Greece-the gathering financial storm

[temujin]

Ahh, a rare breed you are!

Lol..I am not a rabid anti capitalist (in the Hugo Chavez mould) but rather a democratic capitalist appalled by the sort of crony capitalism being currently pursued by the West for the benefit of the banksters, especially since the the banking crisis of 2008. I believe the core principles of capitalism (if you can call it that) and liberal/pluralist values go hand in hand and one cannot have one without the other but since the big bailouts of 2008, the notion of fiscal responsibility and moral hazard have been consigned to the dustbin as governments have allowed banksters chase ever bigger profits and bonuses, oblivious to the economic damage they have caused across the world (I think there is a direct link between unrest in the Middle East and the quantitative easing/currency debasement driven commodities bubble in the last 2 years, which was a consequence of the banking crisis..just check wheat prices/bread prices in Egypt over the last 3 years) . I really don`t know who or what started the rot- fractional reserve banking, Bretton Woods, Nixon abandoning the gold standard, the 'big bang' in the City of London and the rise of creative finance may all be to blame but a system that creates institutions that are 'too big to fail', where a bunch of banksters hold the whole world to ransom,banks get to keep all the profits and pay themselves billions in bonuses during good times whilst the taxpayers is landed with all the downside when the tide turns, is so fundamentally unfair that it deserves to collapse..

2008 didn't do it but hopefully the current Eurozone crisis will hopefully start the process..

 

[temujin]

what a silly comment.

it's not only wrong, it's another example of the superduper delusions Indians hold about their economy.

First off, Jamaica is at SD level. Pakistan is around B-. Greece is around CCC. Greece still is just above Jamaica and just below Pakistan. India is not much ahead at BBB and only avoided a recent downgrade because it made some changes. Pakistan is not doing too badly. That too with the instability by wot.

RR, I was merely stating how the news was reported in the international media.It was not my intention to draw a comparison between Indian and Pakistani credit ratings

S&P hands Greece world's lowest credit rating | Reuters.com

S&P hands Greece world's lowest credit rating

ATHENS/NEW YORK (Reuters) - Greece became the lowest-rated country in the world according to Standard & Poor's, which downgraded it on Monday and warned that any attempt to restructure the country's debt would be considered a default.

Greece now has a lower credit rating than countries such as Pakistan and Ecuador, which has been shut out of international markets since a 2009 default. The cost of insuring Greek debt is now almost twice as much as the price of insuring Pakistani bonds.

S&P's move was the latest blow for Greece's Socialist government, which is scrambling to push an unpopular austerity package through parliament to ensure continued funding under a year-old bailout plan.


Now that you have brought it up, Pakistan's S & P credit rating is B-, which is basically junk status whilst India's is BBB- (lowest investment grade).

List of countries by credit rating - Wikipedia, the free encyclopedia

 

[temujin]

it'll default or devalue. More or less the same thing. Germany will control which is does probably.

Precisely! Which is why I think the danger to the global economy is not from Greece defaulting, which it is bound to sooner or later, but in the EU providing a further bailout, thus kicking the can further down the tarmac..

With debts over 150% of GDP, an annual budget deficit of over 10% of GDP, a shrinking tax base and rising unemployment, there is no way Greece is going to be able to repay its debts.It will have to roll over or restructure some of the debt, which would technically be considered a default. I think the Greek public are absolutely right in demanding the government not agree to further austerity measures. The trouble is that further spending cuts will only push the economy further into recession, shrink demand,reduce the tax take and increase debt servicing costs due the deflationary effect this toxic combination would entail. Most high debt economies have traditionally resorted to default and currency debasement in such scenarios to reduce debts in real terms and stimulate growth (as Spain has done on numerous occasions in the past and Argentina and Brazil did in the last decade or so) but membership of the Euro gives Greece little choice in this respect..

The fundamental issue is that a further bailout does not reduce Greece's debt but adds a further 150 odd billion to it at a usury rate of interest.The current bailout is not meant to help the Greek people but to bail out the bankster pals of EU politicians, who would take a 'haircut' of around 30-40% on their Greek liabilities if it defaults (plus the possible hundreds of billions in losses from derivatives taken out against Greek debt)

I hope the Greek government calls the EU's bluff and refuses to accept any further austerity measures in return for a bailout. I would like to see EU's response if Greece refuses the terms offered. The EU needs Greece more now than the other way round. It would be better for Greece to default, leave the Euro and start afresh (it can still choose to stay in the Euro, just look at Montenegro for instance, but I doubt it will). What it would do is set a dangerous precedent that may be followed by the likes of Ireland, Portugal, Spain or even Italy, thus signalling the demise of the great European 'project' and the corrupt undemocratic political institutions and bureaucracy it has spawned...


Just wait and see..the Greek parliament votes on further austerity measures at 0:00 tonight whilst thousands protest outside parliament

Watch live streaming webcams from Athens, Greece

 

[TruthSeeker]

Greece's debt is $380 billion and it's population is only 11 million, so the Greeks have a per-head debt of $44000. I don't think Germany can save Greece from economic disintegration.

USA debt is $14 Trillion / 300 Million people = $(14 x 10^12 )/(3 x 10^8 ) = $ 47,000/person!


See: http://www.defence.pk/forums/world-affairs/114570-us-debt-hits-14-trillon-dollars.html

 

[temujin]

Greek cabinet approves austerity budget

The Greek cabinet has approved a 2012-2015 austerity budget plan as well as laws for its application, a key condition for further EU-IMF help to tame its massive public debt, government sources said.

The move came after the world's largest bond fund said it expected the country to default on its debts

The government, which only hours earlier survived a confidence vote, had committed to another round of stiff budget cuts in return for fresh EU-IMF cash and a new debt rescue deal.

The government won the confidence motion by 155 votes to 143, but Prime Minister George Papandreou now faces a fraught challenge to overcome dissent within the ranks of his Socialist party over the debt-cutting onslaught.

Eurozone ministers are insisting on crash action before they will release the next slice of debt funding and move ahead on a new bailout.

The latest tranche worth €12bn (£10.7bn) is due under a €110bn debt rescue package agreed with the European Union and International Monetary Fund in May last year.

Pimco, the world's biggest bond fund, shrugged off last night's vote of confidence in the Greek government warning that it expects Greece and other European economies to default on their debts to resolve their problems.

"For the next three years, we're going to see different economies work out different problems. For European economies, especially Greece, it would be through default," Mohamed El-Erian, chief executive of Pimco, said in Taipei on Wednesday in a video conference.

His comments came as the Greek government won a crucial vote of confidence late on Tuesday as it seeks further financial aid from the European Union and the IMF to avoid the eurozone's first sovereign debt default.

Mr El-Erian did not identify the other economies he referred to (we know which ones they are, thank you very much). He has said Europe risks wasting money for nothing by pumping billions of dollars into the ailing economy.

"Nothing has been done to enhance growth," he said. "No single (Greek) indicator has shown strength. They are afraid a restructuring would hurt European banks."

However, he doubted a Greek default could trigger another global financial crisis: "Ireland, Portugal, Italy and Spain would have to be involved. But Greece is too small in terms of economic impact."

Horacio Valeiras, chief investment officer of fund firm Allianz Global Investors Capital (AGIC), predicted that Ireland and Portugal, countries that also received financial bailouts in the wake of the global credit crisis, will have to restructure their debts.

"We are not investing in Greece, Ireland, Spain and Portugal," he said at the press briefing. He sees default in Greece as "inevitable".

The real fight in Greece will come when the austerity measures face a vote by lawmakers by the end of the month.

The confidence vote in Athens came after a European ultimatum requiring the state to agree to a five-year austerity package of measures within the next two weeks or miss out on a €12bn tranche of aid money. Without the loan, Athens will run out of cash next month.

European officials are also considering a second bailout package worth an estimated €120bn that is meant to extend Greece's year-old €110bn deal and fund it into 2014.

"These next ten days are the most crucial in the last 30 years," Deputy Finance Minister Pantelis Ekonomou said in a radio interview.

The euro slipped against the dollar on Wednesday as investors who bought the single currency following the vote of confidence took profits, signalling market concerns that the eurozone debt crisis is far from over.

George Papandreou, the prime minister, made a dramatic plea to parliament on Wednesday: "We have a unique opportunity (to change the country)," he said. "If we falter, if we lose heart and squander it... history will judge us very harshly."

Greece's main unions plan to hold a 48-hour general strike when the new measures go to parliament.

Francois Baroin , a French government spokesman, welcomed the vote of confidence on Wednesday, adding: "We will not accept any payment incident, or default."

California-based Pimco (Pacific Investment Management Company), is based in California and is the world's biggest bond fund manager with nearly $1.3 trillion in assets under management.

Greek cabinet approves austerity budget - Telegraph

Fitch warns any Greek debt rollover would be treated as a default




Only matter of when and not if now...

 

[Meengla]

@Temujin,
There was recently an article in NY Times about Greece's problems. About half of the 'recommended' Comments were of the opinion that Greece's problems are due to its corrupt, cronyism culture of 'Fiesta and Siesta'. Basically, lazy and corrupt. And the other half of the recommended comments were that Greece has been preyed up by the big global banks, especially by the Wall Street ones.
What is your opinion?

 

[Solomon2]

It is important to closely watch what's happening in Greece--the implications are beyond Greece.
I have a Greek lady friend here. Very charming. But is utterly dejected by 'corruption' inside Greece. According to her, Greece does not have much of economy except tourism.

Greece's troubles have been a long time in the making. Too much leftism, too much socialism. I had a Greek engineering professor 20+ years back. He left for the U.S. when students at his U. went on strike for the right to stay in tourist hotels rather than student housing. Demonstrations were timed to coincide with finals, of course...this professor took his serious students to the U.S. with him. Friends with the Papendreous...said that the Greeks would take everyone for all they were worth but eventually would give in under external pressure and make the necessary adjustments since it isn't the politicians that are corrupt, but the people.

 

[scrumpy]

The smelly stuff is going to hit the fan. All that is left to see is how far it is going to spread.

 

[temujin]

@Temujin,
There was recently an article in NY Times about Greece's problems. About half of the 'recommended' Comments were of the opinion that Greece's problems are due to its corrupt, cronyism culture of 'Fiesta and Siesta'. Basically, lazy and corrupt. And the other half of the recommended comments were that Greece has been preyed up by the big global banks, especially by the Wall Street ones.
What is your opinion?

Although its true Greeks generally work fewer hours and retire earlier than the rest of Europe,I think its unfair to pick on Greece as its economic problems are not unique but shared by much of Southern Europe. Many club med countries have historically been heavily indebted, with huge grey economies/high levels of tax evasion and have routinely resorted to default and devaluation in the past to reduce debt, trade deficits and stimulate growth.

At the EU level, I think the whole 'Euro project' was itself fundamentally flawed in seeking a politically and commercially motivated monetary union between the more prosperous, industrious and prudent Northern European nations and the poorer,feckless Southerners, in the absence of a broader fiscal union. It is well known that Greece cooked its books to meet the qualifying requirements for entry into the Euro but managed to keep the act going as long as it was able to borrow cheaply from the markets, thanks to surpluses from China and 'funny money' created by financial institutions through 'exotic' financial machinations.

The flip side of joining the Euro for Greece was that its interest rates were now set by the ECB, which tends to take its orders from Germany. So throughout the noughties, the ECB kept interest rates consistently low as inflation remained dampened due falling prices of Chinese goods. This suited Germany but created a negative interest rate environment in real terms for countries like Portugal/Ireland/Greece/Spain (PIGS) causing massive asset bubbles and an explosion in public and private sector borrowing. This would have been ok had interest rates remained low enough for these countries to continue borrowing ever increasing amounts in order to service their mounting debts but the crash of 2008 put paid to that plan.

Following the crash of 2008, the PIGS would have chosen to devalue and restructure their debts in normal circumstances but EU rules and membership of the Euro do not allow them to do that. Faced with the prospect of debt deflation and default, these countries have had to instead accept severe austerity measures and expensive bailouts from the EU (which in itself is a breach of EU legislation), which only seem to have pushed these countries deeper into recession.

As things stand it would be better for these countries to default, let the banks/private bond holders take the hit and start afresh. Better still they could leave the Euro,which would immediately reduce their debt burden in real terms, increase domestic demand as imports will be more expensive and try to export their way into recovery (whether or not there is enough manufacturing left in these countries or external demand for their products is another question..Greece will definitely benefit from an increase in the tourist trade if it devalues).

So in response to your question about who is to blame for Greece's economic woes. I would say

1) The Greek government- for cooking its books to gain entry into the Euro and not initiating structural reforms to address the huge economic imbalances i.e. low levels of productivity,huge black economy, poor tax base, vis a vis more fiscally prudent Euro members

2) The Greek public-for scuttling through violent protests half hearted attempts at public sector/pension age reforms by past governments, for not recognising that changing global economic realities and an aging population meant they would have to work harder and longer, and, last but not the least, fueling asset bubbles through reckless private borrowing in the lead up to the crash

3) The EU- for putting in place, in their incessant pursuit of 'one Europe', a system of monetary union without proper fiscal integration, which allowed the likes of Greece to consistently overshoot borrowing limits, leading to the current mess.

4) ECB- for taking advantage of imported Chinese deflation to set real term negative interest rates for years during the 2000s to suit Germany and causing a debt explosion in the Club Med countries. Since the onset of the crisis the ECB has continued to allow Germany to set its agenda,for instance by not cutting rates aggressively in the initial phase and raising rates lately, which has further confounded the economic troubles of the PIGS. It also has to share the blame with other central banks for lax financial regulation ,which have allowed banks to run up hundreds of billions in exposure to these countries, thereby allowing the latter to hold the whole world to ransom over potential losses in case of a default

5) The big banks- for allowing economies like Greece to borrow too much, too cheaply during the good times (yields on Greek debt and the German benchmark Bund were broadly similar during much of the boom, which indicates that the higher risks of lending to Greece were not being reflected in its borrowing costs) as they always knew the EU kleptocracy would eventually bail them out in case things went wrong. I suspect this lot and their friends in Brussles are the only ones who would be laughing at the end of all this.

I hope I've answered your question without getting too technical

 

[temujin]

Greece's troubles have been a long time in the making. Too much leftism, too much socialism. I had a Greek engineering professor 20+ years back. He left for the U.S. when students at his U. went on strike for the right to stay in tourist hotels rather than student housing. Demonstrations were timed to coincide with finals, of course...this professor took his serious students to the U.S. with him. Friends with the Papendreous...said that the Greeks would take everyone for all they were worth but eventually would give in under external pressure and make the necessary adjustments since it isn't the politicians that are corrupt, but the people.

Condemning the whole population as lazy and corrupt I believe is too simplistic an explanation for Greek's problems.Although no one disputes their significant role in causing the crisis,one has to appreciate the historical and cultural factors that profoundly influence Greek citizenry's attitude towards their state and its institutions. Modern day Greeks have little faith in their politicians or the state apparatus, probably due to the past experience of Ottoman imperialism and 20th centruty dictatorships, which I believe is being reflected in their chronic refusal to contribute to the state through paying taxes, and their resistance to all politically instigated change.

 

[Chinese-Dragon]

Although its true Greeks generally work fewer hours and retire earlier than the rest of Europe,I think its unfair to pick on Greece as its economic problems are not unique but shared by much of Southern Europe. Many club med countries have historically been heavily indebted, with huge grey economies/high levels of tax evasion and have routinely resorted to default and devaluation in the past to reduce debt, trade deficits and stimulate growth.

At the EU level, I think the whole 'Euro project' was itself fundamentally flawed in seeking a politically and commercially motivated monetary union between the more prosperous, industrious and prudent Northern European nations and the poorer,feckless Southerners, in the absence of a broader fiscal union. It is well known that Greece cooked its books to meet the qualifying requirements for entry into the Euro but managed to keep the act going as long as it was able to borrow cheaply from the markets, thanks to surpluses from China and 'funny money' created by financial institutions through 'exotic' financial machinations.

The flip side of joining the Euro for Greece was that its interest rates were now set by the ECB, which tends to take its orders from Germany. So throughout the noughties, the ECB kept interest rates consistently low as inflation remained dampened due falling prices of Chinese goods. This suited Germany but created a negative interest rate environment in real terms for countries like Portugal/Ireland/Greece/Spain (PIGS) causing massive asset bubbles and an explosion in public and private sector borrowing. This would have been ok had interest rates remained low enough for these countries to continue borrowing ever increasing amounts in order to service their mounting debts but the crash of 2008 put paid to that plan.

Following the crash of 2008, the PIGS would have chosen to devalue and restructure their debts in normal circumstances but EU rules and membership of the Euro do not allow them to do that. Faced with the prospect of debt deflation and default, these countries have had to instead accept severe austerity measures and expensive bailouts from the EU (which in itself is a breach of EU legislation), which only seem to have pushed these countries deeper into recession....

... I hope I've answered your question without getting too technical

Nice analysis buddy.

 

[Anonymous user]

Although its true Greeks generally work fewer hours and retire earlier than the rest of Europe,I think its unfair to pick on Greece as its economic problems are not unique but shared by much of Southern Europe. Many club med countries have historically been heavily indebted, with huge grey economies/high levels of tax evasion and have routinely resorted to default and devaluation in the past to reduce debt, trade deficits and stimulate growth.

I hope I've answered your question without getting too technical

Great analysis!

 

[Solomon2]

"The situation that the workers are going through is tragic and we are near poverty levels"...A peaceful demonstration of 20,000 people in Athens was soon marred by outbreaks of violence, when two groups clashed. One side took refuge near a coffee shop, and police fired tear gas in an attempt to clear the crowds and get them out...Youths torched a satellite truck parked near parliament. The fire caused a freezer at a neighboring kiosk to explode, and hooded youths ducked behind the burning truck to help themselves to ice-cream cones...Many Greeks insist they should not be forced to pay for a crisis they believe politicians are responsible for. "We don't owe any money, it's the others who stole it" - link

Do we laugh or cry at such foolishness and desperation?

 

[temujin]

The powers that be have agreed to a 'partial' default by Greece on its debts. This was on the cards all along- expect Ireland and Portugal to follow. All that they have to do now is protect Spain and Italy from contagion

The Euro's days (in its current shape and form) are numbered if you ask me..

Eurozone debt crisis summit: live - Telegraph