The core of the matter is that Greece simply cannot pay back even the payments due on their government bonds / loans without further loans, and this has been the situation for a number of years now.
Now while Greece has made major reforms as already demanded by the Troika, it has also suffered a 25% reduction in its GDP: this is a simple byproduct of austerity, you cannot (easily) reduce government spending without it having a flow-on effect on GDP, and it is rather easy to push an economy into a debt spiral, where austerity leads to reduced GDP, and thus reduced government revenue, which requires further austerity, and produces further GDP contraction.
For it's part, the Syriza government has offered to run a budgetary surplus of around 1% of GBP this financial year (which would affect GDP negatively) to around 3.5% of GDP in 2018 (which is flat-out insane). This has not been accepted by the Troika.
My own view is that the rest of Europe is acting to protect those who made the risky loans to Greece, knowing full well that there was a risk of default, and for which they extracted high rates of interest. There has now been plenty of pain from the Greek people, and to expect more to protect bondholders who knew exactly what risk they were getting in to reeks of moral hazard.
I agree with the first part: the bailout package so far has failed, which is not a huge surprise. An interesting aspect has been that, more or less, the Americans were right on this one: American economists thought the plan's projections were unrealistic and that significant GDP contractions were more likely. The ECB had very rosy projections about the economic growth that would be follow on very soon after the austerity program (within 1-2 years), which were not really in keeping with reality.
I'm not sure I agree with the who-benefits part in the last bit, though. As an explanation of the 2010 bailout, protecting the bondholders has some truth to it. But by now that has mostly already happened: the bailout package shifted most of the debt held by the private sector (mostly German and French banks) to the IMF and ECB's books. That is one reason that Greece's negotiating hand is worse now. At that time they had a mutually-assured destruction angle, because the bailout was necessary to bail out the German and French banks. Greece did a poor job playing that hand, agreeing to a package that successfully bailed out the German and French banks (with EU, ECB, and IMF money) but without even plausibly solving the problem on Greece's end.
What's the motivation now? It could be to protect the remaining bondholders (basically, the "troika"), but realistically even they cannot believe they will actually receive payment in full, so their interest can't be rationally protected by simply demanding it. In my opinion, the motivation is more driven by two political constraints: 1) Europe is in a national-populist mood, and other countries' politicians have their own domestic voters to worry about. Parties like True Finns, Alternative for Germany, and Dansk Folkeparti exert significant influence (in the case of True Finns, within government), and their line is "tough on foreigners" and euroscepticism. 2) The EU & ECB don't want to admit that their economic policy in this case has been poorly designed, so there is a bit of saving-facing stubbornness going on. (The IMF by contrast has come close to admitting a policy rethink is necessary, though not officially.)
The inability of the Greek government to print their own money to try and counter deflation (I read it was something like between 2% and 3% year over year for the last two years) is also pretty rough. Not only due to probably further contracting GDP, but also by making loans more expensive!
This is the main problem. Greece can't get out of the problem without printing money, devaluing currency, that result in cheaper export and increasing revenue through increased export and getting out of the trouble.
Euro experiment is showing that Monetary union without Fiscal union doesn't work. How do you reconcile Germany's need to keep Euro strong and Greece's need to make Euro weaker? Some sort of transfer payments need to be made from Germany and other economically stronger countries to countries in weaker situations such as Greece or this monetary union without fiscal union experiment is going to fail.
And Germany has not seen its exports rise in cost over the last decade or so as they would have done if the Deutsche Mark still existed. Currency union cuts both ways.
UK: after the experience of Black Monday and the European Exchange Rate Mechanism, many people here were wary of joining the Euro.
The german and french banks have already been saved, since roughly the beginning of this year, they don't have any meaningful positions in greek loans anymore.
I assume good faith and suspect that Greece is forced into reforms that will be beneficial for its long term development, but would not happen otherwise. Everyone expects there will be talks about debt cuts afterwards, basic math proves there is no other way. If Merkel is interested in keeping Greece in the eurozone, it has to be kept stable long-term, or else it all was in vain.
How well are GDP figures isolated from the loans that Greece was taking on? For example, imagine that we measure GDP based on income. Greece takes on loans in order to pay its pensioners, who pay corporations, who report the amount as income. Does the act of taking on this loan automatically increase GDP? (By an amount greater than the loan itself due to trickle down effects?) I assume that because of these loans, someone in Greece became richer than they would have been otherwise, and the wealth allowed them to buy a sportscar, which contributes to Greek GDP. But that doesn't mean they 'should have been' buying sportscars, and you can imagine an alternative timeline where there were no loans, and they weren't rich enough to afford it. No growth, no contraction.
If the economy is temporarily stimulated by heavy borrowing, and then the borrowing is shut down, it seems like the GDP will grow and then contract. The percentage of change will depend on the size of the loans versus the overall economy. Is it potentially the case that the "old" GDP was in some sense false because it was supported only by the loans? Is the contraction a "bad" thing if the previous GDP was artificially inflated by the borrowing and in no way sustainable on its own? Is it "bad", or might this adjustment be necessary to realign the economy around operating without heavy borrowing? I'm not an economist and don't know these answers, but they're certainly questions I'm wondering about.
Describing the crisis, the World Post wrote:
> Nobody expects Greece to repay its debt. It has for a long time been incorporated in behavior and financial planning that this would be absurd. It is therefore a misunderstanding when the crisis is sometimes represented as creditors forcing Greece into impossible austerity. It is not at all about that.
> It is about getting Greece to change its economic model from the existing one dependent on heavy borrowing year after year to a model where revenues and expenditures broadly speaking match each other."
> Greece takes on loans in order to pay its pensioners,
Apparently, what actually happened is that Greece took on loans (from the ECB, EU and IMF) in order to pay its previous loans (private banks). The people haven't seen much, if any, of that money.
Yes. They took on new bailout loans with different people in order to pay their existing loans. They were for that purpose specifically so it shouldn't be too much of a surprise. If they didn't need the money to pay the old loans, they wouldn't have taken new loans. And likewise, since they took out new loans to pay their old loans, it's understandable that the money didn't stay in Greece. Money would only have stayed in Greece if the new loans were even bigger than the old ones. Ultimately, the risk of default was transferred from one group to another.
But, the money was in Greece initially, in the form of the original loans. That money has been propping up the economy and stimulating investment for years. The money should have already had its effect, and now Greece's creditors want it to be paid back. Greece hasn't fixed a lot of its dysfunction, so it seems like the loans haven't accomplished much in the way of permanent benefit.
I'm not sure it has been propping up the Greek economy. A decent chunk of the money went to other Eurozone countries, in particular Germany, in exchange for exports (including some fairly expensive military equipment). So yes, it's been propping up the economy and stimulating investment in Germany.
It would have been a lot easier to change their economic model (which I support to a degree) at the start of the crisis, offer them 50 billion or whatever the original number they needed in return for sensible reforms.
Instead they forced Greece into following some neoliberal fairytale where sharp cuts to government spending were supposed to magically provide instant prosperity because it showed confidence.
This was obviously stupid at the time and even the IMF admits it in retrospect, so why are the Greeks required to pay the price for this disastrous intervention?
If an obese person has an operation forced on them by a crackpot doctor that only makes things worse, where does the liability lie?
If it then turns out that the doctor owns the fast food store that was profiting from selling cheap food to the patient it gets murkier still.
My understanding is that Greece's creditors have been asking for reforms all along, but nothing much has happened. For example, Greece's average retirement age has been 61. Meanwhile Spain and Germany are 67 and have discussed 69. (There was also corruption allowing certain people to retire as early as 50!) These people will then receive government pensions for the rest of their life. You can earn a full pension by working 35 years in Greece, while 45 in Germany, and get 80% of your wage as a pension in Greece, while in Germany it's 46%. The actual pension payments in Euros are similar or even greater in Greece. These are some examples of the divide that upsets Greece's creditors [1].
The Greek government has proposed raising the retirement age only recently, basically this week, as part of these last minute emergency proposals. If Greece was seriously committed to reform, they would have passed these reforms independently a long time ago in order to balance their budget, rather than as a condition of receiving more bailout money.
Instead, Greece took no action, and allowed their population to continue retiring at the average age of 61, paid for by EU taxpayers retiring years later. These taxpayers had to work a decade longer than Greeks for a pension that's half the size of what Greece pays its retired citizens. Only now in the weeks leading up to a possible default do they actually propose to take serious action or implement reasonable reform. It is my impression that this is why EU sees Greece as irresponsible: they're not doing what they need to be doing on their own to balance their budget.
How differently might things have turned out if they started seriously solving these problems in 2010? Greece has been "living large", distributing the IMF money as pension payments to their citizens that could never have been supported with the government's own tax income. Greece has also raised pension payments by a significant % during years when countries like Germany raised them 0%.
> why are the Greeks required to pay the price for this disastrous intervention?
Greece took on the loans, believing the loans to be in their interest. They're expected to pay the loans back, like anyone is. They can't, and so they're asking to borrow even more money. The question is, why should other European taxpayers shoulder the burden by loaning Greece even more money? It seems quite reasonable to me that Greece's creditors want a reasonable assurance that the money will actually be paid back in order to continue lending. You aren't going to lend money to someone who you know will just spend it, and not treat it like a loan. Greece's creditors want to hear specific details about how Greece will pay the money back, and what changes they'll make to their budget to accomplish that. This is in the context of Greece making few effective reforms in the time since their original loans. They keep saying "We'll change, we'll change", but prove politically incapable of making the hard decisions. So time passes and now their back is up against the wall. (This Spiegel article had some details: [2] )
If Greece has no credible plan for paying back the loans, then they won't get more loans, and they can default and accept the consequences. If they want to borrow more money, then they can accept the conditions that the money comes with. Are they really "entitled" to more?
Greece should have passed reforms and fixed its economy as part of receiving the original IMF loans. Instead, it wallowed in corruption and inefficiency. Its populist governments pandered to the people with all kinds of ridiculous concessions that are now proving to be impossible to sustain with a balanced budget. There is a very high rate of tax evasion that Greece also hasn't fixed, and special interests are entrenched.
It's a terrible situation all around, but morally I see Greece as having undertaken the loans by their own discretion,...
A big part of the current Greek government's manifesto was that they will carry out reform, it was also in Syriza's manifesto at the previous election but the MSM didn't seem very interested.
>My own view is that the rest of Europe is acting to protect those who made the risky loans to Greece
The loans haven't been held by private banks since the bailout started (who took a 50% write down in the process). The debt is now mostly held by the Eurozone states, and to lesser degree the ECB and IMF. The debt, by the way, is about 3% of the European GDP, and Greece's yearly interest payments are below many other Eurozone countries, and the maturity on the bailout funds is long (starting in 2030).
The competing argument from the beginning was that the Eurozone governments should have just bailed out their own banks directly, and let Greece default. In hindsight that might have been the better solution, for the Eurozone at least. When you bailout a bank, you get control and you can sell your stake in the market later (for profit or loss). When you bailout a state, you have very little leverage and are exposed to the whims of the voters and politicians in a volatile situation, as shown by Greece.
The argument that won in the end was to keep Greece afloat by a joint bailout by the Institutions (which goes against the no-bailout clause of the Eurozone treaties).
Sorry, I accidentally upvoted your comment. I don't get why you aren't more outraged by the abundance of "bailout" in your arguments. If a man makes a bad investment it's a tragedy, if a million men make it, it's statistics but if a bunch of banks do it, it's politics ? I want to be able to lend money like a bank and if my debtors want to default, I want the state to give me at least 50% of my money back first and then to squeeze the last penny from the debtor in a long process of negotiations and black mailing paid by everybody's money, because it's for a common good right ?
The real solution is that Germany leave. The Euro could then devalue for the benefit of all the weaker Eurozone members: Greece, Italy, spain, Portugal and Ireland.
Eurozone was formed by strong economical powers to bring economic stability in their countries and it's like a club of rich friends.
Why would Germany leave the Eurozone and devalue their own money? Why would UK and its other rich friends let the euro and thus their money be devalued.
And even if Germany leave the Eurozone which is highly unlikely, there are still many strong economic powers in Eurozone, so the Euro wouldn't devalue enough to support weaker economies.
This situation is much more complex due to continuous delay by European powers to discuss this matter.
You truly have no idea what you're saying. If EUR falls relative to SEK, Swedes will pay less for goods purchased in Europe. Falling prices are not a consequence of inflation, rising prices are.
I am certainly not the authority on economics, but if EUR falls relative to SEK, then in Sweden imports would be high, exports would be low. This in turn would effect local manufacturers because people would prefer buying things from outside for lower price rather than within country for higher price. This might lead to closing of manufacturing units in Sweden and loss of jobs in the country.
Also, wages would decrease relative to the rest of Europe because SEK is more valuable now (This would also result is movement of jobs out of Sweden to other European countries).
Now the imports are flourishing and export industry is dying out and wages are getting lower, unemployment may be rising. The in-country manufacturers would keep the prices same for their goods to be sold within the country, but people's wages has decreased, so in order to compete with competitive import industry they will reduce the goods prices, which in turn will decrease their staff's pay.
Thus, even though SEK is strong compared to rest of Europe, but within Sweden, people are making less than before, which in turn will lead to inflation.
Also, I haven't yet accounted to another possible consequence of this, while SEK is stronger relative to Euro and Swedes might be making less money, American economy might not be affected and $ would still be the same. This will affect Swedes international buying power.
A strong control by government may change a few factors here. If I am wrong somewhere, I would be happy to be learn new things, please give reasons.
The real solution is a united states of Europe. Some claim the whole point of the euro was to inevitably lead to this point, and hopefully the crisis would hit when the politics were favourable to this solution.
I think a couple of the arrangements put in place to bail out the French and German banks are basically a policy shift towards that.
If the goal is to make the Euro work, then yes. More realistic it would be better to roll back parts of the EU, and strengthen other. Environmental policies and free trade is really the stuff the EU needs to focus on and leave the rest to the individual countries.
I'm a big supporter of the idea of a European community and the ideas behind the EU, but I'm very much against what the EU has become. We also need to accept that many Europeans want small, more homogenous states and less EU interference.
It makes sense for Alexis Tsipras to call for a referendum, because on the one hand they don't want to fulfill the requirement from the ECB, EU and IMF, on the other they also don't want to leave the Euro. If those two options being mutually Tsipras can't win, and if they public believe that those two options are bad, they should get to pick which of those options they believe to be the lesser evil.
Greece can't stay in this perpetual economical limbo. There needs to be a plan that doesn't require the EU top politicians to meet every year and which let the Greek businesses know what to expect for the next 10 years.
That is rather questionable. German exports did very well before the Euro. And neighbouring countries not in the Eurozone are also doing well. Switzerland, UK, Denmark etc.
It's not like they'd take a hit. But that's not the point - the investors leveraging themselves into the millions of the basis of fractional % improvements/decrements care very much about any possible, natural contraction you might expect from a German mark holding very high value.
It is interesting to think about the motivation of the Greek elected officials. To me it looks like they are trying to avoid the responsibility of making a painful decision. It also appears quite likely that the Greek citizens will vote against reducing pensions, etc.
So with that in mind, what happens after 5 July? The rest of the EU will be placed in the uncomfortable position of either caving to the demands of the Greek citizens or somehow taking the position that the referendum is irrelevant--which will look very undemocratic. But to cave to Greece would mean the rest of the EU taking on an indefinite financial drain.
I don't see how this ends any way other than Greek banks collapsing or Greece leaving the EU.
> To me it looks like they are trying to avoid the responsibility of making a painful decision.
In reality, they're just keeping their word. They were elected to prevent austerity. By not signing up for even more austerity, they are just fulfilling their democratic mandate.
They are looking for the easy way out. The greeks will predictably vote for euro and they 'll be called to resign, which they will. Bubble popped, new coalition government accepts bailout terms and reality resumes.
And if that happens we are back to square one. Greece can't pay this back. Whether it was wrong of them to accept a loan they couldn't pay back is now a mute point. Greece are bankrupt. Everyone just needs to accept that fact.
A new government that accepts the terms of yet another loan they can't pay back is just going to end up in the same mess two years down the line.
Germany wants them to turn into some German style mini-clone. Germany needs to accept that other states are like children; naively, you think you can bend them to your will and force them to behave in this bmanner you think is acceptable, but you are a fool if you believe that to be the case.
This is a huge deal, and is a make or break time for the European Project. We are now asking (a second time) for a democratic mandate to negotiate against an unelected (but appointed by elected officials) economic central bank.
I honestly did not expect this one :-)
Inhave spent some time trying to wrap my head round this and it does seem that the Greek government, fairly or unfairly, is going to have have its legs broken over this, but if serious fiscal Union of other steps towards solving the fixed exchange rate and debt issues across all of Europe are not included then the ECB is at fault - they need to turn round to the rest of the council of ministers and say "you need to include this - we don't have the authority"
I think this is the sign of a leader who knows his bounds - the Greek parliament were elected on a campaign to reduce austerity measures. For them to now go ahead and impose further measures would be a clear violation of the trust the electorate has placed in them.
I wish more political leaders would recognise that they're answerable to the electorate, and put more controversial laws to a public vote instead of just imposing their will.
It's a sign of a honest leader, given that he was elected on a promise of reducing austerity while keeping Greece in the EU/Eurozone, which right now seems impossible.
I don't think so, quit the opposite actually. He can't give the Greeks what they want, it's not within his means, not without breaking promise he made earlier on. Arguably he may have made promises that where perhaps never realistic.
The people want two contradictory things, based on the anti-austerity and "We want to stay in the Euro" protests. It seems fair to ask the people "Do you want the Euro, regardless of what austerity measures that might require" or "Do you want to avoid austerity and risk having to leave the Euro"?
>I don't think so, quit the opposite actually. He can't give the Greeks what they want, it's not within his means, not without breaking promise he made earlier on. Arguably he may have made promises that where perhaps never realistic.
If you put it that way he's not a leader at all. He's just an opportunistic liar taking advantage of a bad situation.
Amateur move at best. Should the germans and the french follow suit with a referendum whether they should bail out greece again?
The government that acted like nagging teenagers doesn't want to grow up, and chooses to bail. It saddens me that i voted for them.
Truth be told, the EU is forced to look in the mirror this time: Despite all the rhetoric and despite most europeans liking the idea, the greeks do not become more like germans and the germans do not become more like spaniards.
> Should the germans and the french follow suit with a referendum whether they should bail out greece again?
Yes, and they should have done so much earlier. If the other Eurozone governments would have listened to popular demand, Greece would not have been bailed out, and the default would not affect their taxpayers as much as it does now. The whole bailout programme was hubris, and it is time to call the bluff.
Well, it's politics. A lot of the big lenders were german banks. So it made sense for the german government to support more loans to Greece, because those were used to keep paying back german Banks. Grossly simplified, but that's what has been happening in the last years.
That is the right move. Also Germany should stop talking about fiscal results and demand political reforms. Clean corruption in the administration and good fiscal results will follow on their own.
And Germany should elect finally someone competent. Merkel is a joke.
You are right but 'demand political reforms' is easier said than done. Greece is paralyzed since 7 years without progress. Motte: blame others do nothing, cry.
Merkel is no joke, she is the most intelligent and gifted politician around. (Of course this is as subjective as your statement, but I'm right :-)).
> she is the most intelligent and gifted politician around.
She is entertaining Cameron's crazytalk of secession. Instead of just saying - go on, let me see you. And that means she has no idea what she is doing.
Cameron doesn't want to leave the EU. He represents business interests, who overwhelmingly benefit from EU membership so he's fighting to stay in.
But his party also has lots of people who cling to dream of the British Empire, and don't like social democracy, who dislike what the EU stands for. Those people were threatening to defect to a smaller party, which under the UK's ridiculous first-past-the-post system meant that those single issue voters could heavily influence policy despite their relatively small numbers. As a result we're going to have a referendum, that Cameron didn't actually want to have, and which he's going to campaign on the pro-EU side for.
So Cameron needs to make it look like the EU is making concessions, so that he can return to the UK and campaign to stay in and make it seems like he's won some great victory. Note that he's being very vague about what he wants from the EU, this is because he's going to claim victory whatever happens, and he knows probably nothing will happen.
Merkel also knows this, and knows he knows, and so the only thing she needs to do is not embarrass Cameron too much in order for the UK to vote strongly to remain in the EU. Calling his bluff and exposing this nonsense for what it is would be fun, but not particularly smart.
What is actually happening here is that Tsipras is simply trying to save face. Attempting to get the Troika (EU, IMF, ECB) to bend in the negotiations was a suicide commando in the first place.
Now he realizes that his plan failed and is trying last minute to shift responsibility to the Greek public (i.e. "let them decide what the right path is"). In any outcome event (Greece leaving Eurozone or Greece accepting Troika terms) he would be able to point to the referendum and tell everyone that it wasn't "his fault".
They had ample time to put up a public vote weeks or months ago. Their deadline for submitting a proposal or accepting the terms given to them passed five days ago. They initially sent "wrong papers" to the participants of the EU ministers' meetings. Now the referendum. At this point, they are just playing time.
They are now for the first time in power and only for 5 months. Of course they needed time to conduct negotiations to see, if there is a way to end austerity on the basis of a mutual agreement with the EU institutions.
Apparently this didn't work out (ultimatum by the EU), but how could they find out without at least trying to negotiate with the EU.
He wasn't voted into power to leave the Eurozone, he was voted into power to end austerity and stay in the Eurozone.
When should he have called for a referendum? After the first negative response they received from the EU? This would be silly.
Of course they tried to negotiate and to explore all possibilities until they either reached a mutually acceptable agreement with the EU or they received a final ultimatum.
Given that he and his entire party are loudly supporting a "no" vote, I don't think this is the case. Their position is clear.
They simply don't have a democratic mandate to accept continued, worsened austerity. Everyone basically agrees that if the vote is "yes", that will be the end of the Syriza government. If it's "no", well, then they have the support to continue rejecting austerity.
They were elected based on their promise not to accept more austerity. I would agree with parent that they don't have a democratic mandate to do the opposite now, even if they could legally do it.
A mandate is an authorisation to do something, not an open-ended power. The rest of that quoteed phrase references what the mandate was about - they were elected on a campaign to do the opposite course of action.
I don't understand your point. Their democratic mandate is to say no to Trioka terms. Great. That's what they did and it resulted in the situation we have now.
If they continue down the path of their mandate it will result in Greece exiting the Eurozone. This should not be a surprise to anyone.
The other choice is to accept Troika terms, keep Greece in the Eurozone, and potentially lose face.
In any case it is a situation that the Tsipras government caused, a situation that was predictable and a situation that they should have to deal with and stand by themselves.
The whole point of having a government is that the people should not be faced with having to make these kinds of decisions that involve many complexities and have long-ranging consequences. Calling in a referendum for precisely these decisions is a declaration of incompetence.
> What is actually happening here is that Tsipras is simply trying to save face.
I disagree with you. He was democratically voted into power 5 months ago to end austerity, but NOT to leave the Euro currency or the EU.
Now that he came to the conclusion that leaving the Euro currency is inevitable if Greece wants to end austerity he does the right thing any person in power should do:
He lets the population decide thereby giving him a mandate to either continue austerity or leave the Euro currency, both of which he didn't get the mandate for when he was voted into power.
For everybody who's not been living under a rock for the last five years it was, and is, obvious that the choice is either to accept Troika terms or to leave the Eurozone. The current situation can't be a surprise for anyone, especially not for the ones who voted for Tsipras.
Tripras promised to end austerity without having to leave the EU. This was completely illusory in the first place. Politicians overpromise and fail, that's part of the game. The right response is to either be a man and continue to fight for the values you believe in or to admit defeat and step down.
But you can't call in referendums every time the situation gets too hot, particularly not in circumstances like the current and within a couple of days. That's just ridiculous.
There is no legal way for the EU to throw Greece out of the Eurozone without them agreeing to it.
Greece could default, revert back to their national currency or keep the Euro currency and STAY in the EU at the same time.
He declared what he wanted to do, this of course meant that he had to convince the other EU elites which required open ended negotiations in good faith.
I'm sure that no one in their right minds in Greece believed that Tsipras simply could dictate something to Brussels.
Apparently negotiations failed, that can always happen, but at least he tried.
Also It is never ridiculous to let the people of a country decide especially on hard questions after the facts on the ground have changed. I never understood the mindset of people who loathe on democratic decision-making.
You seem to believe that there never was the possibility to reach a mutually beneficial agreement to begin with, and Greece should simply roll over and let their economy contract another 25% after it has already contracted 25% in the last years.
If this were the case (I disagree) then maybe it's for the best to exit the EU and work with the Russians and Chinese on building a better future for the Greek people.
First, please don't downvote people who you simply disagree with. That's just bad style.
> Also It is never ridiculous to let the people of a country decide especially on hard questions after the facts on the ground have changed.
"After the facts have changed". Sorry but I have no idea what you are talking about. The facts have been on the table for about five years now, in plain sight for everyone.
> You seem to believe that there never was the possibility to reach a mutually beneficial agreement to begin with, and Greece should simply roll over and let their economy contract another 25% after it has already contracted 25% in the last years.
There was that possibility but Greece just simply didn't have any real leverage in the discussions. Tsipras mislead his own people in that regard and now he needs to face reality.
And yes the Greek economy will contract. But never was real to begin with. It was all just built on other people's money and it wasn't built to sustain itself after that flow of money dries up. So of course, what's not sustainable will deflate.
Well, this is going badly; lots of grey top-level comments.
The real underlying issue is: who has budgetary authority in Greece, and what does that mean?
State debt does not usually come with strings attached. Even if the repayments cannot be made, debtors don't get to make policy. The big exception is the IMF. The ECB is now also trying to take on that role.
The ECB is trying to run Greece like a chapter 11 bankruptcy. Not only a repayment plan, but dictating who wins and who loses in Greek society. The critical issue is pensions, which are considered "high" despite that not really being true: http://blogs.wsj.com/brussels/2015/02/27/greeces-pension-sys...
There is an extra factor in the pension system that out-of-work benefits are really not generous or even functioning at all: http://greece.greekreporter.com/2014/06/16/85-in-100-unemplo... So it has become common for elderly people to support younger ones. Cutting pensions too deeply will blow up the unemployment problem.
The question is really poverty+independence vs vassal status. Quite a lot of people are saying they are willing to put up with poverty to preseve their dignity.
The 'quite a lot of people' might want to think about their ego and should not confuse it with dignity. It's Greece vs. the whole of EU. And do you really think one is independent if one is broke?
Wow, you simply presume that they (the Greek) are wrong and the West is always right with their good advices and reforms.
Just look at what kind of better life the "good advice" and "reforms" of the West has brought the people in Africa, the Middle East and the various western supported military dictatorships around the world.
This way of thinking (we are always good and mean good) is the fundamental underlying issue in the conflict between the west and the east that has been raging now for more than a thousand years.
Western way of thinking is all about superiority, cruelty and power disguised as good advice because we know best whats good for others.
Nope. It's the European periphery vs Western European powers, especially Germany, who profit from being boss hogs in the E.U. and save their "too big to fail" financial institutions.
Ireland, Spain etc, got the same treatment from E.U. bosses. There has been a solidarity movement for Greece, and anti-EU / austerity protests in both countries actually.
And it's especially Germany, because Germany is calling the shots in the Eurozone. France plays second fiddle, and Britain is more concerned with its Atlantic allies.
On the other hand, the scale of economic aid to Greece is unprecedented, with lined up bailout of €240 billion. For a foreign aid that's quite an amount, I'm not sure even what to compare it to. Marshall plan?
Mind you, we're speaking of a nation of 11 million. The whole former USSR got an order of magnitude less financial aid throughout the 1990s with an order of magnitude more population, and being in worse shape than Greece to start with. I don't think it's unreasonable for creditors to care how the money are spent with this type figures.
That figure is a loan, and is smaller than the national debts of many larger EU countries. It's not the size of the debt that matters in absolute terms, but the ability to make payments. I don't see anyone arguing that the holders of the US$14trn debt should get to run the country simply because of the size of the debt.
Errata: for "ECB" read "EU as represented by the Commission. The ECB are providing life support for the Greek banking system and trying desperately not to either get dragged into the politics, lose all their money, or blow up the EU banking system.
A loan is still aid: much of it elsewhere is in form of loans too. Take Ukraine (broke, 45 million people and at war with Russia), who has a two year IMF lifeline amounting to $27 billion, most of it in form of loans. It takes the money and complies its economic policy with IMF advisory board.
Most of the aid to Russia was structured as loans throughout 1990s as well, but much of these were written off as it often happens.
> It's not the size of the debt that matters in absolute terms, but the ability to make payments.
Well this is what the fuss is about, isn't it? The lenders don't see Greece being able to repay unless they implement austerity measures.
>On the other hand, the scale of economic aid to Greece is unprecedented, with lined up bailout of €240 billion.
It's not aid per se though (like the Marshall plan you compared it to).
First, it still is in the forms on loans. Yes, the "aid" is just further loans (with lower rates), that are piled up on the previous debt (with interest on them repaid normally all these years).
Second, the aid goes this way: from EU taxpayers and the Greek state (its payback to the aid loans), to EU banks. The aid money are not given to Greek government to pay salaries, etc. or any such purose. They go directly to the creditors. Like the "too big to fail" Wall Street bailout, this is too about siphoning money to central European banks to protect them from toxic assets they had accumulated.
Third, this "non-aid" aid (essentially letting Greece near-default and then lenting them money month-to-month to repay its debt under certain conditions), was used to bully Greece to take a number of tax hikes, austerity measures etc, who killed its economy (30% unemployment and up to 50% youth unemployment, 40% loss of wages, etc) to give money for the "aid" loans (which never touched Greece), and to
Fourth, all this is even more damning considering that Germany in WWII invaded Greece, resulting in 700.000 deaths from famine, thousands of deaths from executions, and massive destruction of infrastructure. They also took a "loan" from the occupied country, which they never repaid, without also repaying their war recuperations. Germany was absolved from doing so in the early fifties, despite the harm they caused to Greece, because they were new cold war darlings and valuable US allies (and ditto for Eastern Germany / USSR). And what could Greece do about it anyway?
I picture a visual picture of Newtons falling apple towards the ground with gravity as the rising debt in comparison with Greece ability to pay those debts. It is certain that the apple will fall to the ground its just a matter of time vs distance until it gets there analogy with the ability to pay of the debt. The Greece debt default are inevitable unless the Greece people suddenly behave like German productivity wise which is quite unlikely. The latest wording was that Greece needed the new loan to be able to pay off the old the old IMF loan payment which is coming up end of June. That to me sounds very much like something similar to a Charles Ponzi scheme, you need new participants in the scheme in this case a new loan to keep it rolling.
A programmer spelled it out on a blog entry, its the same currency the Euro, German productivity is rising with x percent per year versus the Greece are falling in comparison with Germany. Combine that with unwillingness to pay taxes in Greece and you have bad funding, non efficient government with high debt.
My suggestion, let the Greece people default on their debts, let the original bond holders take their investment losses on the investment. Give the Greece people back their local currency the Drachma it will then become a cheap country to have a vacation in and people will go there instead of other countries.
The original lenders were in so deep they'd have crashed the French and German economies, and taken the rest of the EU with them, if not bailed out. But the politicians don't like talking about this as a northern European bank bailout, preferring to blame the Greeks.
The Greeks have issues, just like a lot of homeowners got in too deep, but if your bank, or your banking sector can't deal with bankruptcies then its not really the bankrupts fault, They took the deal they were offered with interest on one side balanced against risk on the other.
There is no moral dimension to this situation: Greece is not morally obligated to pay back its existing debts, and the rest of Europe is not morally obligated to loan more money to people they don't believe will pay them back. (If you think that Greece "needs" the money and Europe should give it to them because they're suffering, there is a list of 140+ countries poorer than Greece here: https://en.wikipedia.org/wiki/List_of_countries_by_GDP_(PPP)...).
It seems like a bad idea to _me_ to default and leave the Euro. It will almost certainly be economically worse for the Greeks in the near-term than accepting the Troika's conditions for more loans, but it could be rational if the Greeks value independence very highly compared to maintaining their current standard of living. If you're going to do something with such dire consequences, though, a referendum seems like the way to go.
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[ 5.1 ms ] story [ 175 ms ] threadNow while Greece has made major reforms as already demanded by the Troika, it has also suffered a 25% reduction in its GDP: this is a simple byproduct of austerity, you cannot (easily) reduce government spending without it having a flow-on effect on GDP, and it is rather easy to push an economy into a debt spiral, where austerity leads to reduced GDP, and thus reduced government revenue, which requires further austerity, and produces further GDP contraction.
For it's part, the Syriza government has offered to run a budgetary surplus of around 1% of GBP this financial year (which would affect GDP negatively) to around 3.5% of GDP in 2018 (which is flat-out insane). This has not been accepted by the Troika.
My own view is that the rest of Europe is acting to protect those who made the risky loans to Greece, knowing full well that there was a risk of default, and for which they extracted high rates of interest. There has now been plenty of pain from the Greek people, and to expect more to protect bondholders who knew exactly what risk they were getting in to reeks of moral hazard.
I'm not sure I agree with the who-benefits part in the last bit, though. As an explanation of the 2010 bailout, protecting the bondholders has some truth to it. But by now that has mostly already happened: the bailout package shifted most of the debt held by the private sector (mostly German and French banks) to the IMF and ECB's books. That is one reason that Greece's negotiating hand is worse now. At that time they had a mutually-assured destruction angle, because the bailout was necessary to bail out the German and French banks. Greece did a poor job playing that hand, agreeing to a package that successfully bailed out the German and French banks (with EU, ECB, and IMF money) but without even plausibly solving the problem on Greece's end.
What's the motivation now? It could be to protect the remaining bondholders (basically, the "troika"), but realistically even they cannot believe they will actually receive payment in full, so their interest can't be rationally protected by simply demanding it. In my opinion, the motivation is more driven by two political constraints: 1) Europe is in a national-populist mood, and other countries' politicians have their own domestic voters to worry about. Parties like True Finns, Alternative for Germany, and Dansk Folkeparti exert significant influence (in the case of True Finns, within government), and their line is "tough on foreigners" and euroscepticism. 2) The EU & ECB don't want to admit that their economic policy in this case has been poorly designed, so there is a bit of saving-facing stubbornness going on. (The IMF by contrast has come close to admitting a policy rethink is necessary, though not officially.)
Euro experiment is showing that Monetary union without Fiscal union doesn't work. How do you reconcile Germany's need to keep Euro strong and Greece's need to make Euro weaker? Some sort of transfer payments need to be made from Germany and other economically stronger countries to countries in weaker situations such as Greece or this monetary union without fiscal union experiment is going to fail.
UK: after the experience of Black Monday and the European Exchange Rate Mechanism, many people here were wary of joining the Euro.
I assume good faith and suspect that Greece is forced into reforms that will be beneficial for its long term development, but would not happen otherwise. Everyone expects there will be talks about debt cuts afterwards, basic math proves there is no other way. If Merkel is interested in keeping Greece in the eurozone, it has to be kept stable long-term, or else it all was in vain.
If the economy is temporarily stimulated by heavy borrowing, and then the borrowing is shut down, it seems like the GDP will grow and then contract. The percentage of change will depend on the size of the loans versus the overall economy. Is it potentially the case that the "old" GDP was in some sense false because it was supported only by the loans? Is the contraction a "bad" thing if the previous GDP was artificially inflated by the borrowing and in no way sustainable on its own? Is it "bad", or might this adjustment be necessary to realign the economy around operating without heavy borrowing? I'm not an economist and don't know these answers, but they're certainly questions I'm wondering about.
Describing the crisis, the World Post wrote:
> Nobody expects Greece to repay its debt. It has for a long time been incorporated in behavior and financial planning that this would be absurd. It is therefore a misunderstanding when the crisis is sometimes represented as creditors forcing Greece into impossible austerity. It is not at all about that.
> It is about getting Greece to change its economic model from the existing one dependent on heavy borrowing year after year to a model where revenues and expenditures broadly speaking match each other."
Apparently, what actually happened is that Greece took on loans (from the ECB, EU and IMF) in order to pay its previous loans (private banks). The people haven't seen much, if any, of that money.
But, the money was in Greece initially, in the form of the original loans. That money has been propping up the economy and stimulating investment for years. The money should have already had its effect, and now Greece's creditors want it to be paid back. Greece hasn't fixed a lot of its dysfunction, so it seems like the loans haven't accomplished much in the way of permanent benefit.
Instead they forced Greece into following some neoliberal fairytale where sharp cuts to government spending were supposed to magically provide instant prosperity because it showed confidence.
This was obviously stupid at the time and even the IMF admits it in retrospect, so why are the Greeks required to pay the price for this disastrous intervention?
If an obese person has an operation forced on them by a crackpot doctor that only makes things worse, where does the liability lie?
If it then turns out that the doctor owns the fast food store that was profiting from selling cheap food to the patient it gets murkier still.
The Greek government has proposed raising the retirement age only recently, basically this week, as part of these last minute emergency proposals. If Greece was seriously committed to reform, they would have passed these reforms independently a long time ago in order to balance their budget, rather than as a condition of receiving more bailout money.
Instead, Greece took no action, and allowed their population to continue retiring at the average age of 61, paid for by EU taxpayers retiring years later. These taxpayers had to work a decade longer than Greeks for a pension that's half the size of what Greece pays its retired citizens. Only now in the weeks leading up to a possible default do they actually propose to take serious action or implement reasonable reform. It is my impression that this is why EU sees Greece as irresponsible: they're not doing what they need to be doing on their own to balance their budget.
How differently might things have turned out if they started seriously solving these problems in 2010? Greece has been "living large", distributing the IMF money as pension payments to their citizens that could never have been supported with the government's own tax income. Greece has also raised pension payments by a significant % during years when countries like Germany raised them 0%.
> why are the Greeks required to pay the price for this disastrous intervention?
Greece took on the loans, believing the loans to be in their interest. They're expected to pay the loans back, like anyone is. They can't, and so they're asking to borrow even more money. The question is, why should other European taxpayers shoulder the burden by loaning Greece even more money? It seems quite reasonable to me that Greece's creditors want a reasonable assurance that the money will actually be paid back in order to continue lending. You aren't going to lend money to someone who you know will just spend it, and not treat it like a loan. Greece's creditors want to hear specific details about how Greece will pay the money back, and what changes they'll make to their budget to accomplish that. This is in the context of Greece making few effective reforms in the time since their original loans. They keep saying "We'll change, we'll change", but prove politically incapable of making the hard decisions. So time passes and now their back is up against the wall. (This Spiegel article had some details: [2] )
If Greece has no credible plan for paying back the loans, then they won't get more loans, and they can default and accept the consequences. If they want to borrow more money, then they can accept the conditions that the money comes with. Are they really "entitled" to more?
Greece should have passed reforms and fixed its economy as part of receiving the original IMF loans. Instead, it wallowed in corruption and inefficiency. Its populist governments pandered to the people with all kinds of ridiculous concessions that are now proving to be impossible to sustain with a balanced budget. There is a very high rate of tax evasion that Greece also hasn't fixed, and special interests are entrenched.
It's a terrible situation all around, but morally I see Greece as having undertaken the loans by their own discretion,...
The loans haven't been held by private banks since the bailout started (who took a 50% write down in the process). The debt is now mostly held by the Eurozone states, and to lesser degree the ECB and IMF. The debt, by the way, is about 3% of the European GDP, and Greece's yearly interest payments are below many other Eurozone countries, and the maturity on the bailout funds is long (starting in 2030).
The competing argument from the beginning was that the Eurozone governments should have just bailed out their own banks directly, and let Greece default. In hindsight that might have been the better solution, for the Eurozone at least. When you bailout a bank, you get control and you can sell your stake in the market later (for profit or loss). When you bailout a state, you have very little leverage and are exposed to the whims of the voters and politicians in a volatile situation, as shown by Greece.
The argument that won in the end was to keep Greece afloat by a joint bailout by the Institutions (which goes against the no-bailout clause of the Eurozone treaties).
Why would Germany leave the Eurozone and devalue their own money? Why would UK and its other rich friends let the euro and thus their money be devalued.
And even if Germany leave the Eurozone which is highly unlikely, there are still many strong economic powers in Eurozone, so the Euro wouldn't devalue enough to support weaker economies.
This situation is much more complex due to continuous delay by European powers to discuss this matter.
Also, wages would decrease relative to the rest of Europe because SEK is more valuable now (This would also result is movement of jobs out of Sweden to other European countries).
Now the imports are flourishing and export industry is dying out and wages are getting lower, unemployment may be rising. The in-country manufacturers would keep the prices same for their goods to be sold within the country, but people's wages has decreased, so in order to compete with competitive import industry they will reduce the goods prices, which in turn will decrease their staff's pay. Thus, even though SEK is strong compared to rest of Europe, but within Sweden, people are making less than before, which in turn will lead to inflation.
Also, I haven't yet accounted to another possible consequence of this, while SEK is stronger relative to Euro and Swedes might be making less money, American economy might not be affected and $ would still be the same. This will affect Swedes international buying power.
A strong control by government may change a few factors here. If I am wrong somewhere, I would be happy to be learn new things, please give reasons.
I think a couple of the arrangements put in place to bail out the French and German banks are basically a policy shift towards that.
If the goal is to make the Euro work, then yes. More realistic it would be better to roll back parts of the EU, and strengthen other. Environmental policies and free trade is really the stuff the EU needs to focus on and leave the rest to the individual countries.
I'm a big supporter of the idea of a European community and the ideas behind the EU, but I'm very much against what the EU has become. We also need to accept that many Europeans want small, more homogenous states and less EU interference.
It makes sense for Alexis Tsipras to call for a referendum, because on the one hand they don't want to fulfill the requirement from the ECB, EU and IMF, on the other they also don't want to leave the Euro. If those two options being mutually Tsipras can't win, and if they public believe that those two options are bad, they should get to pick which of those options they believe to be the lesser evil.
Greece can't stay in this perpetual economical limbo. There needs to be a plan that doesn't require the EU top politicians to meet every year and which let the Greek businesses know what to expect for the next 10 years.
(It doesn't have to be zero-sum, but it is in the current setup! It's not possible for all EU countries to run trade surpluses with one another)
So with that in mind, what happens after 5 July? The rest of the EU will be placed in the uncomfortable position of either caving to the demands of the Greek citizens or somehow taking the position that the referendum is irrelevant--which will look very undemocratic. But to cave to Greece would mean the rest of the EU taking on an indefinite financial drain.
I don't see how this ends any way other than Greek banks collapsing or Greece leaving the EU.
In reality, they're just keeping their word. They were elected to prevent austerity. By not signing up for even more austerity, they are just fulfilling their democratic mandate.
A new government that accepts the terms of yet another loan they can't pay back is just going to end up in the same mess two years down the line.
Germany wants them to turn into some German style mini-clone. Germany needs to accept that other states are like children; naively, you think you can bend them to your will and force them to behave in this bmanner you think is acceptable, but you are a fool if you believe that to be the case.
I honestly did not expect this one :-)
Inhave spent some time trying to wrap my head round this and it does seem that the Greek government, fairly or unfairly, is going to have have its legs broken over this, but if serious fiscal Union of other steps towards solving the fixed exchange rate and debt issues across all of Europe are not included then the ECB is at fault - they need to turn round to the rest of the council of ministers and say "you need to include this - we don't have the authority"
IMO that's the sign of a weak leader.
I wish more political leaders would recognise that they're answerable to the electorate, and put more controversial laws to a public vote instead of just imposing their will.
The people want two contradictory things, based on the anti-austerity and "We want to stay in the Euro" protests. It seems fair to ask the people "Do you want the Euro, regardless of what austerity measures that might require" or "Do you want to avoid austerity and risk having to leave the Euro"?
If you put it that way he's not a leader at all. He's just an opportunistic liar taking advantage of a bad situation.
The government that acted like nagging teenagers doesn't want to grow up, and chooses to bail. It saddens me that i voted for them.
Truth be told, the EU is forced to look in the mirror this time: Despite all the rhetoric and despite most europeans liking the idea, the greeks do not become more like germans and the germans do not become more like spaniards.
Yes, and they should have done so much earlier. If the other Eurozone governments would have listened to popular demand, Greece would not have been bailed out, and the default would not affect their taxpayers as much as it does now. The whole bailout programme was hubris, and it is time to call the bluff.
And Germany should elect finally someone competent. Merkel is a joke.
Merkel is no joke, she is the most intelligent and gifted politician around. (Of course this is as subjective as your statement, but I'm right :-)).
She is entertaining Cameron's crazytalk of secession. Instead of just saying - go on, let me see you. And that means she has no idea what she is doing.
But his party also has lots of people who cling to dream of the British Empire, and don't like social democracy, who dislike what the EU stands for. Those people were threatening to defect to a smaller party, which under the UK's ridiculous first-past-the-post system meant that those single issue voters could heavily influence policy despite their relatively small numbers. As a result we're going to have a referendum, that Cameron didn't actually want to have, and which he's going to campaign on the pro-EU side for.
So Cameron needs to make it look like the EU is making concessions, so that he can return to the UK and campaign to stay in and make it seems like he's won some great victory. Note that he's being very vague about what he wants from the EU, this is because he's going to claim victory whatever happens, and he knows probably nothing will happen.
Merkel also knows this, and knows he knows, and so the only thing she needs to do is not embarrass Cameron too much in order for the UK to vote strongly to remain in the EU. Calling his bluff and exposing this nonsense for what it is would be fun, but not particularly smart.
Now he realizes that his plan failed and is trying last minute to shift responsibility to the Greek public (i.e. "let them decide what the right path is"). In any outcome event (Greece leaving Eurozone or Greece accepting Troika terms) he would be able to point to the referendum and tell everyone that it wasn't "his fault".
Apparently this didn't work out (ultimatum by the EU), but how could they find out without at least trying to negotiate with the EU.
He wasn't voted into power to leave the Eurozone, he was voted into power to end austerity and stay in the Eurozone.
When should he have called for a referendum? After the first negative response they received from the EU? This would be silly.
Of course they tried to negotiate and to explore all possibilities until they either reached a mutually acceptable agreement with the EU or they received a final ultimatum.
They simply don't have a democratic mandate to accept continued, worsened austerity. Everyone basically agrees that if the vote is "yes", that will be the end of the Syriza government. If it's "no", well, then they have the support to continue rejecting austerity.
they were elected this January (democratically)
If they continue down the path of their mandate it will result in Greece exiting the Eurozone. This should not be a surprise to anyone.
The other choice is to accept Troika terms, keep Greece in the Eurozone, and potentially lose face.
In any case it is a situation that the Tsipras government caused, a situation that was predictable and a situation that they should have to deal with and stand by themselves.
The whole point of having a government is that the people should not be faced with having to make these kinds of decisions that involve many complexities and have long-ranging consequences. Calling in a referendum for precisely these decisions is a declaration of incompetence.
I disagree with you. He was democratically voted into power 5 months ago to end austerity, but NOT to leave the Euro currency or the EU.
Now that he came to the conclusion that leaving the Euro currency is inevitable if Greece wants to end austerity he does the right thing any person in power should do:
He lets the population decide thereby giving him a mandate to either continue austerity or leave the Euro currency, both of which he didn't get the mandate for when he was voted into power.
Tripras promised to end austerity without having to leave the EU. This was completely illusory in the first place. Politicians overpromise and fail, that's part of the game. The right response is to either be a man and continue to fight for the values you believe in or to admit defeat and step down.
But you can't call in referendums every time the situation gets too hot, particularly not in circumstances like the current and within a couple of days. That's just ridiculous.
Greece could default, revert back to their national currency or keep the Euro currency and STAY in the EU at the same time.
He declared what he wanted to do, this of course meant that he had to convince the other EU elites which required open ended negotiations in good faith.
I'm sure that no one in their right minds in Greece believed that Tsipras simply could dictate something to Brussels.
Apparently negotiations failed, that can always happen, but at least he tried.
Also It is never ridiculous to let the people of a country decide especially on hard questions after the facts on the ground have changed. I never understood the mindset of people who loathe on democratic decision-making.
You seem to believe that there never was the possibility to reach a mutually beneficial agreement to begin with, and Greece should simply roll over and let their economy contract another 25% after it has already contracted 25% in the last years.
If this were the case (I disagree) then maybe it's for the best to exit the EU and work with the Russians and Chinese on building a better future for the Greek people.
> Also It is never ridiculous to let the people of a country decide especially on hard questions after the facts on the ground have changed.
"After the facts have changed". Sorry but I have no idea what you are talking about. The facts have been on the table for about five years now, in plain sight for everyone.
> You seem to believe that there never was the possibility to reach a mutually beneficial agreement to begin with, and Greece should simply roll over and let their economy contract another 25% after it has already contracted 25% in the last years.
There was that possibility but Greece just simply didn't have any real leverage in the discussions. Tsipras mislead his own people in that regard and now he needs to face reality.
And yes the Greek economy will contract. But never was real to begin with. It was all just built on other people's money and it wasn't built to sustain itself after that flow of money dries up. So of course, what's not sustainable will deflate.
The real underlying issue is: who has budgetary authority in Greece, and what does that mean?
State debt does not usually come with strings attached. Even if the repayments cannot be made, debtors don't get to make policy. The big exception is the IMF. The ECB is now also trying to take on that role.
The ECB is trying to run Greece like a chapter 11 bankruptcy. Not only a repayment plan, but dictating who wins and who loses in Greek society. The critical issue is pensions, which are considered "high" despite that not really being true: http://blogs.wsj.com/brussels/2015/02/27/greeces-pension-sys...
There is an extra factor in the pension system that out-of-work benefits are really not generous or even functioning at all: http://greece.greekreporter.com/2014/06/16/85-in-100-unemplo... So it has become common for elderly people to support younger ones. Cutting pensions too deeply will blow up the unemployment problem.
The question is really poverty+independence vs vassal status. Quite a lot of people are saying they are willing to put up with poverty to preseve their dignity.
Just look at what kind of better life the "good advice" and "reforms" of the West has brought the people in Africa, the Middle East and the various western supported military dictatorships around the world.
This way of thinking (we are always good and mean good) is the fundamental underlying issue in the conflict between the west and the east that has been raging now for more than a thousand years.
Western way of thinking is all about superiority, cruelty and power disguised as good advice because we know best whats good for others.
That way of thinking also applies to west entities: the powerful one is always right.
Nope. It's the European periphery vs Western European powers, especially Germany, who profit from being boss hogs in the E.U. and save their "too big to fail" financial institutions.
It's also Greece vs. (e.g.) Ireland, Spain, Lithuania which are located on the periphery.
E.g. http://www.bbc.com/news/world-europe-31072139
And it's especially Germany, because Germany is calling the shots in the Eurozone. France plays second fiddle, and Britain is more concerned with its Atlantic allies.
Mind you, we're speaking of a nation of 11 million. The whole former USSR got an order of magnitude less financial aid throughout the 1990s with an order of magnitude more population, and being in worse shape than Greece to start with. I don't think it's unreasonable for creditors to care how the money are spent with this type figures.
Errata: for "ECB" read "EU as represented by the Commission. The ECB are providing life support for the Greek banking system and trying desperately not to either get dragged into the politics, lose all their money, or blow up the EU banking system.
Most of the aid to Russia was structured as loans throughout 1990s as well, but much of these were written off as it often happens.
> It's not the size of the debt that matters in absolute terms, but the ability to make payments.
Well this is what the fuss is about, isn't it? The lenders don't see Greece being able to repay unless they implement austerity measures.
It's not aid per se though (like the Marshall plan you compared it to).
First, it still is in the forms on loans. Yes, the "aid" is just further loans (with lower rates), that are piled up on the previous debt (with interest on them repaid normally all these years).
Second, the aid goes this way: from EU taxpayers and the Greek state (its payback to the aid loans), to EU banks. The aid money are not given to Greek government to pay salaries, etc. or any such purose. They go directly to the creditors. Like the "too big to fail" Wall Street bailout, this is too about siphoning money to central European banks to protect them from toxic assets they had accumulated.
Third, this "non-aid" aid (essentially letting Greece near-default and then lenting them money month-to-month to repay its debt under certain conditions), was used to bully Greece to take a number of tax hikes, austerity measures etc, who killed its economy (30% unemployment and up to 50% youth unemployment, 40% loss of wages, etc) to give money for the "aid" loans (which never touched Greece), and to
Fourth, all this is even more damning considering that Germany in WWII invaded Greece, resulting in 700.000 deaths from famine, thousands of deaths from executions, and massive destruction of infrastructure. They also took a "loan" from the occupied country, which they never repaid, without also repaying their war recuperations. Germany was absolved from doing so in the early fifties, despite the harm they caused to Greece, because they were new cold war darlings and valuable US allies (and ditto for Eastern Germany / USSR). And what could Greece do about it anyway?
Here are some thinking points: http://www.forbes.com/sites/afontevecchia/2012/02/21/greek-b...
http://in.reuters.com/article/2012/06/29/spain-germany-bailo...
A programmer spelled it out on a blog entry, its the same currency the Euro, German productivity is rising with x percent per year versus the Greece are falling in comparison with Germany. Combine that with unwillingness to pay taxes in Greece and you have bad funding, non efficient government with high debt.
My suggestion, let the Greece people default on their debts, let the original bond holders take their investment losses on the investment. Give the Greece people back their local currency the Drachma it will then become a cheap country to have a vacation in and people will go there instead of other countries.
The Greeks have issues, just like a lot of homeowners got in too deep, but if your bank, or your banking sector can't deal with bankruptcies then its not really the bankrupts fault, They took the deal they were offered with interest on one side balanced against risk on the other.
It seems like a bad idea to _me_ to default and leave the Euro. It will almost certainly be economically worse for the Greeks in the near-term than accepting the Troika's conditions for more loans, but it could be rational if the Greeks value independence very highly compared to maintaining their current standard of living. If you're going to do something with such dire consequences, though, a referendum seems like the way to go.