going to happen - Greece will default sooner or later. We may as well take our medicine now and get it over.
It's the Germans that I feel sorry for. They've been responsible, saved their money, they haven't overspent, their tax system is working as planned, and their pension system isn't headed toward crisis. But because they went and joined the Euro, they're now having to pay for everyone else's fun and/or lack of planning. The ants are having to feed the grasshoppers.
Greece has already defaulted. Any time you aren't paying back 100% of the loan with the stated interest you are in default. Now it's just a matter of the percentage they pay back. The story is just spin now.
All I know is that I'm going to be vacationing in Greece some time in the next 5 years. Once they ditch the Euro for the Drachma Greece will be very very cheap to visit.
@GandK
I agree that the Germans mainly did the right thing. However, their financial institutions didn't. They should have saw the Greece debacle long before it actually happened.
Ditching the Euro is probably their best bet. In fact, Europe ditching the Euro wouldn't be such a bad idea. Countries like Germany and France are skewering their citizens bailing out Greece, Portugal, Spain, etc.
While I don't have delusions about Greece casting off the Euro in favor of free/hard money - it would be a fantastic opportunity for them to do so.
Damn market down over 5% for past two days. The VIX is driving me insane.
It's ironic that the hoi polloi of Greece have more impact than the OWS crowd in actually destroying American wealth.
@annadragon
There are lots of reasons that could be a bad idea. All kinds of trade restrictions, a vastly devauled currency (imports will be astronomically expensive), failure or near failure for numerous French and German banks, which could then in turn fail completely when the Italians and Spanish lose what they have in Greece.
@Chad - If they are going to default why not get all the malinvestment out sooner rather than later? The banks who've bought Greek debt took enormous risk and are perpetuating this; making matters worse.
I could possibly understand trade restrictions from other EU countries due to be a little peeved about the divorce, but I'm not sure what other trade restrictions would be in place.
If they have a devalued currency after getting off the Euro it will make exports enormously cheap which could spur some type of economic recovery (I have no idea what, if any, goods Greece produces).
If Greece is going to leave the euro and go to the Drachme, it doesn't affect their debt, it's still in euro's! In that sense there is no advantage to leave the eurozone. Also with a default Greece will probably get more help if it stays in the eurozone. If Greece is going to the Drachme it can devaluate but it will be alone. Who is going to give money to Greece to import anything? Export credits?
And I don't feel sorry for Germany or Netherlands (where I live) on giving money to Greece. The introduction of the euro reduced currency trade barriers so much and increased inter eurozone trade enormously. That gain was larger for Germany and Netherlands than the few?? billions they spend now to help Greece.
The issue is more on the longer term evolution of the eurozone to an ant or grasshopper economy. And obviously how Italy and France are acting.
And I don't think that the banks took such enormous risks. As it stands, a lot of debt is bought by the European Central Bank (= government) and the banks get capital injections. They knew that the politicians won't let them down. They may not get bonuses for a period, but the banks will survive thanks to government sponsorship.
People should be stricter on the banks! They took risks and get bailouts.
@annadragon
Products of Greece:
Olives
Figs
Government Issued Toilet Paper
but mostly:
A very accentuated "I'm Entitled And Someone Else Has To Pay For It" mentality.
@FrugalZen - then perhaps they have no hope :(
@simplex - When banks or XYZ industry gets bailed out by government (a.k.a. politicians a.k.a. central banks) it just induces moral hazard and they make poor and terribly risky investments. Banks can not do this alone, it requires government to be in cahoots with the bankers. Chasing bad money with more bad money typically does not solve the problem; it does prolong it. Hence, why I thought getting out of the euro might speed up the rate at which the malinvestment moves through the system.
True, the debt would still be in euro's and have to be repaid at the exchange rate of their new-old currency, but if they had some export of value this could be handled eventually. Although as FrugalZen points out they likely have nothing much to export.
However, Greece is not the only struggling nation in the Eurozone. I can't imagine that increased inter-zone trade revenue will continue to exceed the looming debt problems of Spain, Portugal, etc. For now, Germany et al. might be paying just a few billion, but what happens when those other nations have their bills come due?
As long as they promise to leave when the books are balanced, I vote for Germany to occupy Greece and liquidate their assets (not their people).
I doubt they pass it. Look what a bunch of a-holes the US turned into about the debt ceiling, and that wasn't poised to have even remotely as much of a tangible impact on people's daily lives.
Well, at least things went back up a bit before dumping back down.
If anything Greece will once again become a super cheap tourist destination for Europeans and anyone else like it was before they joined the Euro.
Knew a Greek gentleman who went every year to spend a month with his family...pre-Euro with $1000 US he lived like a King...after the Euro came in and prices adjusted to be in line with those of other European countries his first trip back to Greece cost him more than $5000 US over 4 weeks...trips went from yearly to every 3 or 4 years.
He said joining the Euro was the worst thing Greece ever did.
Next time I see him I need to ask if he's related to the Oracle of Delphi.
@annadragon
There would be automatic trade penalties for Greece with anyone in the EU if Greece left. I believe, though not 100% sure, that one of those restrictions would require them to import a certain amount of EU goods in order to be able to export to the EU. This would be a huge handicap, as the Drachma would be worth much less when compared to the Euro. This is one of the reasons these countries pushed to be part of the EU in the first place...reduced trade barriers.
@simplex
Of course, leaving the Euro and going the Drachma would affect their debt. The whole reason they would be ditching the Euro is to leave the EU and default on the debt (probably 100% default if this happens). If they aren't going to 100% default then they would just keep the Euro and stay in the EU and pass the current plan.
The banks took enormous risks. Just because the governments are stupid enough to back them doesn't mean they didn't take huge risks.
These two statements you made are contradictory:
"And I don't think that the banks took such enormous risks."
"People should be stricter on the banks! They took risks and get bailouts."
The Euro is the epitome of the rat race. Of course smaller countries can't keep up with the industrial powerhouses of the north. South is where the "good living" is thought. Plenty of sunshine, good food, air is clean, etc
Since the Euro Portugal has been invaded by other banks, providing easy access to credit. Before this event, it was really hard to get loans. Combine that with the evasive marketing of the German automotive industry and you have a recipe for disaster.
The sad thing is that if Greece returns to the Drachma, nothing will be done and the government will have even more space to slack it off since they can print their own money again.
^^great points, Don Emanuel.
@chad
About my view of the risks the banks took:
I think the banks took big risks with their money (and only the money) by lending so much to Greece, but they "covered" the risks by getting a bailout from government, so in the end the risk for them is lower than would be with no bailout (that is what I meant by "And I don't think that the banks took such enormous risks."
I also think the issue of getting the Drachme is somewhat separate of defaulting on debt. I still think even if Greece is going to default, it will stay in the euro. The economy is import driven, and even tourism needs a lot of imported goods to function (think of cars, hotel equipment, airplanes, ...). For the export the cheaper wages are helping, it does not matter if the wages are in Drachme or euro. And think of the cost of leaving the euro: The tax system needs to be set up anew, including import duties and regulations. That is hard, especially for Greece with a large part of the economy already on (in) the black market.
First, based on all the information out there if they default 100% the EU is going to basically kick them out. Especially, after the Greek PM just played Merkel and Sarkozy. They aren't happy with that. Thus, the Drachma.
No such thing as an import driven economy.
They can export cheap wages all they want, just not to the EU if they aren't part of it. The EU will throw up substantial trade barriers.
Of course, they won't have cheap wages if they stay in the EU and keep the Euro.
Also, no need to redue the entire tax system. Most of it would be fine, as most of it will be percentages or if it was a flat fee in Euros the currency market would set the Drachma amount. The import regulations wouldn't be a big issue, as I'm sure they already have current ones for non-EU members, now they would just add EU members to the list.
The black market is irrelevant to all of the above, as it exists and will continue to exist no matter if Greece stays in the EU/keeps the Euro or leaves the EU/100% default/Drachma. It's existence is independent of the decision. Not that it isn't a problem, but the problem exists either way.
@chad
There is a big difference for Greece between leaving the euro (eurozone) and leaving the EU. Not all members of the EU have the euro (e.g. UK, Romania, Bulgaria). So Greece might dump the euro but still stay in the EU.
By import driven economy I meant something like the tourism industry. It needs imports and locally provides a service (so no exports). Maybe this term is my own invention.
Any chance that Greece DOESN'T default and leave the euro now that they've decided on a referendum? No way that the Greek people will get a simple majority after the protests that have been ongoing, but I could be wrong!
I think that I'll start planning "my big fat Greek" vacation :) for when the inflation starts.
I think Greece is still likely to default even if the referendum passes. It's just a matter of timing. The Greeks would be better off in the long run it they just went and got it over with now.
Yes they are likely to default anyway..but they've pulled the idea of the referendum after Merkel and Sarkozy (I'm sure) gave the Greeks an ultimatum...."you have a referendum and you get no money...and we don't care what the outcome is".
So much for the planned cheap vacation...Sigh!!
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