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Cross-posted at Immizen.com with images and links to sources.

Just today, I had a conversation with another friend regarding the European situation with Greece. He thought that because I am half German I would probably want Greece to exit the Euro zone and not have to continue to bail them out. I told him I had no informed opinion on the consequences of Greece exiting the European Union, but that I thought it would be worst for Greece than it would be for the rest of Europe.

He disagreed and compared the Greece situation with what happened to Lehman Brothers during the 2008 economic downturn. The Fed decided to let Lehman Brothers go bankrupt. While Lehman Brothers was not the largest player in the financial crisis, allowing it to collapse exacerbated the situation and caused massive panic as it raised the probability that others would follow including some bigger fish. It was the reason why the Fed was forced to bail out the big banks. His point was that if Greece is allowed to exit the Euro zone it would likewise cause massive panic and especially affect the Spanish and Italian economies.

A Wall Street article from May 22nd, 2012 has a list of expert opinions on what would happen if Greece would leave the Euro Zone. The main consensus is that it would lead to a sharp selloff in the Euro and a drop of the Euro to as low as $1.01. The contagion effect that my friend mentioned is also mentioned in that article as a real risk of a Greece exit from the Euro Zone.

In today’s interview with the “Spiegel” news magazine, the German Finance minister Wolfgang Schäuble warns against allowing the Euro currency to collapse. If that happens, much of what has been achieved and is being appreciated today would no longer be reality in Europe, such as an European single market and travel freedoms. Introducing a new German currency, like the Deutsche Bank had suggested, would decrease economical growth by 10% and increase the German unemployment to 5 Million people.

Meanwhile, the Spiegel reports that the Italian Economy continues to shrink. Italians are resisting the austerity plans by Mario Monti, the Prime Minister of Italy, and the unemployment rate among younger workers has risen to unprecedented levels. Spain received a bailout from its Euro partners but has been punished with record borrowing interest rates.

Schäuble’s conclusion is that the benefits of bailing out Greece outweigh the risks.
I guess he is on a mission to convince the German people to support the bailout. The Spiegel reports that 78% of Germans and 65% of French support an exit by Greece from the Euro zone. According to Schäuble and many economists, the consequences are dire and not just for Europe. The USA and the whole world have a vested interest in having Germany save Greece and the entire Eurozone. It seems unfair that it has to be the prudent, resourceful, hardworking Germans who have to come to the rescue of countries who did not exhibit those virtues. But Germans need to learn if they not already know it, that sometimes, helping others ends up helping them more than if they turn their back on them.

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Comment Preferences

  •  Tip Jar (15+ / 0-)

    In the 2008 elections there were 15 million less people who identified themselves as "liberals" than as "conservatives" (L/C ratio: 65%). Face it, this country is center-right. Moving it to the left is up to us!

    by healthy on Sun Jun 24, 2012 at 09:30:53 PM PDT

  •  I hope they don't have to learn the hard way (2+ / 0-)
    Recommended by:
    randomfacts, Sharon Wraight
    But Germans need to learn if they not already know it, that sometimes, helping others ends up helping them more than if they turn their back on them.

    Eliminate tax breaks that stimulate the offshoring of jobs.

    by RJDixon74135 on Sun Jun 24, 2012 at 09:51:50 PM PDT

    •  I believe that Germans are smarter than the GOP (2+ / 0-)
      Recommended by:
      buffie, opinionated

      so hopefully they will not learn it the hard way, but ublike the GOP at least they have shown the capacity to learn.

      In the 2008 elections there were 15 million less people who identified themselves as "liberals" than as "conservatives" (L/C ratio: 65%). Face it, this country is center-right. Moving it to the left is up to us!

      by healthy on Sun Jun 24, 2012 at 10:06:08 PM PDT

      [ Parent ]

    •  Ah yes (4+ / 0-)
      Recommended by:
      Sandino, Smoh, Halandri, melo

      They helped the Greeks by requiring that large chunks of the loans made in the first place were used to buy German made tanks and obsolete and apparently unseaworthy submarines.  Such noblesse oblige, such selfless generosity.

      The law, in its majestic equality, forbids rich and poor alike from sleeping under bridges. ~ Anatole France

      by ActivistGuy on Sun Jun 24, 2012 at 10:50:14 PM PDT

      [ Parent ]

  •  For 'Bailing Out Greece' (5+ / 0-)

    Consider using the following alternative phrase:
    'Bailing out German, British, and American banks who made wild bets on the Greek economy'.  All the banks have so many leveraged derivatives in the shadow banking sector that will blow up on a hair-trigger held by corrupt, incompetent ratings agencies, that even printing the word default in the Greek press can trigger an 'economic crisis'.

    •  "Wild bets on the Greek economy"..? (0+ / 0-)

      You know they bought Greek sovereign debt right?  Not many people would consider buying sovereigns a "wild bet" but I guess you have a different view....

    •  It's not so wild if you are TBTF (3+ / 0-)
      Recommended by:
      Sharon Wraight, Sandino, melo

      Then the taxpayers make up the losses. I saw a report recently that showed shortly after Siemens bribed a Greek official for a big contract, Deutsche Bank then sopped up the Greek sovereign bonds in the auction directly following that deal. One of the big wigs of Siemens actually sat on the DB board of directors.

      And of course, then the European taxpayer makes sure that DB doesn't lose money by allowing the ECB to backstop the National Bank of Greece's purchases of distressed sovereign bonds from DB.

      This is a nice little "legal" laundering scam.

      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 Mon Jun 25, 2012 at 07:28:59 AM PDT

      [ Parent ]

  •  I don't know why it's so hard (1+ / 0-)
    Recommended by:
    ozsea1

    to enact structural reforms in southern Europe. You have unemployment at over 20% in Greece and Spain and yet very little if any wage deflation. That's a sign of a badly broken labor market. To me, this is the central issue that Greece, Spain, and the Troika have to be looking at. They've been focusing way too much on headline spending and deficit numbers and not enough on the micro-economy.

    In the meantime the ECB must stand ready to provide liquidity, because absent its powers, the PIIGS can't act fast enough to stop the market from gutting them even if they wanted to and were run by Schauble himself.

    "It is, it seems, politically impossible to organize expenditure on the scale necessary to prove my case -- except in war conditions."--JM Keynes, 1940

    by randomfacts on Sun Jun 24, 2012 at 10:14:18 PM PDT

    •  Full-time workers are living (11+ / 0-)

      on less than 600 Euros a month, yes, let's blame those overpaid greedy Greek workers reaping such lavish lifestyles.  Homelessness in Athens alone is approximately 20,000 strong and growing daily.  The "bailout" has snatched totally paid-ion pensions, just taken the money, leaving both retirees and workers approaching retirement age  empty.  But they're the ones to be blamed, to a certainty.

      No wonder Walker got reelected so easily, when we see how easy it is for Americans to blame the consequences of neo-liberalism on working people who have nothing, no say,. no power, and NO MONEY.  But it's all their fault, absolutely.

      The law, in its majestic equality, forbids rich and poor alike from sleeping under bridges. ~ Anatole France

      by ActivistGuy on Sun Jun 24, 2012 at 10:48:01 PM PDT

      [ Parent ]

    •  They Can't Have Wage Deflation (3+ / 0-)
      Recommended by:
      Sandino, opinionated, PeterHug

      When prices are supported by aggregate demand throughout the Eurozone. People who still have jobs will defend the wages they get now because they have to pay German prices on goods. Having job security is not a "broken labor market."

      "I'll believe that corporations are people when I see Rick Perry execute one."

      by bink on Sun Jun 24, 2012 at 11:15:24 PM PDT

      [ Parent ]

    •  Structural reforms? (4+ / 0-)
      Recommended by:
      Sandino, Just Bob, randomfacts, melo

      I think you have bought the propaganda. Greece has put through reforms. That's why half the steelworkers at a highly profitable steel mill were fired recently after refusing a 40% wage reduction (average wage of 11k a year).

      Greece, for instance, has cut its budget by 34%, but all we hear is that not enough public workers have been fired, or that the taxi and pharma sectors are still closed, as though these would somehow help Greece's economy.

      Massive Greek budget cutting coupled with reforms and a massive cut of the deficit as well is not enough for the troika. Why?

      Several reasons.

      1. They need more distractions to continue using the bailout to recapitalize insolvent banks while the taxpayers rage against the national scapegoats.

      2. They don't really want people to notice that austerity isn't working.

      3. What they really want is privatization, so when they say Greece hasn't reformed, they mean Greece isn't giving up public assets for pennies. Look at Germany's Treuhand program to figure out what the elites really want.

      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 Mon Jun 25, 2012 at 07:33:22 AM PDT

      [ Parent ]

      •  Do you have sources? (0+ / 0-)

        For this info, such as the budget 34% cut? I am really curious about this.

        If workers are seeing such big wage reductions already and living on 600 euros a month, why haven't unit labor costs come down by more than 2 percent or so? Why is there still inflation? Why is the current account deficit still there? All I'm doing is looking at the statistics here.

        "It is, it seems, politically impossible to organize expenditure on the scale necessary to prove my case -- except in war conditions."--JM Keynes, 1940

        by randomfacts on Mon Jun 25, 2012 at 05:29:45 PM PDT

        [ Parent ]

        •  Here's one link from (2+ / 0-)
          Recommended by:
          melo, randomfacts

          IMF

          http://i.telegraph.co.uk/...

          Wages have been slashed. What sources are you citing for unit labor costs? Also, you need to ex out shipping profits in any analysis since those are external. But they are added to Greek GDP because the shippers have Greek flags.

          The primary deficit is 1-2% and closing. The total deficit went from almost 16% to 9% in 2 years. But as the GDP and economy contracted, fully 10% of it goes toward servicing debt which is 160% debt to GDP.

          Inflation? Lack of currency. Goods such as food and oil imported. Trade insurance frozen, exports/imports, frozen. No trade. All barter.No loans. A depression scenario.

          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 Mon Jun 25, 2012 at 06:41:56 PM PDT

          [ Parent ]

        •  This explains it much better IMO (1+ / 0-)
          Recommended by:
          melo

          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 Mon Jun 25, 2012 at 06:43:04 PM PDT

          [ Parent ]

  •  What is needed is a two tier euro. (0+ / 0-)

    One for the south and south central east, plus probably Ireland, and another for the north, including perhaps Poland and nearby states. The southern euro would be devalued compared to the northern euro, and it would float separately but still be supported by the EU.

    That of course would be only a partial solution to the situation.

    H'mm. I'm not terribly into this, anymore.

    by Knarfc on Sun Jun 24, 2012 at 10:33:44 PM PDT

    •  Ever heard the saying, (1+ / 0-)
      Recommended by:
      PeterHug

      "bad money drives out good"? A 2-tier Euro wouldn't solve the problem. Modest inflation would, however.

      The universe may have a meaning and a purpose, but it may just specifically not include you.

      by Anne Elk on Mon Jun 25, 2012 at 12:00:18 AM PDT

      [ Parent ]

    •  That would be like having a two tiered dollar (2+ / 0-)
      Recommended by:
      Halandri, PeterHug

      Not a smart move.

      What Europe has to understand is that a loose federalist association is simply not going to work.  There either has to be more integration and an understanding that the fate of one nation is tied to that of the others in the union

      or

      every nation is on its own.

      Germany and France are shit without the EU.  Germany relies on the EU for many of its exports.  On its own Germany is a small economy with little clout.  Combined with the rest of the EU it is part of a group that is larger than the US with tremendous clout.

      This is your world These are your people You can live for yourself today Or help build tomorrow for everyone -8.75, -8.00

      by DisNoir36 on Mon Jun 25, 2012 at 04:36:37 AM PDT

      [ Parent ]

      •  This is nothing but ignorant eurobashing. (1+ / 0-)
        Recommended by:
        SingleVoter
        Germany and France are shit without the EU.  Germany relies on the EU for many of its exports.  On its own Germany is a small economy with little clout.
        Europe is what it is, united or divided. Germany and France are the wealthiest large countries in Europe, with or without the EU.

        H'mm. I'm not terribly into this, anymore.

        by Knarfc on Mon Jun 25, 2012 at 05:02:53 AM PDT

        [ Parent ]

        •  Seems you're the ignorant one (0+ / 0-)

          On it's own Germany is a smaller player and CANNOT compete with the likes of the US or China or Japan for that matter and will be relegated to second tier among the world powers.  Thems the facts.  Just because someone points them out doesn't make one ignorant.  Combined with the rest of the EU Germany is part of a union that is the world's largest  in terms of GDP.  ON it's own its the leader of a group which consists of France, Brasil, UK, Italy, Russia, Canada and India.  Plus being it is so dependent on the rest of Europe should the EU cease to exist it's status as the leader of that group would likely be in jeopardy.  Brasil has more natural resources, India has more people.  Both countries are part of the BRIC countries which have seen tremendous growth and will continue to do so.      

          This is your world These are your people You can live for yourself today Or help build tomorrow for everyone -8.75, -8.00

          by DisNoir36 on Mon Jun 25, 2012 at 05:55:17 AM PDT

          [ Parent ]

          •  Germany compete on quality (1+ / 0-)
            Recommended by:
            Knarfc

            and sells to the affluent.

            The non-German EU well-to-do will enjoy showing off their German branded booty even more if Southern nations head further downhill.

            The "best" people drive the "best" cars in Greece, Asia,  and the USA.

            That German car isn't just transportation, it is a bragging symbol.

        •  Several economists this week (0+ / 0-)

          including Richard Koo have said that Germany's economy was in the doldrums a decade ago, so the ECB loosened up monetary policy to get its economy humming, and that created credit/asset bubbles in the periphery.

          As for France, I spent quite a bit of time in Paris recently. In terms of organization, social services, work weeks, retirement, pensions, etc., I see them as not much different at all as the periphery, with the exception that France actually has big companies in natural resources providing a baseline of wealth.

          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 Mon Jun 25, 2012 at 07:35:56 AM PDT

          [ Parent ]

  •  What about Italy's 100 billion stim plan (3+ / 0-)
    Recommended by:
    ozsea1, buffie, Smoh

    It should create about 2-2.5 million jobs, and Italy has about 2.4 million unemployed, nice fit, scale of the solution matches the scale of the problem, something GOP in this country seems to have an issue with.

    FDR 9-23-33, "If we cannot do this one way, we will do it another way. But do it we will.

    by Roger Fox on Sun Jun 24, 2012 at 11:04:54 PM PDT

  •  Greeks Are Also (8+ / 0-)

    Prudent and hard-working. They work more hours a year than Germans do for far less money and have to pay the same prices that Germans pay on manufactured goods, etc. I do not think the diarist quite understands what is going on in Greece.

    "I'll believe that corporations are people when I see Rick Perry execute one."

    by bink on Sun Jun 24, 2012 at 11:13:08 PM PDT

  •  It is indeed tragic (0+ / 0-)

    that European leaders do not see that the solution to the crisis is to tolerate higher inflation for a time. Reflating the Euro simply by printing more Euros would rescue Europe from a savage depression that is self-inflicted. Only the crazy fear of inflation of around 4%, something that is easily manageable, is stopping the recovery of the European economy. And the same goes for the USA.

    The universe may have a meaning and a purpose, but it may just specifically not include you.

    by Anne Elk on Sun Jun 24, 2012 at 11:57:23 PM PDT

  •  Where this is heading (0+ / 0-)

    One of the best analysis of the Euro crisis (starting at about the 6:30 mark):

    Behind the News with Doug Henwood - June 21, 2012 at 12:00pm

    Click to listen (or download)

    “The probability that we may fail in the struggle ought not to deter us from the support of a cause we believe to be just.” – Abraham Lincoln

    by Sagebrush Bob on Mon Jun 25, 2012 at 02:06:51 AM PDT

  •  The crisis in Greece will only be solvable if (2+ / 0-)
    Recommended by:
    Halandri, healthy

    the Greek state finally does a better job of collecting taxes, especially from the wealthy.

    They lose an estimated 40 to 50 billion Euros/year to tax evasion.

    Collect even half of that and their crisis is over.

    "A candle loses nothing by lighting another candle" - Mohammed Nabbous, R.I.P.

    by Lawrence on Mon Jun 25, 2012 at 04:15:28 AM PDT

    •  If Greece managed to collect half of the tax (1+ / 0-)
      Recommended by:
      Sandino

      evasion money, they would have the lowest tax evasion on earth by a lot.

      And where did you get this estimate of 50 billion euros a year?

      The Greek national budget is 100 billion a year. 50 billions loss would put tax evasion at 50%. It's at 25%. USA is 17% and Euroland is at 19%.

      Plus, Greece collects 40% of GDP in taxes a year according to this at Eurostat:

      http://epp.eurostat.ec.europa.eu/...

      1. go to "economy and finance"
      2. Government statistics
      3. Annual gov't finance
      4. Gov't revenue
      5. under INDIC scroll, select "total Gov't revenue"

      This shows that Greece collects enough in taxes, which must mean taxes are very high for most workers. Actually, 86% of Greeks are taxed at the source (paychecks). The cheating is by 14% who account for double that amount in evasion.

      When you realize that shipping companies (15% of GDP) is untaxed for obvious reasons, and you eliminate them from the figures, then Greek tax revenue to GDP skyrockets to among the highest in Europe.

      In other words, they have high tax evasion, but also high taxes.

      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 Mon Jun 25, 2012 at 07:43:47 AM PDT

      [ Parent ]

      •  Sorry, but I'm going to trust the analysis (0+ / 0-)

        of Nikos Lekkos, their top financial crimes investigator.  I did make a mistake in expressing myself, ie. Lekkos estimates that an estimated 40 to 45 billion in income remains untaxed each year.

        In general, the estimate of losses to the state from tax evasion in Greece are 13 billion Euros, and that's probably a low-ball estimate.

        Germany, in comparison, loses an estimated 30 billion euros in taxes each year with a GDP that is 12 times as high as Greece's.  That means that the German state's losses to tax evasion, relative to GDP, are only about a quarter of those in Greece.

        If Greece could bring their losses down to the German rate, then a large part of their crisis would be solved.

        Greece and Italy currently both have a similar problem in that their wealthy and very wealthy citizens are getting away with loads of tax evasion, ie. both countries have serious problems with corruption.

        "A candle loses nothing by lighting another candle" - Mohammed Nabbous, R.I.P.

        by Lawrence on Mon Jun 25, 2012 at 09:40:53 AM PDT

        [ Parent ]

        •  Why dismiss my stats? (0+ / 0-)

          They come from Eurostats.

          It's not like this stuff hasn't been studied.

          Greece collects 40% GDP in tax revenues a year.

          This is a study on tax evasion there: http://ideas.repec.org/...

          It verifies what I've been saying.

          Also, this paper (first in Google search) claims Germany lost 215 billion to tax evasion: https://www.google.com/...

          Besides, we should be comparing Greece to the eurozone average.

          25 billion - 19 billion (19% proportionate) = 6 billion.

          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 Mon Jun 25, 2012 at 10:18:14 AM PDT

          [ Parent ]

  •  The Greek crisis was exacerbated by the banks (1+ / 0-)
    Recommended by:
    Sandino

    when the EU stops bailing them out and actually starts bailing the countries out, then we will see some progress.  As of right now though the bailout money is being siphoned right through the hands of the countries its supposed to help and right into the hands of private investors.  Investors who gambled on what was probably high leveraged deals and were looking for ridiculous returns on their investments.  Until they're allowed to lose on those bets nothing will get better.  Let them fail and use the money to rebuild the economies of those countries and get people back to work.

    This is your world These are your people You can live for yourself today Or help build tomorrow for everyone -8.75, -8.00

    by DisNoir36 on Mon Jun 25, 2012 at 04:41:49 AM PDT

    •  I agree the bailouts as currently conceived... (0+ / 0-)

      ...are only nominally for the countries but are really for the lenders.  But the odd thing is that there was not much risk premium for Greek debt  during the salad years, so the creditors at risk of taking a fall weren't speculators except to the extent that all investors are.  Even in the case of the 1990s Argentine debt that was defaulted in 2001-2003, much of it was held by European pension funds--the vultures only came in later, which would be "now" in the Greek case.  They buy up the debt when it's cheap because of default talk, and then they use political pressure to get full repayment.  It didn't work against Argentina, which has been prosperous since 2003, so that would argue against it working for Greece which likely won't be prosperous any time soon, but Greece has an entirely different multinational context (and a demonstrated electoral ceiling for its populism) so it's hard to predict.

      Romney '12: Bully for America!

      by Rich in PA on Mon Jun 25, 2012 at 05:21:50 AM PDT

      [ Parent ]

      •  Disagree on risk premium (0+ / 0-)

        Money is and has been so cheap for so long that what may have seemed like a low risk premium was infact a pretty good one.  I mean correct me if I'm wrong but if you can borrow money as a large bank or institutional investment firm at near 0% and are commanding 6%-7% return on the WHOLE investment, don't you think that's a pretty hefty premium?  Especially when you consider that a large chunk of that investment was made with borrowed money which you're paying back with virtually no interest.  What happened with Greece was even worse.  Investors were commanding over 30% return on their 'investment' in Greek debt.  

        This is your world These are your people You can live for yourself today Or help build tomorrow for everyone -8.75, -8.00

        by DisNoir36 on Mon Jun 25, 2012 at 06:04:18 AM PDT

        [ Parent ]

      •  You can't make the comparison (0+ / 0-)

        with Argentina simply because surplus countries in Europe benefit from the weaker euro, so there is incentive in keeping the money flowing even with lower premiums. After all, it was the German and French banks mainly lending to Greece. So were they stupid or...

        ...were Germany and France really the two biggest export nations to Greece?

        Edward Harrison at Creditwritedowns.com rightly sees the operation as a vendor financing scam.

        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 Mon Jun 25, 2012 at 07:46:10 AM PDT

        [ Parent ]

  •  Der Spiegel, what's got into you? (0+ / 0-)

    I thought the magazine was 100% devoted to the idea that the United States was governed by cowboys, and had no German or European content at all.  Maybe I've been misinformed.

    Romney '12: Bully for America!

    by Rich in PA on Mon Jun 25, 2012 at 05:16:31 AM PDT

  •  Schaueble is the problem (1+ / 0-)
    Recommended by:
    Sandino

    Not the solution.

    Convincing the German people? He's the one that's been slandering the Greeks the hardest, they take their cues from him, and then he presumes to lecture them on behalf of all Europeans.

    Schaueble is a neoliberal of the Austrian economics school, and his policies are causing this mess.

    Bailout Greece? Nice distraction that Schaueble has engineered so that German banks that loaned to Greece could be recapitalized.

    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 Mon Jun 25, 2012 at 07:25:56 AM PDT

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