Another Global Financial Crisis on the way?

[Developereo]

Greek mess may cause second GFC | News.com.au

THE dire situation in Greece has the potential to cause a second global financial crisis and we all need to factor in that possibility along with the impact of the fallout on our finances.
In recent months we've been keeping you up to date with the PIIGS (Portugal, Italy, Ireland, Greece and Spain). These are the economic cot cases of Europe that need bailing out of their financial woes.

Greece is the most at risk of failing and global financial markets are on tenterhooks at the risk of this triggering a domino-style collapse of the rest of the PIIGS.

We're being bombarded with questions about Greece, so here are the answers.

>> Why is Greece in such a bad way?

Basically, Greece is full of tax cheats. Its workers are overpaid and can't be fired. In other words, Greece has been living beyond its means for years. The Government has borrowed heavily and been on a spending spree it couldn't afford.

For example, public service wages have increased 30 per cent in the past five years. It's common for workers to be paid a bonus just for arriving on time, and industrial relations laws mean it's almost impossible to be fired. Crazy stuff.

On the revenue side, tax evasion is a national sport with some estimates that 25 per cent of the working population pay no tax, costing the Government about $30 billion a year.

This means that the Greek Budget deficit is 14 per cent of GDP (what it earns). Australia's budget deficit is 4 per cent.

But the financial killer for Greece is the soaring level of its government debt, which is about 125 per cent of GDP. Ours will peak at 7 per cent.

Because investors are so nervous about the risk of Greece not repaying its debt, they're demanding much higher interest rates for any new loans.

Greece can't afford those higher interest rates and it has to refinance a big chunk of that debt in the middle of next month. That's why it wants a $20 billion pot of bailout money from the International Monetary Fund and stronger European countries soon.

>> What is their government doing about it?

Naturally the IMF and European Union countries aren't going to throw good money after bad, so they've said they'll help but only if the Greeks tighten their belt and get the budget back into shape.

So the Greek Government has announced a series of budget austerity measures, which are the cause of the public riots:

A pay freeze and some wage cuts for public servants.

Scrap wage bonuses.

Easier rules to lay off staff.

Tighten eligibility rules of the age pension.

An increase in VAT (its GST) from 21 to 23 per cent.

Lifting indirect taxes on alcohol, petrol and cigarettes by 10 per cent.

A clampdown on evasion of tax.

Privatisation of government businesses (telcos, power companies) and even selling some Greek islands.

The aim is to cut the budget deficit to less than 3 per cent of GDP by 2014.

But the IMF and European Union are withholding the $20 billion bailout for another month until these austerity measures are passed through the Parliament.

>> How will it affect us?

The European Union and the IMF have a finite amount of money to bail out countries. The fear is, if Greece defaults on its debts, the interest rate on loans to other PIIGS will soar to a point they could default and there won't be enough money to bail them all out.

It's a scary prospect. Yes, Europe is a long way from us, and we're more linked to the prosperity of China and other Asian nations, but we won't be immune from another global financial crisis.

Just like the last GFC, global share markets could crash, ours will follow and that will hit all our superannuation returns.

Banks globally are big investors in European government bonds. If some of those countries (such as the PIIGS) default on their debts, those bonds won't be repaid, the banks will suffer big losses and they'll tighten credit to customers.

This will cause another credit squeeze, which will hit all economies not a pretty prospect.The IMF and EU are determined to stop Greece triggering the fall of dominoes.

Let's hope they succeed. Follow it closely.

 

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Could this have any negative influence on the US?

 

[Chinese-Dragon]

China's Wen offers to buy Greek debt - Reuters

Let's see how all this plays out.

We're buying up assets in Greece (ports, etc.) and their high-interest sovereign debt, which could pay off very well if they manage to stay afloat.

 

[siegecrossbow]

Wish this won't happen:

Are Spreading Protest Movements Europe's Version Of Arab Spring Uprisings? - Global Spin - TIME.com

Are the youth-led protests rocking Greece and other European countries a sign Arab Spring uprisings have jumped the Mediterranean? Kinda-sorta, say experts watching these movements. They warn that even if democratic systems in Europe can't be compared with the brutally authoritarian regimes under fire in the Arab world, the angry youth on both sides of the Mediterranean share a conviction that existing social structures--and the leaders responsible for them--are simply unable to deliver on their people's aspirations. Getting ahead through playing by the system's rules has become an increasingly remote possibility for many young Europeans, and the result is a growing risk that the explosion of anger on Greece's streets this week will be repeated and with greater intensity, both there and elsewhere.

"This movement is very representative of the tensions all European youth is experiencing,” Dominique Reynié, a political scientist and general secretary of the Paris think tank Foundation for Political Innovation, said in an interview this week with the daily le Parisien. “(Young) Spaniards denounce a society in which they can't get a foothold, and show total defiance for all its institutions. Their reaction breaks with traditional political models, and has no doctrine or platform. The Greeks were already protesting in the same manner. Other very vigorous protest movements will also take place in Europe. This new generation is more combative in political and democratic terms. The current crisis has set these young people to a boil.”

Of course, the differences in political realities mean Arab autocracies and European democracies can't be fairly compared. And the economic stagnation afflicting many European still represent a level of affluence and opportunity beyond the grasp of under-developed Arab countries—one reason why many still migrate to Europe. Nor is the brutal response to protest in Syria or Libya conceivable in Greece, Spain, or the UK —where recent demonstrations have at times turned violent. Still, despite the difference in circumstances, there's a strong shared feeling among the mobilized publics on both continents that the system fails them. And with their elected leaders incapable of changing the situation, young Europeans are figuring it's time to change the rules of the game.

"We don't have the dictatorships, but it is, in a European context, the Arab Spring moment of people saying they are no longer getting their part of the deal, and telling leaders failing to deliver that things are going to change,” says Denis Muzet, president of the Institut Médiascopie public research organization. “This can be in the form of demonstration—even violent protest in some cases—or in how people vote. In France, we're hearing people not only often say they're planning to vote against ruling conservatives, but then hold whomever wins fully accountable for their actions,and their results. This isn't just about political alternation any more—meaning the left is going to find itself under considerable pressure on clarity and performance if it manages to win elections here next year.”

Alienation from the social contract in Europe increases the further one descends the age scale, particularly when it comes to patience with the ballot box as an instrument of change. The recent nearly two-week sit-in by protestors in Madrid wasn't just protesting government austerity measures; young Spaniards were demanding an entirely new political and economic system. That sentiment spread to Portugal, is loudly echoed in Greece, and periodically crops up in elsewhere in Europe.

That radical perspective among younger people on how society is organized may not dissipate once Europe's economies begin to turn around, because a growing portions of young Europeans feel their societies no longer offer them the same prospects for prosperity that their parents had. This despair at having a career—or even an independent life as commonly understood—is not entirely new, and pre-dates the Arab uprisings. But it's both spreading and deepening, prompting younger Europeans to follow the example of their Arab peers and taking to the streets to press for changes in a post-World War II social order that can't accommodate their aspirations.

Like the Arab uprisings, unrest among European youths isn't uniform in its expression or duration. Reynié says the level of despondency and lack of faith in current social systems varies greatly across Europe—higher in southern and eastern European nations, lower in northern countries that began altering their societies and economies years ago in anticipation of changes on the way. But findings in his foundation's recent global study, “2011, World Youths” shows that some commonalities exist across Europe. And those may well gel to create new waves of protest in Europe's near future.

For example, the study showed that while European youths generally felt optimistic about their own individual outlook for the future (a view characteristic of young Americans), they were decidedly more pessimistic about the future of their respective countries (an attitude popular among young Greeks).

Meanwhile, with many European youths having little hope for getting a good, well-paid, career-promising job within what's currently a blocked economic and business set-up, a large portion of them want their country's social models to change. In an unprecedented shift, the survey found that young people no longer want to support social programs and retirement systems for older generations viewed as having sucked all the cream away. Expect more clashes on how Europe's shrinking economic pie is divvied up. Says Reynié in le Parisien:

The conflict between the generations is going to be very hard. The aging of the population means that older people will mechanically absorb more and more of the collective wealth. Young people will have to pay for that. Just as they'll have to repay the debts that were taken on to finance our social models and current standard of living—a standard they aren't benefiting from themselves. On top of that, older people continue to be assigned the responsibility of leaving little (employment) room for younger people.

Those grievances are quite different from those of the Arab Spring, of course, except in the failure of politicians to offer credible solutions.

“The politicians aren't interested in young people, because they don't understand them,” Reynié says in le Parisien. “But also, from an electoral point of view, young people aren't bothered with because they don't vote. In the last European elections, 80% of the 18 to 24 year-olds abstained”.

Be that as it may, with 18 to 24 year-olds on the planet now numbering 1.1 billion—the largest youth population ever since global demographic records have been kept—European politicians may soon find themselves having to deal with “uninteresting” young people decide to step up efforts to make their political differences in protests and street clashes with cops, rather that in the ballot boxes their parents favor.

 

[below_freezing]

China's Wen offers to buy Greek debt - Reuters

Let's see how all this plays out.

We're buying up assets in Greece (ports, etc.) and their high-interest sovereign debt, which could pay off very well if they manage to stay afloat.

If they go down, could it drag the US with it? If so we have a 套利 situation!

 

[Developereo]

I am not sure how it will impact the US economically, but the social and political implications in Europe are troubling. Expect to see more anti-immigrant and racist violence. It will also give a boost to ultra-nationalist parties who will look for external scapegoats to divert attention from domestic failures. This will impact EU's foreign relations -- especially with Asian powerhouses whose rise is causing much envy in the West.

 

[Chinese-Dragon]

If they go down, could it drag the US with it? If so we have a 套利 situation!

The US economy is fragile right now, but I wouldn't underestimate them. I doubt they will collapse again in the immeditate future.

But everything is an opportunity, and we should make full use of it, by continuing to buy up assets in Europe.

Even if the Eurozone collapses, we will still be able to use those assets (ports in Greece, land in Ireland, etc.)

 

[JayAtl]

somebody is 72hrs behind the news cycle but I hate to bust up the party here. The Greek PM staved off the vote of no confidence making it possible for more austerity measures to be passed - hence getting last tranche of aid. sorry to bust ya anti - us ( go figure its a EU issue) party.

 

[Developereo]

But everything is an opportunity, and we should make full use of it, by continuing to buy up assets in Europe.

I hope China is buying them at firesale prices, and not the inflated monstrosities which led to the financial crisis in the first place.

somebody is 72hrs behind the news cycle but I hate to bust up the party here. The Greek PM staved off the vote of no confidence making it possible for more austerity measures to be passed - hence getting last tranche of aid. sorry to bust ya anti - us ( go figure its a EU issue) party.

Greece has been simmering for several months. If you think Greece's problems are going away any time soon, I have a bridge to sell you.

As for the impact on the US economy, it is likely minimal unless Germany and Britain take a hit first.

 

[Chinese-Dragon]

I hope China is buying them at firesale prices, and not the inflated monstrosities which led to the financial crisis in the first place.

Absolutely, that's why we bought most of that stuff during the credit crunch and during the European soveriegn debt crisis.

Recessions are one of the biggest opportunities out there, since the price of everything is so low.

 

[below_freezing]

The US economy is fragile right now, but I wouldn't underestimate them. I doubt they will collapse again in the immeditate future.

But everything is an opportunity, and we should make full use of it, by continuing to buy up assets in Europe.

Even if the Eurozone collapses, we will still be able to use those assets (ports in Greece, land in Ireland, etc.)

Yes, the smart thing about our purchases this time is that they're transfering useless USD into real physical assets. Even if Greece defaults, their port is there; we can either just own it permanently, or we can ship all their gear back to China.

 

[JayAtl]

Greece has been simmering for several months. If you think Greece's problems are going away any time soon, I have a bridge to sell you.

As for the impact on the US economy, it is likely minimal unless Germany and Britain take a hit first.

you have a point- it going to effect the markets, but the calamity was avoided was my point.

 

[JayAtl]

Yes, the smart thing about our purchases this time is that they're transfering useless USD into real physical assets. Even if Greece defaults, their port is there; we can either just own it permanently, or we can ship all their gear back to China.

ROFL( see highlighted part) - greeks are going to allow you to do so, yeah. This is not china my friend - You guys are funny dude..

 

[Anonymous user]

ROFL( see highlighted part) - greeks are going to allow you to do so, yeah. This is not china my friend - You guys are funny dude..

Not sure whats so funny, its happen before so don't see why can't it happen again, the workers are non unionized and the machinery belongs to China. I read about such stories below and these are one of the many.

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