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There are a few truisms that pop up again and again in my life; Everything takes longer and costs more; Nothing is simple and There are no simple answers to complex problems. All of these seem to be true of the Greek debt crisis. There are a couple of articles in the New York Times today that lay out the scope and complexity of the problem, you can find them here and here.

Unlike the United States the Greek government is actually in a debt crisis. They have probably entered a debt trap, where they don’t have enough money to pay all their normal bills plus the interest on their debt. This means that they have to borrow to cover the interest. Of course when they borrow they have more interest and more debt.

Unlike the United States or other nations who have a sovereign currency they can’t just devalue their currency or lower interest rates. Being part of the EU and the Euro zone these things are controlled by the European Central Bank.

This puts them in a really bad place with few options. Right now the three groups that are loaning them money, the IMF, the European Union and the European Central Bank are demanding cuts or savings totaling $40 billion by 2015. That is a huge amount of the Greek GDP, nearly 12% of GDP. To give you an idea of what that would be in the United States economy it would be like cutting out $1.75 trillion (yeah, 175,000 billion) in the same time period.

To do this the Papandreou government is basically going to have raise taxes, slash wages and employment and sell off a bunch of the state owned assets of the nominally Socialist state. The question that is starting to emerge is, will this actually fix the problem?

By hitting wages while raising taxes and cutting jobs. That is going to make the current Greek recession even worse, reducing the amount of money that these tactics will generate. Combine that with the fire sale on the State owned assets and you can easily understand why the Greek people are in the streets.

There have already been some, particularly a friend of mine who blogs under the name “fairleft”, who have been agitating for Greece to leave the Euro zone and regain the ability to have its own currency and basically tell its creditors to take a long walk off a short pier in the Aegean. This approach has some attraction, but there are problems with doing this as well.

You see the world is still full of derivatives (remember derivatives?). These are the type of insurance against bond default that got the US economy in such hot water. And yes there are people betting against the Greek debt ever being paid. The problem here is that no one knows (or if they know are not saying) exactly how much money is in this ticking time bomb. From the New York Times article:

The looming uncertainties are whether these contracts — which insure against possibilities like a Greek default — are concentrated in the hands of a few companies, and if these companies will be able to pay out billions of dollars to cover losses during a default. If there were a single company standing behind many of these contracts, that company would be akin to the American International Group of the euro crisis. The American insurer needed a $182 billion federal bailout during the financial crisis because it had insured the performance of mortgage bonds through derivatives and could not pay on all of them.

Even regulators seem unsure of whether a Greek default would reveal such concentrated risk in the hands of just a few companies. Spokeswomen for the central banks of both Europe and the United States would not say whether their researchers had studied holdings of such contracts among nonbank entities like insurance companies and hedge funds.

Not exactly the kind of thing that makes you sleep well at night, is it? Especially when the central bankers won’t say if they’ve looked at it or not. That lead me to one of two conclusions, either they have not done the work, which is bad enough, or they have done the work and know that there is another economic tsunami coming if Greece defaults and they don’t want to say.

The problem is that while there has been some move to bring derivatives out of the dark, the work is just starting and there is no provision for older contracts to be exposed. Right now it would be very hard to say with any accuracy what the exposure for banks with these contracts (bets) the estimates range from $5 billion to $78 billion.

If the latter figure is the more accurate one, and there is a concentration of those contracts in a single bank or, even worse, a country that is in its own debt problem in Europe, we could see a real domino affect as the contracts come due, if Greece actually defaults.

Like I said at the start, nothing is simple. We have to also keep in mind the pain of the Greek people. Unemployment there is currently running at 16%. That is before the next round of job and wage cuts. The austerity measures the EU is demanding from Greece are going to make that much worse, as they will deepen the recession that is already incredibly painful. It will lead to more unemployment and that will push the amount of tax revenue down.

I don’t know what the solution to all of this is. I wish I was that smart. It is possible that the EU will keep Greece in the Euro zone and make them destitute in order to keep a default swap time bomb from wrecking the rest of their continental economy. Then again Greece may decide it does not care about the rest of Europe that much and bail out of the Euro zone (there is not actually any provision in the treaties that created the Euro for a country to do that, but if they start printing their own money what can the EU really do?)

That would be a very scary thing for the rest of the EU, Ireland, Portugal and Spain are all in less dire versions of the problem that Greece finds itself. If the government in Athens bails on the Euro, it would surely tempt these countries to do the same. That would be a major economic disruption in and of itself.

In the end we are where we started. It is going to take longer than anyone thinks to fix this; it is going to cost more money than anyone wants. There will be no simple answers because the situation is complex.  

The floor is yours.

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Comment Preferences

  •  Tips? Flames? (19+ / 0-)

    Some way to slice this Gordian knot that does not crush the Greek people or the planetary economy?

    Getting Democrats together and keeping them that way is like herding cats that are high on meth, through L.A., during an earthquake, in the rain -6.25, -6.10

    by Something the Dog Said on Thu Jun 23, 2011 at 06:30:31 AM PDT

  •  Fortunately for you there is some information (8+ / 0-)

    My diary of June 13

    Wherein I posted this lovely chart:

    Which shows the exposure of US banks to default by Greece, Ireland, and Portugal.

    Most of US exposure is indirect via derivatives. The US banks also claim they've laid off their exposure to third parties.

    The unanswered question, of course, is the casino gambling, where parties neither of which has any direct or indirect exposure to Greek sovereign debt still partake in casino default swaps thereon. This could be many times the total Greek debt and no one knows how big it is - because derivatives, thanks to Phil Gramm, are completely unregulated.


    In theory, there is no difference between theory and practice; but in practice, there always is a difference. - Yogi Berra

    by blue aardvark on Thu Jun 23, 2011 at 06:46:17 AM PDT

  •  Thanks for treating a complex issue (3+ / 0-)

    as though it's an issue that is complex.

  •  Some additional things that are important (7+ / 0-)

    to know about Greece. The 3 biggest employers in the country are the state, tourism and shipping. The state is by far the biggest employer. Secondly, privatisation may net the government some money in the short run, but it will cost jobs in the short-term and revenue in the longer term along with wage cuts for those remaining employed by the private sector. Third, the problem derives from government mismanagement including previous government sell-off of nationalised industries to cronies and also a major role for Goldman-Sachs. Once again, working people are asked to pay for the actions of the wealthy and irresponsible MNCs and financiers. This is going on throughout europe.

    The debt problem primarily exists due to their membership in the eurozone which sets limits to government debt. Additional problems are caused by the bond markets (again whom have contributed to the worldwide economic crisis and are using their power to force countries to adopt insanely stupid economic policies to maintain their ratings; this needs to be stopped urgently, they are holding people hostage literally). Infuriating that a socialist party is having to clean up after the actions of a right-wing party and it is they are imposing the demands of the right on the people (this also happened in Italy the last time a centre-left party was elected). If they had any responsibility to the majority in Greece they would refuse rather than serve the interests of international finance. It is not as though the Greeks are living high on the hog for heavens sake.

    Perhaps the best solution is to leave the Euro. The actions demanded by IMF, the EU and the eurozone will leave the majority destitute. I am uncertain if Greece is like Italy where a large percentage of people are tax avoiders (unless they work for the state in which case they cannot be); if it is the case, wealthy people rarely pay their full share of taxes. Cutting the state sector means literally cutting their tax base. They need to tax wealth and close loopholes; the middle (which will be destroyed by the demands of the IMF etc) and working class simply cannot take cuts to wages and increased taxes. I would cut my losses if I were the Greeks and the Germans.

    "Hegel noticed somewhere that all great world history facts and people so to speak twice occur. He forgot to add: the one time as tragedy, the other time as farce" Karl Marx, The Eighteenth Brumaire of Louis Bonaparte .

    by NY brit expat on Thu Jun 23, 2011 at 07:20:35 AM PDT

    •  just to clarify, abrogate the debt, leave (5+ / 0-)

      the Eurozone ...

      "Hegel noticed somewhere that all great world history facts and people so to speak twice occur. He forgot to add: the one time as tragedy, the other time as farce" Karl Marx, The Eighteenth Brumaire of Louis Bonaparte .

      by NY brit expat on Thu Jun 23, 2011 at 07:21:43 AM PDT

      [ Parent ]

      •  one more important point, they know the (3+ / 0-)
        Recommended by:
        triv33, 3goldens, priceman

        bailout will not work and that additional ones will be needed.

        "Hegel noticed somewhere that all great world history facts and people so to speak twice occur. He forgot to add: the one time as tragedy, the other time as farce" Karl Marx, The Eighteenth Brumaire of Louis Bonaparte .

        by NY brit expat on Thu Jun 23, 2011 at 07:25:33 AM PDT

        [ Parent ]

      •  Solution: Leave EuroZone (2+ / 0-)
        Recommended by:
        NY brit expat, priceman

        NY brit expat, I agree with your recommendation.

        Greek will not post substantial growth until it leaves the anchor that has become the Euro.

        So, I would recommend, leave the Euro, and pay creditors 25 cents on the dollar.

        Will there be upheaval?  Yes, but at this point, you're just staving off the inevitable.

        Learn about Centrist Economics, learn about Robert Rubin's Hamilton Project. http://www1.hamiltonproject.org/es/hamilton/hamilton_hp.htm

        by PatriciaVa on Thu Jun 23, 2011 at 07:25:41 AM PDT

        [ Parent ]

        •  I would abrogate the debt, I understand (1+ / 0-)
          Recommended by:
          Pozzo

          your recommendation of paying 25 cents on the dollar to help with future ratings, but I do not know if they can afford it.

          "Hegel noticed somewhere that all great world history facts and people so to speak twice occur. He forgot to add: the one time as tragedy, the other time as farce" Karl Marx, The Eighteenth Brumaire of Louis Bonaparte .

          by NY brit expat on Thu Jun 23, 2011 at 07:27:55 AM PDT

          [ Parent ]

        •  What about the defualt swaps? (1+ / 0-)
          Recommended by:
          3goldens

          I tend to agree that is the best solution for the Greeks, but we can't even evaluate how much money there will be in these non-player bets on Greece's credit rating.

          Until and unless we know that we have to be cautious about encouraging them to pull the trigger.

          This complicating factor is not the Greeks fault but it is something that also could affect the whole world so some caution is advised.

          Getting Democrats together and keeping them that way is like herding cats that are high on meth, through L.A., during an earthquake, in the rain -6.25, -6.10

          by Something the Dog Said on Thu Jun 23, 2011 at 07:29:56 AM PDT

          [ Parent ]

          •  My concern is not for the arses that are betting (3+ / 0-)
            Recommended by:
            PatriciaVa, priceman, 3goldens

            money on the collapse of the Greek economy; my concern is for the Greek people whose lives and incomes are hanging in the balance. The EU will lose money it is true as money has come from them to help bail out Greece, the IMF and Germans will lose money as much of the debt is held by them. But, the solutions they are proposing will impoverish Greece further preventing any economic revival and growth; it is collective punishment where those that created the crisis do not pay and the victims of the crisis are being held hostage to idiotic economic policies that seem to not even understand the notion of effective demand and how crushing it will destroy any possibility of rebuilding the economy. These policies will only further impoverish and for what? To cover the demands of the wealthy and bond traders, I do not think so.

            The Euro will recover and will be stronger w/o Greece (and I hope the Spanish also decide to leave) and Greece will have the possibility of rebuilding their economy w/o the restrictions imposed by the eurozone membership. It is the best solution in the long-term. Of course, this could have been avoided if the euro was not based upon monetarist principles in the first place ... thanks to the Bundesbank economic interventions are limited. They could reform the euro, but I do not see that happening unfortunately.

            "Hegel noticed somewhere that all great world history facts and people so to speak twice occur. He forgot to add: the one time as tragedy, the other time as farce" Karl Marx, The Eighteenth Brumaire of Louis Bonaparte .

            by NY brit expat on Thu Jun 23, 2011 at 07:41:41 AM PDT

            [ Parent ]

            •  Why is it the best solution in the long term? (0+ / 0-)

              Why not adopt an American approach?

              Eurobonds, TARP, stimulus through the EIB, get rid of matching requirements for cohesion funds already awarded.

              That will solve the problem.

              It should be lost on none of us that they have thrown 195 billion at a 250 billion debt and thereby managed to run up the debt another 50 billion.

              This is called mismanagement. An American approach would have nipped the problem in the bud.

              There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

              by upstate NY on Thu Jun 23, 2011 at 08:57:40 AM PDT

              [ Parent ]

              •  Unfortunately, those members of the eurozone (0+ / 0-)

                (those that have the euro as their currency) are constrained by agreements upon which the Euro were founded which place severe limits to fiscal policy expenditures. So certainly using keynesian policy measures will revitalise the greek economy, limits to deficits and debt prevent it.

                The problem in Greece differs from the problems in the US; they have an external and internal debt problem related both to poor investments by the previous government following privatisations, this is government debt not a crisis caused by financiers. Certainly some of the policies you recommended would be helpful, but many of them cannot be implemented due to their membership in the eurozone. Moreover, the demands of the IMF, eurozone and EU for the bailout of greece will not only impoverish people (due to wage cuts, job loss, privatisation; given that the greek state is the largest employer, the impact of these policies will prevent any recovery leading to greater unemployment). Finally, given taxation primarily falls upon the middle and working class (due to upper class tax avoidance and evasion), the same people that are facing lowered wages are also facing a higher tax bill. This bailout is based upon fallacious economic principles and will be catastrophic for the Greeks.

                That is why I advocated abrogating the foreign debt and leaving the eurozone, this will enable the use of fiscal policy to try and kickstart the economy. That is better in the long-term for Greece. Also, it will be better for those in the eurozone (which has shown no signs of abandoning the monetarist principles underlying the euro) in terms of the stability of the currency if both Greece and Spain are not in it. It is a win-win for all involved.

                "Hegel noticed somewhere that all great world history facts and people so to speak twice occur. He forgot to add: the one time as tragedy, the other time as farce" Karl Marx, The Eighteenth Brumaire of Louis Bonaparte .

                by NY brit expat on Thu Jun 23, 2011 at 11:05:13 AM PDT

                [ Parent ]

                •  I've read a proposal by a former (0+ / 0-)

                  ECB economist who said that many of things I outlined would not require any charter revision and do not at all impact any country's internal agreements precisely because they are coordinated by the ECB and EIB.

                  The EIB is already in place obviously. The cohesion funds are already there too. The EFSM kicks in in one year. The only question is eurobonds. Those that say we can't have them because the ECB is not allowed to directly buy a country's debt are kind of arguing about the way things used to be. The horse has left the barn. The ECB is involved in the secondary market already. So, the eurobonds too would work now.

                  A lot of economists have weighed in and they don't see the constraints. Willem Buiter has, Wolgang Munchau has weighed in. Here are some French, German and Greek economists, with only the German rejecting of course:

                  http://www.france24.com/...

                  http://www.france24.com/...

                  I would also say about Greece and the financiers that financiers were involved in Greece's problems in two ways. One, banks are the avant-garde for European corporations, often with rotating board members creating incestuous relationships. The money is fronted to foreign countries by banks and then repatriated as foreign contracts. The second way Greece is impacted is that these contracts are then used to create business for corporations, BUT when wages are kept artificially low (even as the CEO pockets a greater share) consumer demand drops in those countries, and the companies and banks are left with a surplus. They need to stoke demand farther afield. That's how you get asset bubbles in Greece, Spain, Portugal and Ireland. Personally, I don't draw much distinction between private and public debt (and don't see why anyone would nowadays since our economies are clearly based on global capital, and global capital does not distinguish). The way I see it, subsidizing the lost hours of Greek productivity in the bureaucracy are a form unearned income--workfare if you will. But it's the same with property inflation in Ireland. People take out loans and wait for the assets to rise before they sell. Unearned income. Same thing.

                  Finally, Greeks are to blame for electing corrupt politicians who take bribes from German and French military weapon corporations. But the fact is, few countries in the world have behaved logically when it came to cheap money and asset bubbles. We've seen the USA succumb, Sweden, practically every country in the world. Germany too.

                  There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

                  by upstate NY on Thu Jun 23, 2011 at 11:26:12 AM PDT

                  [ Parent ]

                  •  We can disagree on the best policy to deal with (0+ / 0-)

                    it; I am more concerned with a solution that will enable the maintenance of the social welfare state and the incomes of the majority in Greece than anything else. I do not dispute that this is an alternative way to deal with the problem. I am not convinced that remaining in the Euro is the best solution to the problem and am convinced that the demands required for funding from the IMF, European Union, etc are simply absurd. The destruction of the social welfare state and the state sector will do nothing but further undercut any possibility of economic recovery in Greece.

                    There are some questions of the EFSM as many governments are already instituting austerity measures and are unwilling to increase money to the EFSM, but I do not know how that could be stopped as quite honestly that is already part of agreements. But people are wondering why they are facing austerity measures while bailing out Greece when there are other solutions.

                    I do not accept your final statement:

                    Finally, Greeks are to blame for electing corrupt politicians who take bribes from German and French military weapon corporations. But the fact is, few countries in the world have behaved logically when it came to cheap money and asset bubbles. We've seen the USA succumb, Sweden, practically every country in the world. Germany too.

                    The majority of Greeks are not responsible for the conduct of a corrupt upper class and politicians (who are members of that upper class) nor should they have to pay the price in terms of their jobs and wages. Quite honestly, crises are part and parcel of the system, regulation can mitigate them somewhat; but we are setting the stage for a real crisis due to curtailing incomes of the majority in the advanced capitalist world.

                    "Hegel noticed somewhere that all great world history facts and people so to speak twice occur. He forgot to add: the one time as tragedy, the other time as farce" Karl Marx, The Eighteenth Brumaire of Louis Bonaparte .

                    by NY brit expat on Thu Jun 23, 2011 at 11:54:45 AM PDT

                    [ Parent ]

                    •  The problem is that Greeks have (0+ / 0-)

                      been spending 5% of GDP (15 billion) a year on arms due t fears stoked by these politicians. That's what enables the corruption in the first place.

                      The thing about these austerity measures (and I agree with you about them, that they are no good for the country) is that they are adding massive amounts of money to the debt that Greece can never repay, and the EU will have to deal with what they have wrought quite soon. If Greece goes along with the measures, it will eventually get the best of both worlds. A reduction in debt which will end the austerity measures AND it will remain in the euro. The third part is key, however. The only way the EU can reduce the debt is by adopting the kinds of shock absorbers for the ECB that will stop the same sort of thing from happening on a regular basis.

                      There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

                      by upstate NY on Thu Jun 23, 2011 at 12:25:43 PM PDT

                      [ Parent ]

          •  The problem with the Debt Swaps (2+ / 0-)
            Recommended by:
            NY brit expat, Balto

            Let's say that I'm running bank A, in the USA, and I've written CDS against Greek debt.  But let's say that I've hedged 90% of my CDS by buying a CDS written by bank B in Japan.

            If I'm asked, Do you have exposure to Greek debt, I'm going to answer, No, for two reasons: (i) 90% of my exposure is hedged, (ii) by admitting that I have gross exposure (when on a net basis I don't), I'm needlessly placing my shareholders at risk of a bank run.

            Learn about Centrist Economics, learn about Robert Rubin's Hamilton Project. http://www1.hamiltonproject.org/es/hamilton/hamilton_hp.htm

            by PatriciaVa on Thu Jun 23, 2011 at 07:42:50 AM PDT

            [ Parent ]

        •  It's a really bad suggestion for Greece (1+ / 0-)
          Recommended by:
          SingleVoter

          It will harm them far more to leave the euro given the industries in play, tourism especially. Hard currency is best for them. The problem is that they are forced to go to commercial banks for any investment in infrastructure.

          By the way, the IMF put the Greek primary budget at .1% deficit yesterday. That should tell us something about the onerous debt. And they are at -.1% while still buying 5% of GDP in armaments.

          There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

          by upstate NY on Thu Jun 23, 2011 at 09:07:03 AM PDT

          [ Parent ]

          •  The biggest employer in Greece is the state (0+ / 0-)

            shrinking the state will lead to greater unemployment in a country where the unemployment stats are at 16%. Privatisation will certainly lead to increased unemployment. Unemployment and lower wages will decrease effective demand. A weak Greek currency  will not derail tourism, in fact it will increase it as primarily tourists come from the EU and UK; the weak pound has increased tourism in the UK not decreased it.

            "Hegel noticed somewhere that all great world history facts and people so to speak twice occur. He forgot to add: the one time as tragedy, the other time as farce" Karl Marx, The Eighteenth Brumaire of Louis Bonaparte .

            by NY brit expat on Thu Jun 23, 2011 at 11:13:07 AM PDT

            [ Parent ]

            •  Greece needs to shrink the state (0+ / 0-)

              bureaucracy regardless not because it's expensive or put them into bankruptcy. It's not expensive at all at less than 7000 euros a year average pay. Rather, it saps productivity outside the government. People could put themselves to more productive uses elsewhere if not for the bureaucracy.

              When you say the state is the largest employer in Greece, you mean as a single entity, correct? Because Greece has 5 million workers, 650,000 of them work for the state. I'm not sure, but I'd bet this is the case everywhere that the state, as a single entity, employs the most. or do you mean by industry?

              I believe Greece will be hurt in tourism by switching to the drachma. I well remember what Greece was like prior to joining the euro. Its product was a lot shabbier and cheaper. When they upgraded their tourism product, they had 10% year over year increases in tourism. Greek tourism became MORE competitive after joining the euro not less. More people, higher prices. If Greece adopts the drachma, there will be less investment in tourism, and the product will start looking shabby again.

              There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

              by upstate NY on Thu Jun 23, 2011 at 11:31:29 AM PDT

              [ Parent ]

              •  Where are those productive employments (0+ / 0-)

                that you are talking about? There is a 16% unemployment rate, how has the private sector created jobs. A country's economy based upon tourism is in very great danger as tourism always decreases in a world economic recession and yet that is what you are advocating the greek economy to be based upon. There is neither a sapping of productivity nor a sapping of investment opportunities (along the lines of the Ricardian equivalence theorem for which almost no evidence exists). Private purchase (either domestic or foreign) of any nationalised industries will inevitably lead to higher unemployment and reduced wages (lack of trade union formation in these sectors outside of the state sector). Again, this is part and parcel of the destruction of state sector unions with their wage and pension guarantees.

                I mean as an entity as well as through direct and indirect contracts.

                We clearly have to agree to disagree here; that is fine by me. European (and american workers) are facing the worse attacks on the social welfare state, their wages and incomes and access to benefits in quite a while. This is a sustained and deliberate attack; the needs of the poor, working poor and working classes need to be prioritised and that is not in the interests of the vast number of economists and politicians. I have offered a solution protecting the workers of greece; they are facing impoverishment and it is not in the interests of the majority in the rest of europe and the US to allow that to happen to cover for the mistakes of international financiers and corrupt politicians.

                "Hegel noticed somewhere that all great world history facts and people so to speak twice occur. He forgot to add: the one time as tragedy, the other time as farce" Karl Marx, The Eighteenth Brumaire of Louis Bonaparte .

                by NY brit expat on Thu Jun 23, 2011 at 12:08:54 PM PDT

                [ Parent ]

                •  Let me go little by little here (0+ / 0-)
                  Where are those productive employments that you are talking about?

                  I did not mention productive employment. I mentioned that 4.35 million jobs are in the private sector opposed to 650k in the state sector. So obviously they have private work

                  A country's economy based upon tourism is in very great danger as tourism always decreases in a world economic recession and yet that is what you are advocating the greek economy to be based upon.

                  There is neither a sapping of productivity nor a sapping of investment opportunities (along the lines of the Ricardian equivalence theorem for which almost no evidence exists). Private purchase (either domestic or foreign) of any nationalised industries will inevitably lead to higher unemployment and reduced wages (lack of trade union formation in these sectors outside of the state sector). Again, this is part and parcel of the destruction of state sector unions with their wage and pension guarantees.

                  I mean as an entity as well as through direct and indirect contracts.

                  We clearly have to agree to disagree here; that is fine by me. European (and american workers) are facing the worse attacks on the social welfare state, their wages and incomes and access to benefits in quite a while. This is a sustained and deliberate attack; the needs of the poor, working poor and working classes need to be prioritised and that is not in the interests of the vast number of economists and politicians. I have offered a solution protecting the workers of greece; they are facing impoverishment and it is not in the interests of the majority in the rest of europe and the US to allow that to happen to cover for the mistakes of international financiers and corrupt politicians.

                  There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

                  by upstate NY on Thu Jun 23, 2011 at 12:27:50 PM PDT

                  [ Parent ]

                •  Oooops let me try again (1+ / 0-)
                  Recommended by:
                  NY brit expat
                  Where are those productive employments that you are talking about?

                  I did not mention productive employment. I mentioned that 4.35 million jobs are in the private sector opposed to 650k in the state sector. So obviously they have private work.

                  A country's economy based upon tourism is in very great danger as tourism always decreases in a world economic recession and yet that is what you are advocating the greek economy to be based upon.

                  But tourism only accounts for at best, 10-15% of the economy. They don't rely on it as much as many think. Plus, even in the economic doldrums of the last few years, they've had a 10% rise in tourists year over year. Tourism isn't down for Greece, and even this year it's going up a lot especially because people are not booking Tunisia, etc., anymore.

                  There is neither a sapping of productivity nor a sapping of investment opportunities (along the lines of the Ricardian equivalence theorem for which almost no evidence exists).

                  You will hardly find a single Greek in Greece who will not agree that a portion of those 650k jobs are not patronage jobs that require almost no work at all. Again, they are not getting paid much, no more than a social safety net would pay anyone anyway. But it does make for a waste in productivity. They have entire bureaus that exist for projects long ago completed (draining a lake, for instance). Far from firing people to save Greece money, I would stimulate the economy by conducting an audit of the state bureaucracy, and in the end I would raise salaries significantly (50%). But the productivity thing is a problem now. It even saps the moral strength of workers who fulfill their civic functions.

                  I'm against privatization, of course, but I also don't think for a second that Greece will go through with it, nor that anyone will want to buy anything other than perhaps their state lottery system (which Greece should resist). Greece is not going on sale. The political system wouldn't survive it.

                  That being said, some land needs to be developed, and its not prime property. The old Olympic village, the former airport, etc.

                  We clearly have to agree to disagree here; that is fine by me. European (and american workers) are facing the worse attacks on the social welfare state, their wages and incomes and access to benefits in quite a while.

                  I struggle to see where you see my disagreement.

                  There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

                  by upstate NY on Thu Jun 23, 2011 at 12:36:21 PM PDT

                  [ Parent ]

                  •  I had misunderstood you, I had thought that you (0+ / 0-)

                    were advocating further reliance on tourism than they already are; of course many jobs in the state sector are sinecure or patronage jobs (that is the case in Italy as well), these exists to provide employment instead of people being on the dole given the lack of employment opportunities in the private sector; these are common and a way to increase employment.

                    I hope that you are right, I am worried that the IMF and european union is demanding privatisation and that is one of their primary targets in the latest austerity measures throughout the EU (their primary target is the unionised state sector hoping to lower social subsistance levels in europe thereby allowing greater exploitation in europe); the thing that they keep missing in all of this is the decrease in effective demand for goods and services due to lowering of incomes of the majority (somehow, economists have forgotten the very important lessons of Keynes and Kalecki in their attempt to run towards laissez faire economic positions). I am thinking that they are banking on increase demand in China and emergent economies, but the vast majority are too poor to be able to purchase goods and services at this time.

                    I find myself skeptical about the productivity problem; quite honestly people on the dole are unable to contribute beyond spending money they have received on the dole. Keeping people employed is a more positive solution as it at least gives people something to do.

                    Historically austerity measures as employed in other countries have not revived economies, rather they have created greater income and wealth disparities and also lead to further impoverishment of the middle class downwards which does not in any way help with further economic growth. Glad to know that there is a bit of a tourism revival; germans have always gone to greece, I know that the weaker pound is leading to brits staying home more this year (they also have contributed to tourism in Greece, but more recently have invaded Spain, but Greece is still a popular destination).

                    "Hegel noticed somewhere that all great world history facts and people so to speak twice occur. He forgot to add: the one time as tragedy, the other time as farce" Karl Marx, The Eighteenth Brumaire of Louis Bonaparte .

                    by NY brit expat on Thu Jun 23, 2011 at 02:01:51 PM PDT

                    [ Parent ]

                    •  The productivity issue (1+ / 0-)
                      Recommended by:
                      NY brit expat

                      is interesting in a variety of ways. I think it saps morale to have people who are not protected by patronage ties working alongside people who do have those ties. These workers would be used in many more productive ways in the state sector without infringing on the work the state actually need to do. Dysfunction is a result of inequity. I'm sure Greece could find a way to employ these people. The thing is, I worry that it's going to be the non-patronage workers who are fired because of the IMF.

                      Ultimately I agree with what you say but I think Greece may extend this a little while longer until the EU decides whether it wants a eurozone or whether it wants the euro to collapse.

                      There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

                      by upstate NY on Thu Jun 23, 2011 at 03:03:55 PM PDT

                      [ Parent ]

                      •  if Greece is anything like Italy most (1+ / 0-)
                        Recommended by:
                        upstate NY

                        patronage or sinecure jobs are with local and regional councils rather than on the national level; you also find corruption in the hiring of contractors to carry out direct government spending like in construction. The jobs that are without a doubt endangered are those in industries and manufacturing that they are trying to nationalise. Patronage jobs are usually protected as they either go to family or extended family and they will cover them. It is everyone else that is endangered as usual. Agree completely than dysfunction is a result of inequity both in power and money. This situation cannot be resolved in this manner; it is a residual of old feudal forms and an underdeveloped labour market. This is a complex problem that will not be solved in the way proposed by the IMF and EU, in fact, that will exacerbate the situation through further concentration of wealth in the hands of those already wealthy (which is often the case with privatisation).

                        "Hegel noticed somewhere that all great world history facts and people so to speak twice occur. He forgot to add: the one time as tragedy, the other time as farce" Karl Marx, The Eighteenth Brumaire of Louis Bonaparte .

                        by NY brit expat on Thu Jun 23, 2011 at 03:39:15 PM PDT

                        [ Parent ]

                        •  Over and over again it seems the IMF (1+ / 0-)
                          Recommended by:
                          NY brit expat

                          doesn't really care to solve the core problems.

                          Now the EU is maximizing the pain. By stripping sovereignty away, they've effectively created chaos.

                          It makes one wonder what European Union actually means.

                          There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

                          by upstate NY on Thu Jun 23, 2011 at 06:21:59 PM PDT

                          [ Parent ]

                          •  The IMF does not understand or care (0+ / 0-)

                            about the core problems; they have an ideological agenda and that has been the problem with the way in which both the IMF and the World Bank have been operating which is quite contrary to the manner in which Keynes envisaged their operation. Some of the problem with patronage appointments have to be dealt with by the Greeks themselves, jobs need to be examines, who is in them, their qualifications and their connections. But this needs to be done by the Greeks themselves, the same thing with contract for carrying out government work.

                            In terms of the EU much of the problem there is that the needs of the rich and powerful nations as well as their upper classes are dominating the solutions. Hopefully, the Greek parliament will reject the 5 year package of austerity measures handed down today from the EU. Quite honestly, if they do not accept them what will they do? There is too much at stake and it will enable another solution to emerge one that is fairer to the majority of Greeks. We need to understand what the game is which is an open attack which they hope will culminate in the destruction of the state sector and the social welfare state; that is the impetus on the part of those in the EU and eurozone; we are witnessing class war as they think that the workers are weak and defenseless, they need to have it explained very clearly that is not the case.

                             

                            "Hegel noticed somewhere that all great world history facts and people so to speak twice occur. He forgot to add: the one time as tragedy, the other time as farce" Karl Marx, The Eighteenth Brumaire of Louis Bonaparte .

                            by NY brit expat on Fri Jun 24, 2011 at 10:24:47 AM PDT

                            [ Parent ]

                          •  They are blackmailing the Greeks however (1+ / 0-)
                            Recommended by:
                            NY brit expat

                            What they are saying to the Greeks (and Portugal and Ireland) is that, if one of you dares default, we will cut you loose from Europe, and then we'll install the measures to save Europe and prevent panic from spreading.

                            There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

                            by upstate NY on Fri Jun 24, 2011 at 01:01:54 PM PDT

                            [ Parent ]

                          •  they cannot cut them loose from europe (0+ / 0-)

                            they can cut them lose from the euro, but not europe, they do not have the power to do that nor do I think that they have the support. Europe, the european union and the eurozone are separate things; nothing has been done by any of these countries to warrant their removal from the EU. They have let convicted corrupt leaders like Berlusconi address the EU and appoint ministers; what have Greece, Spain, Portugal and Ireland done to warrant expulsion. If they are threatening this, they have no justification or legal right to do so. The Greeks need to stand their ground and tell them to piss off. They cannot let Greece collapse, that will undermine the euro, they can get a better deal by not accepting this one. This is draughts (checkers) not even chess.

                            "Hegel noticed somewhere that all great world history facts and people so to speak twice occur. He forgot to add: the one time as tragedy, the other time as farce" Karl Marx, The Eighteenth Brumaire of Louis Bonaparte .

                            by NY brit expat on Fri Jun 24, 2011 at 01:54:17 PM PDT

                            [ Parent ]

                          •  Unfortunately, the newest charter, Lisbon, (0+ / 0-)

                            permits expulsion. They just added it in the last go round. They almost took away veto rights as well.

                            There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

                            by upstate NY on Fri Jun 24, 2011 at 04:14:39 PM PDT

                            [ Parent ]

                          •  what is the basis for expulsion from the EU? (0+ / 0-)

                            it cannot be economic incompetence; human rights violations are censurable, but I do not even know if they will expel for that alone (see for example the expulsion of the Roma by France which lead to criticism, but nothing more; constant mistreatment of the Roma by central european countries and Italy also did not lead to explusion. If they expel people for economic incompetence, it will be a very small club indeed.

                            Have found Phoebus Athannasiou's paper "Withdrawal and Expulsion from the EU: Some Reflections" where he discusses that the right to expel nations for persistent violations of the treaty (pp. 31-37) does not exist in the Lisbon treaty or in earlier documents. There is a right of censure and sanction for repeated violations, but no formal right of expulsion as it would require a revision/amendments of all treaties. He also has a discussion on withdrawal from the EMU and EU and recognises problems but leaving one does not necessarily require leaving the other although that seems unclear as there are differing interpretations which he discusses earlier than the above pages:

                            http://www.ecb.int/...

                            "Hegel noticed somewhere that all great world history facts and people so to speak twice occur. He forgot to add: the one time as tragedy, the other time as farce" Karl Marx, The Eighteenth Brumaire of Louis Bonaparte .

                            by NY brit expat on Fri Jun 24, 2011 at 05:17:08 PM PDT

                            [ Parent ]

                          •  I should have clarified. (1+ / 0-)
                            Recommended by:
                            NY brit expat

                            The new provisions in the treaty are for "voluntary" withdrawal. But, I think the term "voluntary" is as loaded as, say, "voluntary" haircuts for banks.

                            The EU can aim at least a couple thousand guns at your head of one brand or another.

                            There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

                            by upstate NY on Fri Jun 24, 2011 at 05:25:12 PM PDT

                            [ Parent ]

                          •  Other things that can happen: (1+ / 0-)
                            Recommended by:
                            NY brit expat
                            While a state can leave, there is no provision for it to be excluded. However TEU Article 7 provides for the suspension of certain rights of a member state if a member persistently breaches the EU's founding principles (liberty, democracy, human rights and so forth, outlined in TEU Article 2). The European Council can vote to suspend any rights of membership, such as voting and representation as outlined above. Identifying the breach requires unanimity (excluding the state concerned), but sanctions require only a qualified majority.[10] The state in question would still be bound by the obligations treaties and the Council acting by majority may alter or lift such sanctions. The Treaty of Nice included a preventative mechanism whereby the Council, acting by majority, may identify a potential breach and make recommendations to the state to rectify it before action is taken against it as outlined above.[10]

                            There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

                            by upstate NY on Fri Jun 24, 2011 at 05:28:36 PM PDT

                            [ Parent ]

                          •  they say nothing about economic incompetence (0+ / 0-)

                            as a basis for expulsion and their standing for human rights always seems to fly in the face of the treatment of the Roma and travelers in many member countries and the calls on the part of the Italian ministers to place immigrants from outside of the EU into ghettos.

                            I really am wondering if they could challenge attempts to fire so many people due to privatisations under the right to work human right recognition? HAH, never gonna happen ... but I can always dream. :)

                            they can not throw Greece out of the EU; this is a baseless lie if they are trying to sell it. Greeks are not stupid enough to believe it.

                            "Hegel noticed somewhere that all great world history facts and people so to speak twice occur. He forgot to add: the one time as tragedy, the other time as farce" Karl Marx, The Eighteenth Brumaire of Louis Bonaparte .

                            by NY brit expat on Fri Jun 24, 2011 at 05:50:38 PM PDT

                            [ Parent ]

                          •  I think the idea of Greece defaulting (0+ / 0-)

                            and thereby falling out of the eurozone may be enough blakmail for Greece--the rest of it I have heard from people passing on information from parliament. But who knows.

                            The EU can refuse to institute Keynesian measures until the minute after some country commits a default.

                            There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

                            by upstate NY on Fri Jun 24, 2011 at 08:09:02 PM PDT

                            [ Parent ]

                          •  Heck, if you are talking to people in the Greek (0+ / 0-)

                            parliament, send them this message. They are in control, not the EU or the eurozone neither of which can afford to let them collapse. Tell them to say no to this package and let them know they will not accept an impoverishment of their people. Force a further negotiation, do not accept this offer, decline it. Stand up for your people, do not let the right-wing win this battle. This will force changes.

                            They are not facing expulsion from the EU and it is their choice whether to remain in the eurozone. do not fall for lies or misinformation.

                            "Hegel noticed somewhere that all great world history facts and people so to speak twice occur. He forgot to add: the one time as tragedy, the other time as farce" Karl Marx, The Eighteenth Brumaire of Louis Bonaparte .

                            by NY brit expat on Sat Jun 25, 2011 at 08:15:33 AM PDT

                            [ Parent ]

                          •  I'm getting that from an economist (0+ / 0-)

                            who is talking to some guys.

                            Like I said though, if they let Greece collapse and it falls out of the eurozone, and then next day they institute Keynesian measures to save Ireland and Portugal, Greece will be the loser in that scenario. Some have even mentioned that austerity has been so draconian because they want Greece out, and can't believe Greece has stuck it out for so long.

                            That's why the pressure is ratcheting up. They want Greece to become the sacrifice and warning for the rest, precisely because they believe they can still preserve the zone with Greece out.

                            There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

                            by upstate NY on Sat Jun 25, 2011 at 11:04:01 AM PDT

                            [ Parent ]

  •  There are simple answers (3+ / 0-)
    Recommended by:
    downandout, marsanges, NY brit expat

    The problem is that Ayn Rand is in control.

    We know the answers, we just don't know why the EU hasn't resorted to them yet.

    Let's start with this: Greek debt was at 250 billion in 2010. The eurozone is "bailing out" Greece with 195 billion. If I were allowed to throw 195 billion at a 250 billion problem, I would have solved the problem yesterday. With ease. I would not have exacerbated it.

    Here is the solution:

    1. Issue Eurobonds to cover the debt of all eurozone countries so that every country returns to 60% debt to GDP.

    2. Create a bad bank, ala TARP, to take on bad bank debt and take shares in those banks. Regulate it so CEOs don't get big bonuses.

    3. Use the EIB to invest in European infrastructure: stimulus.

    4. Frontload the cohesion funds already allotted to the periphery but remove the requirement for matching funds.

    This would solve the problem within one month.

    There are two kinds of people in this world. The kind who divide the world into two kinds of people, and the kind who don't.

    by upstate NY on Thu Jun 23, 2011 at 09:03:12 AM PDT

  •  if they left the euro (2+ / 0-)
    Recommended by:
    NY brit expat, SingleVoter

    then their debts would still be nominated in Euro. They could not devaluate their debts. They could only stop paying them, which they could as well now.

    If they made a new currency and devaluated that, they would experience astronomic inflation because noone would export anything to Greece unless paid in hard Euros. I. e. the greek populace would feel at least as much pauperisation as now because they would instantly stop being able to afford anything foreign.

    In the long run, this devaluation of new currency would help them, because eventually, foreign investors would realize the advent of a new sweat shop country right next to the European consumer market, and use it. In the long run too, Greece would attract a lot more tourism - kind of like going to Cuba and being king for a few dollars. But in the short to medium term, Greece would not gain by leaving the Euro.

    thats the side that tends to be overlooked by those who suggest that Greece should leave the Euro. In reality, Greece doesnt need a new currency, it needs debt relief.

    We will have to pay for it, and we will eventually.

    •  hence, I called for an abrogation of the debt (0+ / 0-)

      the proposals on the part of the IMF etc cannot be accepted, it will impoverish the country and will make things harder for them to restart the economy.

      "Hegel noticed somewhere that all great world history facts and people so to speak twice occur. He forgot to add: the one time as tragedy, the other time as farce" Karl Marx, The Eighteenth Brumaire of Louis Bonaparte .

      by NY brit expat on Thu Jun 23, 2011 at 12:13:32 PM PDT

      [ Parent ]

      •  debt>retirement funding (0+ / 0-)

        Do you think rich people have much money in banks earning 2.5% interest?

        That 2.5% money mainly belongs to older, middle-class folks. It is intended to pay for retirement and nursing home care.

        The US mortgage debt is largely held by European and American retirement funds.

        If the debt is abrogated, public employees might have to wait until 70 to retire and then might get only a few hundred dollars/Euros per month.

        Under the contract law doctrine of force majure, local governments could tell current/former public employees to stuff it since the national government made union contracts tougher to fulfill.

        •  Greece is not the US, we are talking about a (0+ / 0-)

          different situation and circumstances. I am saying that they abrogate the debt (cancel the debt) in Greece; the debt in Greece is not caused by state workers or their pensions. They are trying to make the majority pay for the actions of a small minority in the country and international financiers. This is absurd and quite honestly will have further repercussions if forced through; the Greeks have been resisting, european workers are resisting ... if they are going to send us into impoverishment, we will resist.

          btw, US debt is not caused by pensions of public sector workers or their pensions; neither is the budget deficit.  

          "Hegel noticed somewhere that all great world history facts and people so to speak twice occur. He forgot to add: the one time as tragedy, the other time as farce" Karl Marx, The Eighteenth Brumaire of Louis Bonaparte .

          by NY brit expat on Thu Jun 23, 2011 at 02:48:01 PM PDT

          [ Parent ]

  •  There's no reason for them to stay in the Euro (2+ / 0-)
    Recommended by:
    CarbonFiberBoy, NY brit expat
    http://bilbo.economicoutlook.net/...

    Everything is Greek today in the financial press. The number of commentators who are concluding that Greece has to exit the Eurozone are increasing. It is obvious and it is only the obsessive desire of the Euro bosses to preserve the interests of a few banks at the expense of the welfare of millions that is keeping the EMU together at present. If they stepped outside their mainstream straitjacket for a moment they would see that the ECB could guarantee all French and German bank assets at the stroke of a pen. This mainstream blindness comes out in all sorts of ways. The problem is that social science of which economics is a branch (yes I am in that school rather than placing economics in “business”) – suffers in relation to the other sciences because it is hard to pin down things given the lack of controlled environments. With human behaviour essentially shifting the mainstream economists can get away with all sorts of lies and deceptions most of the time because it is too hard to prove otherwise. But sophisticated analysis is really not necessary. Over the last two decades we have had some real-life experiments going on before our very eyes that allow us to see through the cant that is mainstream theory. How many more experiments do we need before my professional colleagues are totally discredited?

    That's the MMT version which I take very seriously.

    And also:

    Greece would not be going through this if it were not a member of a currency union. If it had leaders that were stupid enough to massively cut spending and raise taxes during a recession, those government officials would be replaced. And then a new government would do what the vast majority of governments in the world did during the world recession of 2009 – the opposite, i.e. deploy an economic stimulus, or what economists call counter-cyclical policies.

    And if that required a renegotiation of the public debt, that is what the country would do. This is going to happen even under the European authorities, but first they are putting the country through years of unnecessary suffering, and taking advantage of the situation to privatize public assets at fire sale prices and restructure the Greek state and economy so that it is more to their liking.

    snip

     That’s because the prospect of a disorderly default – as would be triggered by the IMF simply sticking to its program and not lending Greece the money – is too scary for the European authorities to contemplate. For this reason the many news articles about the possibility of a financial collapse comparable to what happened after Lehman Brothers went under in 2008 are somewhat exaggerated. The European authorities are not going to let that happen over a measly $17 billion loan installment. The events of the past week were all a game of brinkmanship, and the European authorities had to blink because the Greek government, as much as it wanted to, couldn’t get approval for the deal.

    A democratically accountable Greek government would take a much harder line with the European authorities. For example, they could start with a moratorium on interest payments, which are currently running at 6.6 percent of GDP. (This is a huge interest rate burden, and the IMF projects it to increase to 8.6 percent by 2014. For comparison, despite all the noise about the U.S. debt burden, net interest on the U.S. public debt is currently at 1.4 percent of GDP.) That would release enough funds for a serious stimulus program, while they negotiate with the authorities for the inevitable debt write-down. Of course the European authorities – who are looking at this from the point of view of their big banks and creditors’ interests generally -- would be enraged, but at least this would be a reasonable opening bargaining position.

    Pro Life??? Conservatives want live babies so they can raise them to be dead soldiers!- George Carlin

    by priceman on Thu Jun 23, 2011 at 11:20:53 AM PDT

  •  Some insight from (0+ / 0-)

    the Insights Guides, Great Britain, page 56:

    the economic fabric of the social welfare state began to unravel, as the British learned that their declining productivity and flat growth could not support the increasing burdens placed upon them by the economically unproductive and socirety at large....the Conservative ministry of Edward Heath (1970-1974) fueled inflatonwith a foolishly expansive monetary policy....Declining lving standards (resulting from inflation and a decline in real purchasing power) prompted dozens of strikes....To keep pace with rising prices, trade unions began to demand wages increases of 30 percent per year...By 1980, unemployment had reached 2,000,000, a total not reached since the 1930s....a series of strikes in 1978-1979  brought the electorate to the end of its teether and Margaret Thatcher...and the Conservatives were swept back into office....Thatcher broke the back of the miners in 1984-1985, as their strike, under the direction of Arthur Scargill, shattered, leaving many....

    festering in decaying pit towns

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