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Last week it appeared that a bailout deal between Greece and the rest of the EU was going to go through.   However, it seems that the prime minister of Greece is going to quite literally, "let the people decide".  Now, the Greek people must decide if they want to vote for the bailout - which requires them to raise taxes and cut government services, or against the bailout which would cause them to default on their loans.  If the default on their loans, they won't be able to deficit spend Euros anymore and will have to, in response... raise taxes and cut government services.  That is quite a dilemma for Greek Citizens.

If I were a Greek Citizen, I would vote 'No'.  The reason is that there are other options.  If the Greek government cared more about their citizens then about foreign and domestic bankers, they would research those alternatives.  Those alternatives would give Greeks what they seem to want.  Full employment and no cut in government services.  There is  no reason they can't have it.

One of the alternatives is the so-called Mosler bond.

turn the bonds it buys into Mosler bonds, by requiring the govt of issue to legally state that in the case of non payment, the bearer on demand can use those bonds for payment of taxes to the govt of issue.

That would allow Greece to continue borrowing and spending on demand and at will.

Another alternatives is one that, for some reason, seems to be way outside the policy discussion.  Greece could just drop out of the EU, and convert all debts back to a Sovereign currency like their original drachma.  Once they're monetarily sovereign they will never again have to worry about government default.  They will be like most of the world in that the only limit on spending will be inflation.  If Greeks don't mind temporarily having a weak currency, they could go back to full employment for those who want employment.

Unfortunately, neither of these options seem to be seriously discussed even though it would give Greek citizens what they desire.  That is why I would vote no against this deal.  Vote it down, and force the government to seek alternatives.

Some, like Warren Mosler himself, would encourage Greece to vote yes.  His reasoning is very logical.  If you vote for the bailout, you can continue borrowing and only have to accept some cuts and small tax rise.  If the vote is no and you default and cannot continue borrowing, then you will have to cut even more spending and raise taxes even more.

In the end, it comes down to politics.  Mosler's position is very pragmatic.  Vote for the bailout because it's not as bad as default.  My position is very political.  Vote it down and force the Greek government to find an alternative solution.

Much of this analysis is based on Modern Monetary Theory (MMT). It's a (relatively) new "Post-Keynesian" economic school of thought.  If you're interested in learning more, please follow our group, Money and Public Purpose.  Also, there is a small, but growing MMT wiki that is worth checking out.  I'm also cross posting this on my own MMT centric blog.

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Comment Preferences

  •  There is absolutely no dilemma (3+ / 0-)
    Recommended by:
    wu ming, Euroliberal, cynndara

    The fate of Greece's economy is out of its hands.

    That's why it should vote no.

    Voting yes accomplishes absolutely nothing because it doesn't prevent Greece from default.

    Voting no, however, brings the deferred question of default to the forefront, and allows the eurozone leaders to decide the next step. They always were the ones who would decide the fate of Greece. The people of Greece would simply be telling the eurozone that it is now up to them.

    To reiterate:

    Yes = DEFAULT

    Once the choice is made, the Europeans can then make one of four choices.

    1. Kick Greece out of the zone and thereby quickly destroy the eurozone.

    2. Allow the already agreed upon power of the ECB and EIB to come into full force to save the eurozone.

    3. Keep Greece in the eurozone and continue to muddle through until Italian and Spanish bond levels reach the breaking point.

    4. Surplus countries leave the eurozone.

    These are the four options for the EU's decision-makers.

    But they won't choose one of these options until they extend-and-pretend of Greece is decided.

    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 Wed Nov 02, 2011 at 09:17:27 AM PDT

    •  The Euro is simply (0+ / 0-)

      money and as far as I know European countries have no power to stop Greece or Greeks from using Euros.

      Greek private debts are denominated in Euros.

      The private debt creditors will not want New Drachmas.

      Greek workers will not want to be paid in New Drachmas, which will not be accepted for purchases of oil, drugs or machinery from foreign countries.

      New Drachmas will be worth next to nothing outside of Greece and probably not worth much more within Greece.

      1. Kick Greece out of the zone and thereby quickly destroy the eurozone

      Greece might be able to switch to the US dollar, but the conversion costs would impede business, so such a switch probably won't be made.

      Greece will probably just stop paying on national debt and not be able to borrow from outside the country.

      •  Agreed with much of what you wrote (1+ / 0-)
        Recommended by:

        The private debt creditors will not be paid at all in the event of a default, and they will not be able to recover their money.

        Not sure about Greeks being paid in drachmas, I imagine many will be glad for it if it means work. but you're right that the currency won't hold value.

        The problem of oil and fuel is the big one.

        hard currency will enter the country though through tourism, shipping, increased exports.

        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 Wed Nov 02, 2011 at 11:03:17 AM PDT

        [ Parent ]

    •  I think the Hungarian government (0+ / 0-)

      made debts due in foreign currency payable in national currency.

      It  will be legally challenged:

      •  The difference though between (0+ / 0-)

        Hungary and Greece is that Greece, as a eurozone member, had all its debts denominated under Greek law.

        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 Wed Nov 02, 2011 at 11:04:15 AM PDT

        [ Parent ]

      •  Hungary is a sovereign state (0+ / 0-)

        And Orban is currently King.  He has not merely a majority, let alone a coalition like most current European states, but a pure supermajority in Parliament.  He can pretty much do anything he damned pleases, and the majority of Hungarians are willing to back him for now.  So "legal challenges" will have to be made under Hungarian law in the Hungarian Supreme Court, which is the only institution that has the power to bring him to heel (surprisingly, while the Hungarians will tolerate vast excursions into policies that Westerners consider autocratic and near to fascism, they will NOT tolerate violations of their own national law any more than Americans are tolerating violations of the First Amendment).

        In other words, don't hold your breath.

  •  By the way, the logic that Greece (0+ / 0-)

    voting no to austerity = ejection from the eurozone doesn't fly because of what would follow its ejection from the eurozone. Everyone is presenting the alternatives starkly.

    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 Wed Nov 02, 2011 at 09:18:50 AM PDT

    •  Correct. (0+ / 0-)

      It would, however, mean Greek default.  And Greek default would trigger another crisis in the Euro.  Which would almost certainly trigger severe "pressure" on Greece to "request" release from the eurozone in some kind of face-saving manner.

      At this point, having offered a referendum, I cannot see any way for Greece to stay in the Euro and actually adopt the proposed austerity program short of imposition of martial law, under whatever leadership.  The referendum isn't going to be a dilemma from the pov of your average Greek.  They will vote no.  That's pretty certain.  And any attempt to withdraw the referendum now that it's been offered will trigger riots bordering on outright revolution.

      •  Yes it will mean default (0+ / 0-)

        unless Merkozy back off, which they won't.

        BUT, I would disagree that it would trigger "another" crisis. I think the crisis is omnipresent and hasn't been addressed yet. Greece is too small to cause problems. The fact that it IS causing problems only speaks to the fact that the "always" crisis hasn't been addressed.

        Again, I don't think any country can leave the euro without the euro collapsing unless that country is a surplus country, which Greece isn't. There would be a flight of capital in all debtor countries overnight if one was allowed to the leave the euro, and that capital would park itself in banks inside of surplus countries or outside the eurozone.

        Greece can, however, default, and after default, stay in the eurozone, and without any additional support (other than its bank loans being guaranteed by the ECB if the banks have the necessary assets), they can organize their austerity measures in a way that makes sense, mixing in growth. Once the debt service is addressed through default, Greece has a much better chance of not needing new capital.

        Whether this is politically viable (i.e. whether a defaulter can be allowed to remain within the eurozone) is another question, a political question.

        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 Wed Nov 02, 2011 at 02:15:34 PM PDT

        [ Parent ]

  •  I'm not at all smart about this issue, (5+ / 0-)

    but could it be that the Greek PM never liked the deal to begin with, and is using the vote as a way to get out of it?  That way, he can say to the Europeans, "Gee, I would have liked to go along with you guys, but the people have tied my hands."

    "We *can* go back to the Dark Ages! The crust of learning and good manners and tolerance is so thin!" -- Sinclair Lewis

    by Nespolo on Wed Nov 02, 2011 at 09:21:24 AM PDT

    •  Possible (1+ / 0-)
      Recommended by:

      I'm not as intimate with Greek politics to make that call in a definitive manner.  However, imho, I think that it is more likely that the prime minister wants to give himself political cover for making the deal.  You can hardly blame the leader of a cult for poisoning you, if he tells you the kool-aid is poison and you agreed to drink the kool-aid anyway.  And, that is what voting for the deal is.  It is an economic suicide pact for Greeks.

      Our Dime Understanding the U.S. Budget

      by maddogg on Wed Nov 02, 2011 at 09:35:35 AM PDT

      [ Parent ]

      •  Nobody's going to vote for it. (0+ / 0-)

        The country has been virtually paralyzed by protests for the last six months.  International comments at BBC suggested that Papandreou is either seeking political cover either to renegotiate the terms of those agreements ("I'd love to do what you say, but the PEOPLE won't let me, so can we get some better terms?") or to push the protesters to the point where martial law can be imposed and the austerity program rammed down their throats.

    •  All deals must go through national (1+ / 0-)
      Recommended by:

      parliaments. That's what the referendum is about. Every single eurozone country is required to approve the deal through the parliaments. It's not up to the PM to decide if he likes the deal or not.

      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 Wed Nov 02, 2011 at 10:09:32 AM PDT

      [ Parent ]

      •  Thanks, (0+ / 0-)

        but why is everyone so surprised, then, that Greeks will now vote on the deal?  I'm following this story in the Italian press, so I'm not catching every detail (due to my bad Italian, not their coverage)

        "We *can* go back to the Dark Ages! The crust of learning and good manners and tolerance is so thin!" -- Sinclair Lewis

        by Nespolo on Wed Nov 02, 2011 at 10:24:08 AM PDT

        [ Parent ]

        •  They seem to be surprised that the state (2+ / 0-)
          Recommended by:
          SingleVoter, Nespolo

          of politics in Greece has reached such a desperate point that the PM has lost all of his majority in Parliament. Were he to put the new measures to a vote, his government would collapse. So instead of running snap elections (which he would lose) he offer s a referendum so that his slim Parliamentary majority can absolve themselves of voting for the measures.

          So, you can say that's a lack of leadership in that the votes aren't there to approve the austerity measures, and that the decision is being punted to the people. But, if you believe the austerity measures are horrid, then you will say that the parliament itself is right to oppose the measures.

          Without a referendum, the measures are voted down.

          So, I'm not sure what the EU wants. It should be obvious to everyone what is going on.

          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 Wed Nov 02, 2011 at 11:00:28 AM PDT

          [ Parent ]

  •  There is no dilemma, it should be a simple choice (0+ / 0-)

    Voting no will not only completely decimate the Greek economy but also destroy the economy of countries that Greece is dependent on.  I highly doubt they would what you suggest because it goes against their interests.  

    "My presences is a present, now kiss my ass..." - Kanye West

    by lcj98 on Wed Nov 02, 2011 at 09:22:09 AM PDT

    •  How will it decimate their economy? (0+ / 0-)

      How will it decimate the economy of countries Greece is dependent on?

      Which countries?

      Greece is way too small to have that much of an impact, so is the amount of its foreign debt. We're not talking about a lot of money here.

      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 Wed Nov 02, 2011 at 10:11:00 AM PDT

      [ Parent ]

    •  Voting no (0+ / 0-)

      will take the power of decision out of the hands of a bevy of external banksters and money-changers, and back to local scoundrels that every Greek knows somebody who knows somebody who is a cousin of theirs.  And seriously, you could hardly do worse to the Greek economy than the austerity measures already forced upon them, let alone those still being intended, have done and would do.  The Greeks at large are being made to pay, each and every one individually, for a decade of corporate and private greed harvested by a very few, the greatest rewards going to bank officers in France, Germany, and Switzerland.  Why should the Greek people vote to destroy themselves to pull the bankster's fat asses out of the fire?  It's obvious why the Euro leaders are frantic -- like our own politicians, they all have very cozy relationships with those same lenders.  But the PEOPLE don't.  The PEOPLE don't really depend on them for anything.  And at this point, most of them, like the 99% of US, will quite happily consign them to twist slowly in the charnel winds of their own devising.

      Yes, it will crash the Euro.  But given that currency these days is entirely imaginary anyway, it really shouldn't take more than a brief (< 5 years) period of adjustment if intelligent measures are made to implement a new currency regime, including a great deal of debt forgiveness.  And guess who loses when these things happen (which they do, at least every century and not unusually every fifty years or so)?  THE BANKERS.  Which is why the bankers are all jumping up and down and declaring that it's an utter disaster.  It's only a disaster for them. The real economy still exists, the resources, the manpower, the skills and the processes of production.  All it takes to put them back into circulation is getting rid of the bad players (the banks), and introducing an alternative/new/reformed currency.

  •  I couldn't pain myself by reading this diary (2+ / 0-)
    Recommended by:
    upstate NY, cynndara

    completely.  Your premise,

    ...give Greeks what they seem to want.  A more leisurely lifestyle - even if it's 'poorer'.

    which you repeat on more than one occasion, has no basis in economic theory, and is plainly prejudicial.  It's important to point out to you that the economy of Greece is larger than the economies of Portugal and Ireland, combined.  The Greeks are as capitalistic as any member of the EU.  While you may not like the Greeks' distaste for austerity, their behavior mirrors that of the rest of the EU countries imposing austerity on its population.  Perhaps, Papandreeu has decided to play hardball with the ECB and the IMF.

    Koch Industries, Inc: Quilted Northern, Angel Soft, Brawny, Sparkle, Soft 'n Gentle, Mardi Gras, Vanity Fair, Dixie

    by ChiTownDenny on Wed Nov 02, 2011 at 10:16:07 AM PDT

    •  I am very much against austerity. (1+ / 0-)
      Recommended by:

      So please don't assume that about me.  My general point is that the Greek people have a very low retirement age and shorter work week.  There is nothing wrong with that.  I said that many times as well.  That is a policy that all people should be able to make in a democracy.  What I am proposing is the ability for Greece to have shorter work weeks and earlier retirements than in the rest of the E.U. or united states.

      Our Dime Understanding the U.S. Budget

      by maddogg on Wed Nov 02, 2011 at 11:23:33 AM PDT

      [ Parent ]

      •  you just lost all credibility with this (0+ / 0-)
        My general point is that the Greek people have a very low retirement age and shorter work week.

        This was debunked more times than Obama being a Kenyan-Marxist-Muslim.

        I'm not insulting you but, please take a look at Eurostat (they don't come more official than that) or OCDE data.

        •  Stand corrected (1+ / 0-)
          Recommended by:

          Yikes!  I didn't realize I'd so bought into such a smear campaign!!!  My apologies for the factual errors!  I will rectify.

          That being said, it still doesn't change the thrust of my argument.  Greece should still vote against the deal because it will impose austerity and unnecessary hardship.  There are multiple alternatives if the Greek government would look for them.

          Our Dime Understanding the U.S. Budget

          by maddogg on Wed Nov 02, 2011 at 01:32:55 PM PDT

          [ Parent ]

          •  as per your argument (0+ / 0-)

            I really can't say if I agree with you or not. I admit that it's just too fucking complicated since everything changes so fast.

            I've been a supporter of the "Modest Proposal" for a long time but time's running out and I doubt it's gonna be feasible to implement.

  •  The referendum is being put forward (2+ / 0-)
    Recommended by:
    upstate NY, cynndara

    because Prime Minister George Papandreou and other politicians are afraid for their very lives.

    Some matters such as the future of Greece are just too important to be left to politicians, the Greek people must themselves decide.

  •  Greece needs its own currency (2+ / 0-)
    Recommended by:
    cynndara, cris0000

    Greece needs the ability to devalue its currency so imports are discouraged and exports encouraged and adjust for their low productivity growth. The politics of Greece don't allow the discipline needed to make their fical policy fit an external monetary policy.

    The rescue money of Europe should be used to back the European banks, after their shareholders, bond holders and derivative holders are wiped-out.  Fully guarantee deposits and securities held in deposit in the banks.

    The most important way to protect the environment is not to have more than one child.

    by nextstep on Wed Nov 02, 2011 at 10:34:40 AM PDT

    •  There's nothing to vote on. (1+ / 0-)
      Recommended by:

      No proposal has been nailed down. Any referendum will likely include other issues besides just an EU deal, including continued use of the Euro.
      The proposal of a referendum is a good bargaining tool, and takes Papandreou out from between the Greek people and the EU banksters.
      In any event, Greece can always go the way of Iceland and Argentina: they're managing okay after telling the bankers to shove it.

      "Our answer is more democracy, more openness, more humanity." ~Norwegian PM Jens Stoltenberg

      by Andhakari on Wed Nov 02, 2011 at 10:46:52 AM PDT

      [ Parent ]

  •  The Greek government might run out of money (0+ / 0-)

    in mid-November and not get the eight billion(?) Euros of the final installment of a previous deal.

    •  Without having to service the interest (1+ / 0-)
      Recommended by:

      you might find that they will manage.

      The primary balance is between .5% and 2% and even in abysmal projections, scheduled to be +1.5% next year.

      Downside for Greece: difficulty purchasing oil and gas if kicked out of eurozone.

      Bank collapses inside Greece.

      Upside for Greece: retain sovereignty enabling them to make austerity decisions that befit the country. They can get rid of the 23% VAT tax tomorrow. A default can bring in a lot of new investment from rich Greeks waiting on the sidelines (knowing that any outlay from them into the economy is immediately sopped up by creditors to the country because of punishingly high taxes). As well, Greeks are on a tax-strike. That may change if the people know the money isn't leaving the country.

      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 Wed Nov 02, 2011 at 11:08:19 AM PDT

      [ Parent ]

      •  This is what (1+ / 0-)
        Recommended by:
        upstate NY

        I find it hard to understand about sovereign defaults.  In most cases, by the time the word is even mentioned, the country is throwing away money by the cartload in so much interest and payouts to creditors, that it would be relatively EASY to balance the budget, if they could just be rid of that perpetual black hole.  And given that situation, why do they bend themselves into pretzels to avoid it?  I can see why the banksters scream and cry and wring their hands.  But the countries facing default would seem to be much better off if they just get on with it.  Every one that has, has ended up the better for it.

        •  In most cvases, it's because those countries have (1+ / 0-)
          Recommended by:

          pegged their economy to a currency they don't control, and the default then into a new currency causes the economy to collapse by 50% overnight. Usually the gov't falls with it. This means the politicians are none too keen to default because it's the end of their careers.

          Plus, the banks then sell those loans to vulture funds who sue the pants off defaulters (and win) unless the default is negotiated in an orderly fashion. Greece does not have this problem however because the debt is written under Greek law, not London law. However, the recent deal is supposed to convert all Greek debt into debt under British courts, serviced by Greece.

          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 Wed Nov 02, 2011 at 02:18:41 PM PDT

          [ Parent ]

          •  That in itself (1+ / 0-)
            Recommended by:
            upstate NY

            would be adequate reason to refuse the deal in my book.  I can't help but notice how the Brits and Americans are just soooooo keen on forcing everybody in the world to play by their economic rules . . . which just so happen to favor THEM dramatically over anybody and everybody else.  Nope.  I'd definitely hold out for keeping debts  under the original terms of the contract.  You don't know what they'll pull out of their legal expertise to gotcha with if you play by their rules.

            •  A lot of people have noticed that aspect (0+ / 0-)

              of the new debt deal for Greece. All Greek privately held debt is converted to debt held in another jurisdiction.

              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 Wed Nov 02, 2011 at 06:55:22 PM PDT

              [ Parent ]

    •  Here's a round-up of today's key events: (1+ / 0-)
      Recommended by:

      Strange this seems to be the only diary here today on this crisis.

      Here's a round-up of today's key events:

      • The International Monetary Fund and the EU is threatening to withhold Greece's bailout aid until the referendum has been held. Officials in Cannes say the next €8bn slice of cash will not be handed over as things stand
      • Without the money, Greece could run out of money by November 10. Mirror-image brinkmanship risks bankruptcy, say unions
      • China is also pouring cold water on Brussels deal. Minister says it cannot lend more money yet
      • George Papandreou will face EU leaders tonight. Angela Merkel will demand full details of how he will implement the plan agreed last week.
      • European bailout fund was forced to suspend bond sale. Sale of €3bn of Irish aid stalled, and in another development bank borrowing costs rise
      • Greek parliament starts debating vote of confidence. Vote due Friday night
      • Ben Bernanke: watching the eurozone crisis is frustrating. Fed chair says its "bad luck" that Europe is holding back the US recovery

      Good night and, if you're trying to solve this crisis, good luck.

      8.05pm: If, as feared, the IMF does withhold the €8bn aid package then Greece could run out of money by the end of next week.

      Rhetoric has to be matched with actions. "Only actions don't lie."

      by allenjo on Wed Nov 02, 2011 at 02:09:55 PM PDT

      [ Parent ]

  •  Warren Mosler (0+ / 0-)

    and all other MMTers don't agree about what Greece ought to do now.

    Here's Randy's view:

    And I also suspect that Bill Mitchell feels the same way based on previous posts.

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