Greece closes banks and imposes capital control

[Vanadium 50]

The fact that a committee has to call itself a "truth committee" already makes me suspicious they have an axe to grind.

First, nobody goes out and picks an interest rate. The lender picks the rate, and its determined by how risky the borrower was. Greek debt was assessed to be risky. And, to quote Clevon Little, "And they was right!"

Second, Greece spends 2.2% on defense. By treaty, this can go no lower than 2%. So we have 0.2% of wiggle room, compared to 16.7% on pensions. It's surely not the primary problem.

Third, I don't think anyone doubts that Greece was lent too much in the past. Certainly not the people who lent them money and never saw it again. But the solution surely isn't "lend us more money" or even "let us not pay back what we have already borrowed, and then lend us more money".

Finally, an insolvent Greek government does not have to leave the EU or even the euro. They might want to, and there might even be good reason to, but they don't have to.

 

[StevieTNZ]

The Greek Finance Minister has resigned -- http://www.stuff.co.nz/business/world/70013098/greek-finance-minister-yanis-varoufakis-resigns

Greek Finance Minister Yanis Varoufakis, whose forceful denunciations of creditors alienated many of his euro zone colleagues, has resigned, saying Prime Minister Alexis Tsipras believed it would help smooth the path to a new aid deal. ...
In a statement, Varoufakis said he had been "made aware" that some members of the euro zone considered him unwelcome at meetings of finance ministers, "an idea the prime minister judged to be potentially helpful to him in reaching an agreement".

"For this reason I am leaving the ministry of finance today."

 

[StatGuy2000]

I thought that this article from 2012 citing what is wrong with Greece was good. It might be a good refresher on why they went downhill.

Good article.

http://www.nytimes.com/2012/07/08/magazine/what-greece-makes-the-world-might-take.html?_r=0

I found this article both surprising in some ways (I did not realize that the Greek economy was as productive over the past 60 years), as well as underscoring the main points I had addressed earlier (principally, the destructive effects of the political instability inherent within Greek history, which had a lasting impact on economic development in the country). I also find interesting the suggestion for a path forward for economic growth in Greece, although I really can't see how this path can be achieved while the country is currently within the eurozone under the conditions currently presented by the creditors. Leaving the eurozone may be the only viable way forward at this stage.

 

[tom aaron]

I found this article both surprising in some ways (I did not realize that the Greek economy was as productive over the past 60 years), as well as underscoring the main points I had addressed earlier (principally, the destructive effects of the political instability inherent within Greek history, which had a lasting impact on economic development in the country). I also find interesting the suggestion for a path forward for economic growth in Greece, although I really can't see how this path can be achieved while the country is currently within the eurozone under the conditions currently presented by the creditors. Leaving the eurozone may be the only viable way forward at this stage.

The issue isn't a viable economy, it's a viable economy with First world standard of living. Greece was given a hands up in standard of living when it joined the EU. Those of us in western nations just assume that we will have access to the amenities we live with day to day...never give them much thought.

The idea of the Greeks returning to the Drachma and going on their own are not just words. When you are raised in other conditions and taste a better life, it is not easy to return to a more austere living. I like to visit Columbia, have a brother in Kenya, but, yes, always like to get back to my modest lifestyle in Canada...grocery stores with full shelves, electricity that always comes on when I flick the switch, buses that are safe, clean water, etc. Things that impact everyday life. Western countries provide an incredible infrastructure for day to day living. Not easy to no longer have the Finns, Germans, Danes paying for this and return to 'getting by'.

 

[JonDE]

Before I start, I want to say that I am NOT suggesting this as a solution, just a random thought that had occurred to me.

The US stock market is down around 0.5% today, mainly on the news coming out of Greece. So I wondered how much money was lost on the stock market today, and how this compared to the total debt that Greece owed. Well it turns out that finding current numbers on the total stock market value, is not as easy as it sounds. I was only able to find numbers from 2012 that valued it at 18.6 trillion dollars. That put the total stock market loss at around 900 billion. Converting this to the Euro puts it around 813 billion Euros. I also found that as of June 30th, Greece debt stands around 315 billion Euros.

As expected, the losses are even greater in Europe. The FTSE 100 ended the day down .7%, the DAX was down 1.5%, and the CAC 40 was down 2%. Unfortunately, it is impossible to tell how much of this was based on the Greek vote, or other news, but I think most would agree that the Greek vote was the major news story as far as the stock market is concerned.

So the stock market loss seems to be several times larger then what Greece even owes, and financially it would make sense for everyone to bail them out. Once again, I'm not actually suggesting that the US should bail out Greece, mostly because, why should we? We didn't cause this mess. Also it could be seen as rewarding bad behavior and could let other countries known that if they messed up that we would be there to give them free money.

Just some food for thought.

 

[votingmachine]

Before I start, I want to say that I am NOT suggesting this as a solution, just a random thought that had occurred to me.

The US stock market is down around 0.5% today, mainly on the news coming out of Greece. So I wondered how much money was lost on the stock market today, and how this compared to the total debt that Greece owed. Well it turns out that finding current numbers on the total stock market value, is not as easy as it sounds. I was only able to find numbers from 2012 that valued it at 18.6 trillion dollars. That put the total stock market loss at around 900 billion. Converting this to the Euro puts it around 813 billion Euros. I also found that as of June 30th, Greece debt stands around 315 billion Euros.

As expected, the losses are even greater in Europe. The FTSE 100 ended the day down .7%, the DAX was down 1.5%, and the CAC 40 was down 2%. Unfortunately, it is impossible to tell how much of this was based on the Greek vote, or other news, but I think most would agree that the Greek vote was the major news story as far as the stock market is concerned.

So the stock market loss seems to be several times larger then what Greece even owes, and financially it would make sense for everyone to bail them out. Once again, I'm not actually suggesting that the US should bail out Greece, mostly because, why should we? We didn't cause this mess. Also it could be seen as rewarding bad behavior and could let other countries known that if they messed up that we would be there to give them free money.

Just some food for thought.

It is like the old saying: if you owe the bank $100 and can't pay, you have a problem. If you owe the bank $1 million and can't pay, the bank has a problem. In this case the bank is much of the rest of the world.

 

[mheslep]

So the stock market loss seems to be several times larger then what Greece even owes, and financially it would make sense for everyone to bail them out.

1. It's not possible to observe the net one day losses in a stock market and attribute *all* of it to a single cause. And even if you could, what if the market is up a net, say, 0.5% later, at the end of the week?
2. Greece is not the only nation of interest in this EU financial crisis. Bailout Greece once it has elected a radical they-are-out-get-us government that won't pay its creditors, and then the other high debt/GDP nations, Portugal, Spain, and Italy, have incentive to behave similarly. The EU might well survive a Greek exit, but not that of the others.

 

[mheslep]

In this case the bank is much of the rest of the world.

To the contrary, most of Greek debt is held by a few countries. They (France and Germany) can survive the default. If a new Greek bailout tempts several other, larger countries to similarly default, then that debt is indeed held by a more global list of creditors and at levels that will cause more defaults should they fail to get payment on their loans.

 

[tom aaron]

Before I start, I want to say that I am NOT suggesting this as a solution, just a random thought that had occurred to me.

The US stock market is down around 0.5% today, mainly on the news coming out of Greece. So I wondered how much money was lost on the stock market today, and how this compared to the total debt that Greece owed. Well it turns out that finding current numbers on the total stock market value, is not as easy as it sounds. I was only able to find numbers from 2012 that valued it at 18.6 trillion dollars. That put the total stock market loss at around 900 billion. Converting this to the Euro puts it around 813 billion Euros. I also found that as of June 30th, Greece debt stands around 315 billion Euros.

As expected, the losses are even greater in Europe. The FTSE 100 ended the day down .7%, the DAX was down 1.5%, and the CAC 40 was down 2%. Unfortunately, it is impossible to tell how much of this was based on the Greek vote, or other news, but I think most would agree that the Greek vote was the major news story as far as the stock market is concerned.

So the stock market loss seems to be several times larger then what Greece even owes, and financially it would make sense for everyone to bail them out. Once again, I'm not actually suggesting that the US should bail out Greece, mostly because, why should we? We didn't cause this mess. Also it could be seen as rewarding bad behavior and could let other countries known that if they messed up that we would be there to give them free money.

Just some food for thought.

Liberal economics. Your decimal point is in the wrong spot.

'Who' picks up the debt? (Again). No problem if you don't mind donating 'your' salary first. How about closing NASA and the world's space programs? How about Americans cutting off education for kids in a Detroit ghetto today for Greek pensions?
This helps how? Same issue next month as 5 years ago...last year. Close all research grants to pay for Greek inefficiencies?

 

[bohm2]

Leaving the eurozone may be the only viable way forward at this stage.

Yes, unless there is some restructuring, Greece cannot possibly repay the debt it owes to Troika, either by means of agreeing to more austerity or by "growing" out of the debt. There are some papers I've come across written in early June suggesting that Troica had realized this and may have decided to take the hardline stance (leading to default) in order to attain an easier bargaining opponent and a more ‘reasonable’ public – both in Germany and in Greece – that agrees to some kind of debt restructuring." But who really knows.

 

[StevieTNZ]

Part of the reality of some Greeks - I really feel for those who did nothing wrong but have been caught up in the economic mess - http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11476859&ref=nzh_tw

A businessman has tracked down a weeping elderly man after realizing he is an old family friend and vows to pay for his pension 'for as long as it takes' to get him back on his feet.

James Koufos, a finance CEO based in Sydney will fly half way around the world to help his old friend out, the Daily Mail Australiareported.

Giorgos Chatzifotiadis - the 77-year-old man was photographed weeping uncontrollably outside a bank in Thessaloniki and thanks to social media has now been re-united with his old friend who he went to school with.

Mr Chatzifotiadis was in tears after trying to withdraw his 120 euro weekly pension from multiple banks but was turned away.

Our PM didn't rule out yesterday offering aid to Greece - https://www.tvnz.co.nz/one-news/new-zealand/john-key-can-t-rule-out-that-nz-may-need-to-offer-greece-aid-q00136.html?autoPlay=4338936946001

 

[tom aaron]

Part of the reality of some Greeks - I really feel for those who did nothing wrong but have been caught up in the economic mess - http://www.nzherald.co.nz/business/news/article.cfm?c_id=3&objectid=11476859&ref=nzh_tw
Our PM didn't rule out yesterday offering aid to Greece - https://www.tvnz.co.nz/one-news/new-zealand/john-key-can-t-rule-out-that-nz-may-need-to-offer-greece-aid-q00136.html?autoPlay=4338936946001

Greece is a democracy. The people have elected incompetents to run their country. The people have rejected those who proposed reform of social programs, etc. Then they have voted no in a referendum.

Should Greece be recolonized because the Greek people are like children and not responsible for heir own actions?

Yes, I feel sorry for some individuals. However, this is for Greeks to work out. As a boy (unlike my parents) I also felt sorry for Germans who lived across the Rhine from us...but they were responsible for their own fate.

The Germans are going to pat Greece on the head and give them even more money. The Greeks will reform zip...pay back nothing in total.. Greeks will immigrate and nothing will change for the better.

 

[StevieTNZ]

Greece is a democracy. The people have elected incompetents to run their country. The people have rejected those who proposed reform of social programs, etc. Then they have voted no in a referendum.

Should Greece be recolonized because the Greek people are like children and not responsible for heir own actions?

Yes, I feel sorry for some individuals. However, this is for Greeks to work out. As a boy (unlike my parents) I also felt sorry for Germans who lived across the Rhine from us...but they were responsible for their own fate.

The Germans are going to pat Greece on the head and give them even more money. The Greeks will reform zip...pay back nothing in total.. Greeks will immigrate and nothing will change for the better.

I would reject the notion that every Greek is responsible for what the Government did -- some did not vote that particular Government in. Also some people voted yes in the referendum.

 

[votingmachine]

To the contrary, most of Greek debt is held by a few countries. They (France and Germany) can survive the default. If a new Greek bailout tempts several other, larger countries to similarly default, then that debt is indeed held by a more global list of creditors and at levels that will cause more defaults should they fail to get payment on their loans.

If your statement is that Germany and France are the two largest holders of Greek debt ... I agree. But that is not to the contrary of what I said, but a second, unrelated comment. I said the Greek debt is held by much of the world, which is true.

Here is a breakdown of the Eurozone debt, which is the largest part. There are certainly other holders of debt though.
http://www.euronews.com/2015/02/03/greek-debt-who-loaned-the-money/

I don't really think the comparison of stock market global market cap and the Greek debt tells us all that much. The markets are not a perfect predictor or indicator. The referendum tells us that any debt deal similar to the prior offer will be refused. There still can be a deal. There are some outcomes that are better than others. I agree that an outcome that ended up with wealth destruction via the stock markets would be worse than one without that drop. I think most of the options available have negative outcomes. The can has been kicked down the road for a while, and it may finally be impractical to kick it further.

And I am a big fan of kicking the can down the road. I've seen so many global problems diminish or disappear with time that I approve of that as a plan. As a parent, I can tell you that if you can put off a child, you can usually win the war, without actually ever fighting the battle. A simple, "next time", for a few successive times and let maturity take its course. But if it can't be postponed, then the Germans, the French, and the Greeks, should figure out the best answer available to them, and the IMF, and the smaller deb holders can just fall in line.

 

[russ_watters]

I would reject the notion that every Greek is responsible for what the Government did -- some did not vote that particular Government in. Also some people voted yes in the referendum.

What you said before is that not every Greek "did something wrong". But pretty much all except those who are currently kids did, and the old/retired did the most wrong: they didn't pay their fair share into a fundamentally flawed system that promised to pay them back money they didn't pay in. Even the hypothetical Greek who made every "right" voting decision did this.

One can mitigate their own pain by recognizing it and making preparations for the coming disaster(see also: Social Security), but for those who do neither, I have little sympathy.

But even that aside, democracy only works if the voters take ownership of the decisions of the whole.

 

[russ_watters]

And I am a big fan of kicking the can down the road.

Oy. I sincerely hope you aren't in charge of future planning for anything...but can you offer some advice on how to handle the California water shortage?!

 

[Tosh5457]

I've been investigating this further, and Greece is now paying only 2.6% of its GDP in interest (http://www.telegraph.co.uk/finance/...ths-about-Greeces-enormous-debt-mountain.html), due to the previous negotiations with the bondholders. This is below the payment of countries like Italy and Spain, and not too far from France and Germany's payments on interest. The debt maturities profile in 2015 was very rough, but it'll ease significantly on 2016 and beyond. I don't have access to the raw data, but looking at the graph I'd say the average is about 8 billion €/year, which is 3.5% of their GDP. Adding the 2.6%/year of the interest rates, their debt service is around 6.1% GDP/year on average. Their deficit was at 2014 in 3.5% GDP, with the debt service already accounted for of course, and I imagine with many bonds paid that year, so IMO it's perfectly possible that their nominal growth (real growth + inflation rate) could surge above their deficit for the years to come even without further cuts (and more so with spending cuts), which would put them on the sustainable path of reducing the debt. With Syriza I doubt it though, they can try to negotiate, but at the end of the day they're a far-left party that want to bring back a lot of the old spending that was cut, and so they're the problem even in the negotiations.

Greek debt maturities profile:
http://www.pdma.gr/index.php/en/public-debt-strategy/public-debt/maturity-profile-en

 

[votingmachine]

What you said before is that not every Greek "did something wrong". But pretty much all except those who are currently kids did, and the old/retired did the most wrong: they didn't pay their fair share into a fundamentally flawed system that promised to pay them back money they didn't pay in. Even the hypothetical Greek who made every "right" voting decision did this.

One can mitigate their own pain by recognizing it and making preparations for the coming disaster(see also: Social Security), but for those who do neither, I have little sympathy.

But even that aside, democracy only works if the voters take ownership of the decisions of the whole.

I disagree with the tendency to try to draw larger lessons from Greece than it warrants. It is a unique situation. I would hesitate to compare the US Social Security system to the Greek debt situation. US Social Security is very well organized in contrast. There are things that need to be fixed, but they are small.

I agree that the citizens bear the responsibility, even if the government made bad decisions and they were opposed. I doubt that it was widely seen as a fundamentally flawed system though. I am sure most of them made rosy economic assumptions, and were wrong. Most of us are rather bad at predicting the future, and I read that NYTimes article in post 797 and shook my head. I can understand the misguided belief, "this is our time" ... "debt-fueled spending can feel like hard-earned success, at least for a while."

Debt can be a powerful tool. A mortgage can let you buy a home with debt that is much higher than your income. It is very easy to mislead yourself that the future will be positive, and the debt is acceptable. When the economic future is a Great Depression, that debt just is crushing. We saw that in the recent US recession, and the government debt side is still playing out.

There is a frequent jump to judge everyone as either the thrifty Ant or the profligate Grasshopper of Aesop's fable. And sometimes that is true. And other times, reasonable people make reasonable decisions, and it doesn't work. I think the Greeks went beyond reasonable. But it is also just my own hindsight not the reality of living thru it. With hindsight, it is clear that Greece made a number of serious mistakes. But be cautious about drawing larger lessons, or fitting it into some larger morality play.

 

[votingmachine]

Oy. I sincerely hope you aren't in charge of future planning for anything...but can you offer some advice on how to handle the California water shortage?!

It is not a strategy that works for everything, but it does work for some things.

Sure I can fix the California water situation: Plan to use less water. Plan to get more water.

But if they simply kick the can down the road, and use temporary restrictions, and then the drought ends ... kicking the can down the road worked. If the drought continues, then the water shortages will get worse. They should not formulate a plan to have adequate water in the leanest water year, or to use as much water as is available in the wettest year. If you have adequate reservoir capacity, you can use the average. It sounds like you are asking for a solution to a problem that might or might not be a real problem. The west is experiencing a severe drought. If you request a plan for permanent water distribution based on that, and it is not the long term water supply, you've wasted time, and kicking the can down the road was better.

It isn't always better. I recommend California "hope for the best and plan for the worst". But in Greece, if they can keep things solvent, and their Great Depression breaks, and they catch a break with strong economic growth, everyone would be happy. If you kick the can down the road, and that happens, it is great. If you force default now, you jave to work that thru. If you kick the can down the road and they default later, it is still probably no worse.

 

[tom aaron]

I've been investigating this further, and Greece is now paying only 2.6% of its GDP in interest (http://www.telegraph.co.uk/finance/...ths-about-Greeces-enormous-debt-mountain.html), due to the previous negotiations with the bondholders. This is below the payment of countries like Italy and Spain, and not too far from France and Germany's payments on interest. The debt maturities profile in 2015 was very rough, but it'll ease significantly on 2016 and beyond. I don't have access to the raw data, but looking at the graph I'd say the average is about 8 billion €/year, which is 3.5% of their GDP. Adding the 2.6%/year of the interest rates, their debt service is around 6.1% GDP/year on average. Their deficit was at 2014 in 3.5% GDP, with the debt service already accounted for of course, and I imagine with many bonds paid that year, so IMO it's perfectly possible that their nominal growth (real growth + inflation rate) could surge above their deficit for the years to come even without further cuts (and more so with spending cuts), which would put them on the sustainable path of reducing the debt. With Syriza I doubt it though, they can try to negotiate, but at the end of the day they're a far-left party that want to bring back a lot of the old spending that was cut, and so they're the problem even in the negotiations.

Greek debt maturities profile:
http://www.pdma.gr/index.php/en/public-debt-strategy/public-debt/maturity-profile-en

Well, in theory but they had to come up with 1.6 billion to get another 7 billion in loans. They repay NOTHING. Europe is like a parent saying to a child..'go out and find a dollar towards buying a $10 toy and mommy will give you the rest.' Only junior hasn't come up with a dollar and didn't do any chores he promised to do in the last 12 years.

As for the vote of the Greek people. Too funny. My family lends their family $100 on terms they agree to (only ever to repay $60). Then their family takes a vote among themselves not to repay it. Wow. What a slap in the face to those who bent over backwards to help them.

Debt amounts. Not the issue. What matters is the capacity in an economy to generate income. Germany, the USA, the UK owe multiples more than Greece but are not insolvent as they generate income. They can manage the debt. Creditors are paid. The USA is in a quirky stable position as the US dollar is 'the' world currency. In crisis the US dollar increases in value...the net value of the USA increases. The USA is worth a couple trillion more today than Friday...may be worth a trillion less tomorrow.

 

[Stephen Tashi]

So I wondered how much money was lost on the stock market today, and how this compared to the total debt that Greece owed.
.

How do you define the money "lost on the stock market". If an investor buys a stock at $60 a share, sees it rise to $100 a share and fall to $70 a share where he sells it, then gains $10 a share even though the market dropped. Does any person actually lose money that's "lost on the stock market"?

 

[bohm2]

so IMO it's perfectly possible that their nominal growth (real growth + inflation rate) could surge above their deficit for the years to come even without further cuts (and more so with spending cuts), which would put them on the sustainable path of reducing the debt. With Syriza I doubt it though, they can try to negotiate, but at the end of the day they're a far-left party that want to bring back a lot of the old spending that was cut, and so they're the problem even in the negotiations.

Greek debt maturities profile:
http://www.pdma.gr/index.php/en/public-debt-strategy/public-debt/maturity-profile-en

I'm by no means very knowledgeable in this material but the estimates you linked are at odds with estimates that come from the 3 creditors, themselves:

Secret documents show creditors’ baseline estimate puts debt at 118% of GDP in 2030, even if it signs up to all tax and spending reforms demanded by troika...

Greece would face an unsustainable level of debt by 2030 even if it signs up to the full package of tax and spending reforms demanded of it, according to unpublished documents compiled by its three main creditors. The documents, drawn up by the so-called troika of lenders, support Greece’s argument that it needs substantial debt relief for a lasting economic recovery. They show that, even after 15 years of sustained strong growth, the country would face a level of debt that the International Monetary Fund deems unsustainable...

But under all the scenarios, which all assume a third bailout programme, looked at by the troika – the European commission, the European Central Bank and the IMF – Greece has no chance of meeting the target of reducing its debt to “well below 110% of GDP by 2022” set by the Eurogroup of finance ministers in November 2012.

IMF: austerity measures would still leave Greece with unsustainable debt
http://www.theguardian.com/business...sis-says-significant-concessions-still-needed

 

[Czcibor]

I'm by no means very knowledgeable in this material but the estimates you linked are at odds with estimates that come from the 3 creditors, themselves:

IMF: austerity measures would still leave Greece with unsustainable debt
http://www.theguardian.com/business...sis-says-significant-concessions-still-needed

Honestly? It looks now for me like a very good manipulation, done by The Guardian. Shame on them.

They are politely ignoring that most of debt would be hold by govs, which lent Greece money on much more favourable conditions. Lower interest rates - any suitability threshold would be much higher than under normal assumptions.

Look the repayment years on the graph. Big part (almost half?) is after 2030.

 

[StatGuy2000]

Well, in theory but they had to come up with 1.6 billion to get another 7 billion in loans. They repay NOTHING. Europe is like a parent saying to a child..'go out and find a dollar towards buying a $10 toy and mommy will give you the rest.' Only junior hasn't come up with a dollar and didn't do any chores he promised to do in the last 12 years.

As for the vote of the Greek people. Too funny. My family lends their family $100 on terms they agree to (only ever to repay $60). Then their family takes a vote among themselves not to repay it. Wow. What a slap in the face to those who bent over backwards to help them.

Debt amounts. Not the issue. What matters is the capacity in an economy to generate income. Germany, the USA, the UK owe multiples more than Greece but are not insolvent as they generate income. They can manage the debt. Creditors are paid. The USA is in a quirky stable position as the US dollar is 'the' world currency. In crisis the US dollar increases in value...the net value of the USA increases. The USA is worth a couple trillion more today than Friday...may be worth a trillion less tomorrow.

tom aaron, since you have stated before that the issue is the capacity of an economy to generate income, then from that standpoint, it is pointless to expect for the "troika" (Germany, ECB, IMF) to insist that Greece continue its path to austerity, given that no matter what austerity plan they are under, their capacity to generate that income will not be sufficient to pay off existing debts. So the choice comes down to either some form of debt restructuring, or Greece leaves the euro (and the EU), devalue its currency, and try to rebuild its economy.

It is also striking to me how so many of your posts here sound to me like Greek-bashing, with the assumption that the Greek people in its entirety are essentially inferior to Germans or the French. If you had made such references to a non-European people or a non-European nation, it may well sound like racist rants.

 

[Tosh5457]

I'm by no means very knowledgeable in this material but the estimates you linked are at odds with estimates that come from the 3 creditors, themselves:

IMF: austerity measures would still leave Greece with unsustainable debt
http://www.theguardian.com/business...sis-says-significant-concessions-still-needed

They're basing that conclusion solely on the assumption that debt over 110% of GDP is unsustainable, which just isn't true in Greece's case, due to the negotiations they had with their creditors on extension and interest rates; even historically, UK had over 200% of its GDP in public debt at one point, and they never missed a payment.

 

[Vanadium 50]

UK had over 200% of its GDP in public debt at one point, and they never missed a payment.

But Greece has missed a payment.

It appears that the only way for Greece to manage the debt it has is with new debt to pay off the old. Is this sustainable?

 

[Czcibor]

There was another improtant meeting and... Greece failed to bring a detailed plan.

Let's look at timeline and reaction of markets (Greek 10 year bond):

A year ago - stable gov, bonds pay something like 5% /year - so risky, but within reasons.

Middle of October - PASOK gov starts to crumble - 8%
Middle of January - Syriza won - 9%-10%
Some aggressive negotiations - reach 13%, but returns to not much more than 10%
Referendum announced - jump immediately to 15%, then slides to 14%
Referendum results - exceeds 18%.

If markets price Greek debt so lowly, it means that they have their reasons ;)

 

[tom aaron]

There was another improtant meeting and... Greece failed to bring a detailed plan.

Let's look at timeline and reaction of markets (Greek 10 year bond):

A year ago - stable gov, bonds pay something like 5% /year - so risky, but within reasons.

Middle of October - PASOK gov starts to crumble - 8%
Middle of January - Syriza won - 9%-10%
Some aggressive negotiations - reach 13%, but returns to not much more than 10%
Referendum announced - jump immediately to 15%, then slides to 14%
Referendum results - exceeds 18%.

If markets price Greek debt so lowly, it means that they have their reasons ;)

It certainly has. With each month that goes by, the Greek economy shrinks and the net value of Greek assets shrink. If you are now earning 3/4s of last years salary, your house is worth half as much and you have failed to make any provisions for stopping the deterioration then...? Certainly much higher risk of repaying loans.

Greece ran out of options a couple years ago. Rather than recognizing the issue it did zip. Nothing. Greeks will now be treated by Northern Europe as welfare recipients. Humanitarian aid for pensioners, medicine, fuel. The German, Dutch, Finnish populations, etc. will continue to pick up the tab.

 

[Czcibor]

Myth of crushing interests rates debunked:
http://www.ft.com/intl/cms/s/0/6e5532c0-a310-11e4-ac1c-00144feab7de.html#axzz3fGBDyqJW

(Italy clearly paid more in relation to GDP)

 

[Tosh5457]

But Greece has missed a payment.

It appears that the only way for Greece to manage the debt it has is with new debt to pay off the old. Is this sustainable?

That's why they have to kill the deficit as fast as possible, to fund debt and interest payments with their own revenues. They were getting close to that point, with the deficit at 3.5% GDP already, and decreasing every year...

 

[Czcibor]

It seems there is a deal:

• The Greek parliament must immediately adopt laws to reform key parts of its economy - by Wednesday. The reforms include: streamlining the pension system and boosting tax revenue - especially from VAT
• A commitment to liberalise the labour market, privatise the electricity network and extend shop opening hours
• The eurozone agrees in principle to start negotiations on a loan package for Greece worth €82bn-86bn (£59bn-£62bn; $91bn-$96bn)
• The loan will come mainly from the European Stability Mechanism (ESM) - the eurozone bailout fund. But the International Monetary Fund will also be asked to make a contribution from March 2016
• A new trust fund will be set up, managed by Greece, with €50bn of Greek assets. It is a mechanism for paying off part of the total ESM loan. Half of the €50bn will be used to fund recapitalisation of Greek banks, the other half will go towards reducing Greece's debt mountain - by privatising assets - and investing in Greece.
• Greece will get short-term bridge financing to avoid bankruptcy - separate from the ESM. The amount is estimated to be €7bn by next Monday and another €5bn by mid-August
• Out of the total ESM loan about €10bn will be used immediately to recapitalise Greek banks - but the banks may need €25bn in total
• The European Central Bank, eurozone finance ministers and the IMF will tightly monitor Greek compliance with the bailout conditions
• Negotiations on the ESM bailout will begin only after the plan is approved by the parliaments of Finland, Germany and Greece
• The eurozone is ready if necessary to extend the repayment period of Greek debt (by debt rescheduling), but debt will not be written off (so no "haircut")
• The European Commission will try to mobilise €35bn - outside the ESM loan - to help Greece with growth and job creation.

http://www.bbc.com/news/world-europe-33504487

So conditions look a bit harsh, and one may think that Tsiparis was fighting a crusade for half a year just to return to the starting point, except maybe hit to his economy caused by uncerntanity on the market that he caused on his own.

The interest rate on Greeks 10 year bonds decreased from 19% to 13%, which is a way of expressing - instead of imminent doom, just really bad prospects.

Krugman and other quoted experts quoted on Guardian made a rant against the harsh conditions of this deal:
http://www.theguardian.com/business/2015/jul/13/athens-and-eurozone-agree-bailout-deal-for-greece

I'm quite curious if they dislike such deal so much maybe they could help financially a bit? If are unwilling, then maybe they should not be shocked, that German taxpayers are also reluctant to finance this project...

EDIT: This deal has to be voted in parliaments of Germany, the Netherlands, Estonia, Finland, Slovakia, Austria and Greece. It's not going to be easy...

 

[fermi]

I can't believe Germany's gullibility. Remember the cliche "fool me once, shame on you, fool me twice shame on me". Well, Greece already fooled Germany (and the rest of EU to a lesser degree) three times previously, and with this new round of bail-out Greece made it four! Fools or not, Germany keeps supporting Greece knowing full well that the money will never be repaid. Perhaps they will wake up some day, but until then Greece will keep treating them as fools. They first beg and make some minor concessions; then they take the money and run for a while, then they come back and ask for more in a couple of years. Mark your calenders for 2017.

 

[Czcibor]

I can't believe Germany's gullibility. Remember the cliche "fool me once, shame on you, fool me twice shame on me". Well, Greece already fooled Germany (and the rest of EU to a lesser degree) three times previously, and with this new round of bail-out Greece made it four! Fools or not, Germany keeps supporting Greece knowing full well that the money will never be repaid. Perhaps they will wake up some day, but until then Greece will keep treating them as fools. They first beg and make some minor concessions; then they take the money and run for a while, then they come back and ask for more in a couple of years. Mark your calenders for 2017.

I think that you may have overlooked one minor detail:

• "A new trust fund will be set up, managed by Greece, with €50bn of Greek assets. It is a mechanism for paying off part of the total ESM loan. Half of the €50bn will be used to fund recapitalisation of Greek banks, the other half will go towards reducing Greece's debt mountain - by privatising assets - and investing in Greece."

In other words - it seems that Angela effectively demands collateral first.

 

[Dotini]

A few niggles have emerged with the $95 billion Greece bailout deal #3.

The IMF says no, and Britain says no.

http://www.bbc.com/news/business-33531845
http://www.bbc.com/news/uk-politics-33528894

Essentially, the IMF says without debt relief, the deal is "highly unsustainable".
"the IMF has made it clear that it does not wish to participate in any further Greek bailout, unless Germany and the rest drop their vehement opposition to big write-offs of Greek debt."

And Britain says no to the immediate and urgent EFSM bridging loan on the grounds that it is not in the euro.
"Prime Minister David Cameron said in 2010 he had won a "clear and unanimous agreement" that the EFSM would not be used for further eurozone bailouts, after it was used to assist Ireland and Portugal."

Osborne said,
"But let me be very clear. Britain is not in the euro, so the idea that British taxpayers are going to be on the line for this Greek deal is a complete non-starter. The eurozone needs to foot its own bill."

Meanwhile, voting is to take place today in the Greek parliament amid strikes and a sustained bank shutdown.

 

[Czcibor]

Dotini:
Cool. Does this suggested by IMF debt relief involves writing off any of IMF loans? :D

(yeah, pleanty of people with good avice, just actually no-one wants to drown his money there...)