Will Greece Leave the Euro?

[-TSS-]

According to the latest poll SYRIZA would get 30% of the votes and be the largest party.

[dre]

Youre dead wrong when you claim that trade is not an issue, and youre dead wrong about how they got into the situation theyre in.

•Across Greek borders (1): The Greek government began to borrow euros mostly from foreign investors. Big European lenders (Société Générale, Deutsche Bank, etc.) were happy to lend to Greece, because the interest rate was high, to take into account the risk, and at the same time they knew that Europe would refund them should Greece fail. These were euros flowing into the country and corresponding promises to pay back later including some interests (= bonds) flowing out. Private Greek agents too borrowed within the country as well as abroad.

•Across Greek borders (2): in parallel to its budget deficits, Greece trade went into deep imbalance. Somehow the country indulged in a spending spree with its new money buying goods and services all over the world much more easily than with its previous drachma. Greece paid its imports in part with exports (tourism, textile, ore, food products, etc.), in part with promises, and in part with euros, which left the country.

The real problem here is the moral hazzard created by the Euro. All these lenders kept buying Greek debt because interest rates were relatively high, and because they knew the ECB would bail them out if things went sideways and thats exactly what happened. Its the same kind of moral hazzard created by central banks in other western countries. Investors just assume that any losses will be absorbed by the central bank.

If we didnt have the ECB backstopping all of this malinvestment Greece wouldnt have gotten into it this far in the first place... Market demand for their paper would have dried up, and people would have stopped buying Greek bonds which would have forced Greece to tackle its huge trade deficit and current account deficits.

Greece should not have been able to borrow that money for the exact same reason a homeless unemployed person cant get a mortgage to buy a home. And If I loan a few hundred thousand to that homeless guy, its my own damn fault when I lose my money.

They don't get to just walk away from it all in any scenario

Thats entirely up to them, but they absolutely can walk away from it if they want to. The people banks that were investing all their money in Greece SHOULD lose their money. It was malinvestment... Why on earth would anyone buy bonds from a country who's civil service accounted for more than 50% of GDP?

These investors deserve to lose their money... they made shitty investments.

The ECB/IMF needs to stop creating fake demand for European debt, and stop encouraging malinvestment. The latest bailout is just an extension of the same policies that caused the problem.

Luckily the ECB will put the final bullet in its own head because they are going to continue with all this irresponsible behavior and malinvestment. The next debt crisis facing Europe will be the ECB itself.

Edited May 25, 2012 by dre

[-TSS-]

I think SYRIZA should be given a try at managing the affairs. After all, the Greek electoral system awards bonus seats for the largest party, so a party with only 30% of the votes could even win a majority as long as it is the largest.

[fellowtraveller]

Youre dead wrong when you claim that trade is not an issue, and youre dead wrong about how they got into the situation theyre in.

The real problem here is the moral hazzard created by the Euro. All these lenders kept buying Greek debt because interest rates were relatively high, and because they knew the ECB would bail them out if things went sideways and thats exactly what happened. Its the same kind of moral hazzard created by central banks in other western countries. Investors just assume that any losses will be absorbed by the central bank.

If we didnt have the ECB backstopping all of this malinvestment Greece wouldnt have gotten into it this far in the first place... Market demand for their paper would have dried up, and people would have stopped buying Greek bonds which would have forced Greece to tackle its huge trade deficit and current account deficits.

Greece should not have been able to borrow that money for the exact same reason a homeless unemployed person cant get a mortgage to buy a home. And If I loan a few hundred thousand to that homeless guy, its my own damn fault when I lose my money.

Thats entirely up to them, but they absolutely can walk away from it if they want to. The people banks that were investing all their money in Greece SHOULD lose their money. It was malinvestment... Why on earth would anyone buy bonds from a country who's civil service accounted for more than 50% of GDP?

These investors deserve to lose their money... they made shitty investments.

The ECB/IMF needs to stop creating fake demand for European debt, and stop encouraging malinvestment. The latest bailout is just an extension of the same policies that caused the problem.

Luckily the ECB will put the final bullet in its own head because they are going to continue with all this irresponsible behavior and malinvestment. The next debt crisis facing Europe will be the ECB itself.

Nobody will trade with Greece if the payment is in drachmas, and how is Greece going to obtain hard currency to pay for essential imports?

Oh, and much of what Greece exports is agricultiral, and Europe will of course be closed to Greek exporters by agreement.

No question they'll be pooched. They will not leave, because they simply cannot afford it. Oh, and given their serious, chronic mismangement of their own economy, they wouild be in this position long ago if it were not for being propped up by the EU., Of course, certain members of the EU benefit from Greek financial issues, so their woes are far from being bad news for, say, German exporters who love love love a lower value Euro.

[-TSS-]

The euro was a political idea in the first place, never an economic idea. The idea that countries like Germany, the Netherlands, Finland could ever be in the same league with countries like Greece, Spain or Portugal was ridiculous to start with.

It was all politics. perhaps the euro was designed to fail from the outset just in order to give more power to the Bundesbank, hard to tell.

[dre]

Nobody will trade with Greece if the payment is in drachmas, and how is Greece going to obtain hard currency to pay for essential imports?

Oh, and much of what Greece exports is agricultiral, and Europe will of course be closed to Greek exporters by agreement.

No question they'll be pooched. They will not leave, because they simply cannot afford it. Oh, and given their serious, chronic mismangement of their own economy, they wouild be in this position long ago if it were not for being propped up by the EU., Of course, certain members of the EU benefit from Greek financial issues, so their woes are far from being bad news for, say, German exporters who love love love a lower value Euro.

Theyre biggest economic mismanagement was joining the Eurozone in the first place.

Oh, and given their serious, chronic mismangement of their own economy, they wouild be in this position long ago if it were not for being propped up by the EU

No it would have been quite impossible for them to have the debt crisis they have now without the ECB. There quite simply would have been no market for Greek paper and they would have had to address both the trade deficit and current accounts deficits. They also would have avoided that huge false boom caused by ridiculously low interest rates.

Youre focusing on only one part of the equation, and only one bad actor, and ignoring the others.

Theres three different groups to blame here...

1. The Greek Government.

2. Its creditors

3. The ECB

4. The IMF

No question they'll be pooched. They will not leave, because they simply cannot afford it.

What they cant afford to do is stay in the Eurozone, and keep trying to fix structural problems in their economy by borrowing more and more money. They are basically in the same kind of debt situation that people who find themselves in "payday loan loops" are, and the ECB's big plan is for Greece to borrow MORE money and use that money to make payments to the ECB Greek needs to extricate themselves from this loop and tell the ECB to go and pound sand, otherwise the ECB will own the whole place before long.

Edited May 25, 2012 by dre

[dre]

The euro was a political idea in the first place, never an economic idea. The idea that countries like Germany, the Netherlands, Finland could ever be in the same league with countries like Greece, Spain or Portugal was ridiculous to start with.

It was all politics. perhaps the euro was designed to fail from the outset just in order to give more power to the Bundesbank, hard to tell.

The euro was a political idea in the first place, never an economic idea. The idea that countries like Germany, the Netherlands, Finland could ever be in the same league with countries like Greece, Spain or Portugal was ridiculous to start with.

This is absolutely, 100% correct.

Edited May 25, 2012 by dre

[fellowtraveller]

No it would have been quite impossible for them to have the debt crisis

How would they have avoided their debt crisis, since they don't collect taxes and enjoy a huge, unaffordable social contract obtained by their own actions?

The euro was a political idea in the first place, never an economic idea.

No, that is not true. Look at it this way: for every financial winner, there is a financial loser. In this contect, the economic contect, Greece looks to be losing although the 'crisis' is far from played out.

Now, who is the winner? Who benefits from a lower value Euro?

IMO, the EU itself is all about money, lots of money.

But... its future is not looking so rosey now. The Eurozone is a merged monetary policy that has been profitable for some, but the next step- the big big one- is fiscal policy and I don't think any of the players that profit now from the monetary policy are prepared to give up the soveriegnty that would follow with a merged fiscal policy. That only applies to a stated joint fiscal policy- and aren't we seeing Greece as an example of a de facto joint fiscal policy? Isn't that really what the Greeks are upset about, the loss of control over their financial future to a larger political force?

In any case, they can bluster all they like, but they are not going anywhere. The EU and Eurzone will weather this little storm. It is less clear if they'll survive the threat posed by Spain and Italy- both with much larger economies.

[wyly]

This is true, yet political types of left- and right- are always stepping in to suggest state solutions to problems. Why ? Because that's what governments do - solve our collective problems.

selective aren't you...there are a number of very socialist countries with generous benefits/social policies that are not having economic problems but are being sucked into this scenario by countries with less sound financial management...

[Michael Hardner]

selective aren't you...there are a number of very socialist countries with generous benefits/social policies that are not having economic problems but are being sucked into this scenario by countries with less sound financial management...

How does your comment relate to mine that you commented on ? I didn't say anything to contradict this.

[wyly]

How does your comment relate to mine that you commented on ? I didn't say anything to contradict this.

you're right...re-reading the posts I misunderstood...

[dre]

But... its future is not looking so rosey now. The Eurozone is a merged monetary policy that has been profitable for some, but the next step- the big big one- is fiscal policy and I don't think any of the players that profit now from the monetary policy are prepared to give up the soveriegnty that would follow with a merged fiscal policy.

Yes they Eurocrats have their sites set on Brussels setting the fiscal policy of European states now its true. The problem is they have no consent. The only countries that were given a chance to vote on joining the Eurozone voted resoundly no. A third voted NO but was ignored.

And THAT is the real problem. Not the economics but the massive power grab and attack on national democracy. The Eurocrats want to run it all. They want a "Unite states of Europe". Theyve even jigged up their own little flag and anthem. The people of Europe absolutely should not stand for it, and at the very least should have had a chance to vote on whether they want it or not.

[-TSS-]

Indeed, Denmark and Sweden voted no to the euro in their referendums. The Swedish referendum was preceded by the tragic asasination of a popular foreign minister Anna Lindh who spoke in favour of the euro. The assasination was thought to be linked to the heated euro-debate but it turned out that the assasin was an insane person with no interest in politics.

Despite the massive sympathy effect following the assasination the Swedes still rejected the euro by a wide margin.

[dre]

Indeed, Denmark and Sweden voted no to the euro in their referendums. The Swedish referendum was preceded by the tragic asasination of a popular foreign minister Anna Lindh who spoke in favour of the euro. The assasination was thought to be linked to the heated euro-debate but it turned out that the assasin was an insane person with no interest in politics.

Despite the massive sympathy effect following the assasination the Swedes still rejected the euro by a wide margin.

Which is why this dispicable alliance of beaurocrats and bankers has fought tooth and nail to prevent the people of Europe from having any say at all.

Edited May 28, 2012 by dre

[Michael Hardner]

These internal banking alliances need to be hunted like terrorists, in fact they are a billion times more dangerous.

I think we can make that function more hyperbolic and say a trillion times.

[socialist]

i think greece can et out of this mess. they need a strong socialist goverment like sweden to be prosperous. sweden is the most socialist countrys in the world, and wouldnt you know it, its the greatest country in the world in which to live. i hope that someday canada can learn and copy swedens success

[Signals.Cpl]

i think greece can et out of this mess. they need a strong socialist goverment like sweden to be prosperous. sweden is the most socialist countrys in the world, and wouldnt you know it, its the greatest country in the world in which to live. i hope that someday canada can learn and copy swedens success

Where is the source that its the greatest country in the world to live in? I have some people who might disagree, you know Americans, Canadians, British, Germans...

Edited May 27, 2012 by Signals.Cpl

[socialist]

selective aren't you...there are a number of very socialist countries with generous benefits/social policies that are not having economic problems but are being sucked into this scenario by countries with less sound financial management...

bravo. socialist countries are the best off. sweden anyone.

[-TSS-]

Sweden has a right-wing government today and they are fast dismantling the welfare-state.

[wyly]

Sweden has a right-wing government today and they are fast dismantling the welfare-state.

ya centre right somewhere far to the left of our NDP...

[socialist]

ya centre right somewhere far to the left of our NDP...

exactly. too many people here aren't very well versed in european politics. sweden is far left and far better than almost any our country in the world. that is a fact that right wingers cant fathom.

[dre]

Banks are making a killing off of trashing these countries. Im in the wrong line of work!

http://www.ft.com/intl/cms/s/0/77431a66-96b0-11e0-baca-00144feab49a.html#axzz1w8tMHBnl

[August1991]

Huh?

Greece - like Canada - will have two currencies. In tourist areas, we accept US dollars. Elsewhere, we use Canadian dollars. Canadian banks allow Canadians to open US dollar accounts.

Critically, Canadian governments issue cheques and accept tax/fine payments in Canadian dollars. To return to the drachma, the Greek government would only have to start making, and accepting, payments in drachmas - rather than euros as it does now.

Indeed, I wondered in my OP why the Quebec government has never done this. I am certain that Parizeau considered it, and he may regret now that he didn't pursue the introduction of a Quebec currency.

[August1991]

1) International loans specify the currency of repayment, the debtor doesn't get to repay n worhtless currencies of its own choice. All iof Greeces current lans are paid in hard currencies, and Greece will be required to repay inn hard currency...

Debts contracted in euros must be paid in euros, or another currency at the going exchange rate.

The last few times that I was in Europe, when I used my Canadian credit card, the store clerks asked me whether I wanted to pay in euros or Canadian dollars. I assume that the question concerned whether I wanted to know the Canadian amount immediately, or later using a possibly different exchange rate.

As modern life makes plain, the euro, the Canadian dollar (and no doubt, the drachma) are all means of exchange.

2) If Greece adopts the drachma again, obviousy it will be worht F*CK ALL. Nothing. Sero. Anywhwerre, inside or outside Greece. Nobody is going to lend Greece anything, because they have no ability to repay- you may have noticed that at least, that Greece is having trouble paying its debts now.

Will the drachma be "worht F*CK ALL"? No. It'll be worth what the market decides. Even the Soviet ruble was worth something in the black market.

But FT, you make a critical point: The drachma will be worth less. IOW, Greek pensions, Greek civil servant salaries, government subsidies and so on will suddenly be lower. Admittedly, Greek government tax receipts will also fall. (But for a government in deficit, that's a net gain.)

Or, as Krugman would say, with a drachma of lower value, foreigners will find Greece to be a cheap place. Foreigners will choose Crete over Majorca. And hotel workers in Crete will get jobs, pay taxes. Or, as Vonnegut would say, and so on.

Edited May 28, 2012 by August1991

[August1991]

In the Greek crisis the traditional right-left division is meaningless. The country has been governed for years by two parties taking their turns, the left-wing PASOK and the right-wing New Democracy. Rather than parties both are family dynasties of the Papandreou-family and the Karamanlis-family respectively.

Both have been equally reckless in running the finances of the country.

I don't follow Greek politics closely but that simple explanation makes sense to me - because I do follow Quebec politics.

Some countries/societies have governments that can manage their budgets/finances. Some don't.

When a State fails (ie. when various governments run out of other people's money), there is one holy, French Revolution.