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The Greek Economy Thread

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Well we can post in here if Greece will be using Euros, bitcoin, Rubles, or Feta as the currency next month.

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My opinion: Greece should've declared bankruptcy in 2009, reverted to her own currency and unilaterally withdrew from the EU's daft export rules to seek markets for her products.

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I kind of agree with you Irlandos, the reason being I don't see an out from the current conditions that Greece is experiencing.  So given the choice of 20+ years of this compared to going back to our own currency, I'd prefer our own currency.

 

But to do this the greek people need to understand the full consequences of such a drastic move and I don't know if they're prepared for it.  They seem to want to stay in the Euro but not have austerity.  Currently, that position is illogical.

 

The bigger problem is the political cost.  The remaining EU countries will be very pissed that Greece found an "out" and will want pay-back in some form.  We would have no support from them in the future with issues regarding Skopje or Turkey.

 

The only viable option is Greece leaving the EU with the EU's "permission" but this is still a long way off.  Maybe that is what Greece really wants ?  It might explain why they keep dragging their feet.

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The problem with bankruptcy is that once you do it, no more credit, no more loans.

The good is that you don't have the huge debt payments to make. And, your products are now far more competitive.

However, can you think of another HUGE problem for Greece if it goes that route?....

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Unfortunately guys it seems Greeks have declined into a state of wanting to have their cake and eat it too. Like Banana pointed out, they want their Euro but resist austerity or domestic reform for the most part. Others support the Drachma but don't have the slightest understanding of self sustainability, and will probably bitch and moan when they can no longer afford imported goods. The situation is much more complex than it seems.

 

Like I was saying the other day, what is happening in Europe right now is just one giant game of poker. Europe is trying to bluff Greece into believing they will be just fine after a Grexit and Greece is trying to bluff Europe into think they don't need the west to prosper, and can turn to Russia and the Drachma for revival. Both are holding a 9 and a 2 and both are simply bluffing. Lets analyze this from both sides of the coin starting with Europe:

 

Europe:  A) The first sign that things aren't as simple as a Grexit are in the fact that the US gets involved at all in the negotiation efforts. Just the mention of Russia not only threatens with economic change, but with geo-political change as well. Something the US and Europe cannot afford right now. With a Turkey that is growing closer and closer to their islamic roots , and a region with increasing signs of oil and natural resources, Greece finds itself in a very strategically important region in the world.

 

B )The global economy at this moment in time is so volatile that WORDS alone can send the global markets into a tailspin. It is a theoretical bubble built on hope and perception. Observe the European (frankfurt especially), Greek, and US stock market long enough and you will see that just mentioning the word "Grexit" sends the stock market into days of RED. Warren Buffet and George Sorros for instance have the power to come out and make a statement regarding a Grexit and that alone can bring the market to its knees for days in a row. Tsipra's election was synonymous with a grexit and the next day Greek bank stocks lost 25%-35% of their value. 

 

The moment Europe and Greece come close to a Grexit you are looking at panic selling all across the continent in every market and even in the US. Everyone who has invested in Greek debt is all of a sudden left with bags of sand. Anyone who invested in Greek banks or European Banks exposed to Greek debt will sell in a hurry to cut their losses. The value of the Euro will slump even further making imports more and more expensive and the cost of living in Europe even higher. This weariness will leak into Portugal, Spain, Ireland, and any other European nation who is on life support. Just the fear that will spread will take a long time to reverse.

 

Greece: A) Soon as Greece commits to a Grexit and a return to the Drachma we are talking a total banking system collapse as Greeks will be running to their accounts to withdraw any Euro they can salvage. Bank stocks will plummet. With every printing of Drachmas the value will go down, making it almost impossible to import goods, with the most important short term catastrophe being pharmaceutical drugs and supplies. Who knows what the lack of funds in the public sector will spell in the first years of the drachma. 

 

Bottom line is that Greece is not prepared for a return to the Drachma yet. Maybe One day? Possibly but the longer time passes an the deeper the recession gets the less likely it is. You need to be self sustainable and be able to get the maximum out of your exports and economy in order to make a transition into the Drachma work, departments that Greece is exponentially weaker in since 2008. Greek infrastructure is at an all time low. Greek manufacturing is at an all time low. Even one of Greece's biggest potential cash cows, its naval yards, are either shut down or on the verge of collapse. The Greek system is also not organized enough to make the best out of their currency. Anyone who has tried to get something as simple as an AFM can vouch for a public sector and system stranded 50 years in the past. How are people going to get paid in a sufficient manner? Everything in Greece is paid through the banks , is the system organized enough to fill in this void when there's no money to bailout banks? Will Tsipra make the needed changes like upgrading our computer systems or appease the unions that make sure were stuck in the dark ages so their members keep their salaries? 

 

To be honest I don't think the current Greeks have the will power to resurrect Greece from the first brutal years under the Drachma.  

Edited by CHE21QNS

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Much too much scaremongering is going on regarding a return to a national currency.

They say a national currency would go down to 1/3 its value within a year. Well, that happened between 1979 and 1980 and nobody even noticed.

They say everyone will pull their money out of the banks. Hello! That's happening now! Should there be a change in currency, a nice long bank holiday would be declared and at the end of that nice long bank holiday, there would be no euros in the banks - only converted national currency.

But that radical step need not be taken as a parallel Greek euro could be introduced, that is legally tender within the country, with severe penalties for non-acceptance or for charging any premiums on actual euros. Eventually, if circumstances warranted, the Greek euro would become the national currency (renamed, devalued, etc.) and the euros would become a foreign currency.

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I half agree with Irlandos. The banking system in Greece is barely functional. The big problem however is how private debts are dealt with. It's all well and good for the Greek government to default, but what about existing business debts. Say you owe a supplier in Germany 20,000 Euros, that could triple in the new currency. It'd be a legal mess and no one would want to have dealings with greek companies unless they paid cash up front.

Regardless, I still feel it's the political cost that is the bigger danger and why ultimately if Greece wants to leave the Euro, we need to do it with Germany's "permission".

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Even in a barely functional state Greek banks play a big role in society, in Greece. A role that many don't consider. In Greece if you need to go pay your DEI, your phone bills, your general bills, get your pension, etc. EVERYTHING passes through the banks. Its almost scary how reliant the system is on the banking system. The public sector is a mess as it is, a lot of domestic reform needs to take place before such a change can take place, as I am afraid Greece is just not prepared to go off on their own right now. 

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So, leaving the Euro and stop making payments equals declaring bankruptcy. This means no one would lend you money, that is hard currency. Or, loan sharks would ask for prohibitive rates, like 40%. This is what Greece was being offered in the open market when it went asking, before the ..troika came in. The troika came in because Greece couldn't finance itself by other means. These lenders put conditions before they gave Greece money. We can debate the wisdom of the conditions. But, whether Greece needed a bailout isn't much for debate.

 

Now, let's say you don't like the conditions (memorandum/mnimonio) and you leave the euro. Question: where are you going to find the money to:

  • buy food stuff
  • buy oil/petrol
  • buy other necessities the economy, consumers, the country needs to operate as a modern country (cars, military, machinery, medical techno & drugs, etc, etc)

If you produce enough, at least enough food to sustain the population, then you may not need anything else. But Greece isn't producing the food stuffs it used to. It even imports potatos.

 

If you consume more than you produce, if you require goods that can only be bought with hard currency, what do you do?  (assuming no other country would be accepting drachmas....) This is the problem. OK> you don't have to buy a modest car that now costs the equivalent of $50-75K, but do you make enough to feed yourself?

 

You may go back to the conditions of the 1950s and 1960s... (See old Greek cinema for clues). But expectations and demands are much different nowadays. Even the tourists that Greece want to attract (the more afluent), expect modern ammenities, which customer-service infrastructure requires lots of hard currency

 

This is the reason SYRIZA--with all the pre-election talk, like "there's money", leave the "mnimonio" and whatever else they promised--cannot do anything else but negotiate only some small details of the bailout conditions and not the bailout itself. This is the reality.

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Nice post Athinaios.  It's a reasonably realistic picture of what Greece would go through if they wanted Grexit.  Still, I believe in the long run (I'm talking 2+ decades), it would be better because I think the basic structure of the Euro is fundamentally flawed.  But who would sign up for that sort of pain ?  I don't see it happening.

 

That's why I keep saying a Grexit needs to be done with the consent of the EU.  And this frankly, I can't ever see happening.  Truly they are stuck.

 

The best we can hope for is Varoufakis gets his way ie. loosens the conditions of the "austerity", and more importantly, can convince the EU to tie debt repayments to growth policies.  Growth is what Greece needs, not austerity.

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It is a game of poker. Neither the EU or Greece hold a winning hand. They all know this. There will be a compromise in the end.

The visit to Moscow and the demands for german reparation is all part of the bluffing process.

Not sure if it will be successful but it will at the very least provide better terms then the last government agreed too.

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It is a game of poker. Neither the EU or Greece hold a winning hand. They all know this. There will be a compromise in the end.

The visit to Moscow and the demands for german reparation is all part of the bluffing process.

Not sure if it will be successful but it will at the very least provide better terms then the last government agreed too.

I see this as a counterattack. If it gets them to be in less debt to the Germans, it's a win. No idea where the 279B figure comes from, but ok.

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Again the naysayers are having a field day with their predictions of doom and gloom...

Your way:

* Greeks will be stuck with debts they cannot hope to repay.

* The economy will take much longer to recover.

* The same crisis will hit us again in 30, 40, 50 years or whatever.

* We will have to pay for our own currency.

* Our exports will be continued to be undermined.

 

 

You may go back to the conditions of the 1950s and 1960s...

 

In the 1960s the Greek economy was developing at a record pace, we had export markets for our products, unemployment was negligible, domestic products were favoured and protected and capital stayed put.

No one is going to tell me things are better now!

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Very easy for the e4conomy to grow post WW2....A lot of things needed to be built rebuilt...we also started from a low base...

 

the society is far more political...and 'sophisticated'

Edited by RED SHERIFF

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Greece is in the same position many US home owners found themselves in after the housing market crash of 2008. Insane interest rates that were given out at alarming rates, at a time of relative economic prosperity. Once the economy went south these mortgages were exposed for what they were: UNSUSTAINABLE. This is where Greece finds itself today: A home that doesn't generate enough money, run by a system that will never be able to outgrow its interest rate. The worlds elite economists have come out and declared that this debt is not payable or in Greek terms "Mh biwsimo". This debt will never be paid off, and the damages it inflicts on the economy will only worsen things. The governments of the past (predominantly Papandreou) were using 5th grade economics thinking you can just liquidate certain assets and fire sell other assets when your equity was a fraction of what it was pre-2009. 

 

 

So to some extent Irlando is right. But where he is wrong is in believing that Greece as it is, in this moment in time, is capable of sustaining its own currency. The best case scenario right now is to use Russia and the Nazi war crimes as bargaining chips to achieve a debt renegotiation in which we trim off some of the existing debt, and trim the interest rate, to a size that allows for the economy to grow , and at the same time realistically pay back the debt within a certain time span. 

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Again the naysayers are having a field day with their predictions of doom and gloom...

Your way:

* Greeks will be stuck with debts they cannot hope to repay.

* The economy will take much longer to recover.

* The same crisis will hit us again in 30, 40, 50 years or whatever.

* We will have to pay for our own currency.

* Our exports will be continued to be undermined.

 

 

In the 1960s the Greek economy was developing at a record pace, we had export markets for our products, unemployment was negligible, domestic products were favoured and protected and capital stayed put.

No one is going to tell me things are better now!

 

It's not "my way" it's how I see reality.  I may be wrong. There are no good realistic choices for Greece right now in my opinion. If I were the King of Europe my ..memorandum would be different, yet, I would still ask for conditions if I were to lend money to a someone who has been irresponsible and untrustworthy in the past. (OK, the various Greek governments were irresponsible, falsifying the books, stealing EC subsidies, and violating international agreements)

 

Isn't true that when you declare bankruptcy, lenders stop giving you money? How are you going to buy the stuff you need? If you produce what you need, then you're good to go. But, Greece cannot even feed itself. How about energy needs? No one will accept drachmas, and no one will give credit to a bankrupt country for many years to come.

Everything you import is going to be very, very expensive after you leave the euro, because the drachma will be greatly a devalued currency. Then people should ask themselves what goods & services they need to have a decent life....   But, they have to find a way to pay for what they need. As it's been the case since Greece joined the EC, it has been using/spending more than it's producing. This fundamental inballance remains and no solution under any scenario can solve this problem ...not until the country finds a way to live within its own means!

 

Your exports are going to be cheap too, so you can sell lots since your products will become cheaper too. That's the positive aspect of going back to the drachma.

 

Greece in the 1950s and 60s was a very poor country. Seriously poor, underdeveloped, suffering from political instability (the Civil War was militarily over but otherwise still going on). Many (if not most) streets in the capitol region were dirt roads, and many Greeks who had ..refrigerators often put them in the living room as a display item. The rural country was literally in the dark. Greek cinema depicted life of the time accurately--not necessarily the stories, but the background against which the movies were based.

 

To say the "economy was developing at a record pace" maybe be true but deceptive..... if the starting point is so low, you can grow at 6-7% (GDP per year as Greece was doing then) and even though it sounds impressive it's doesn't make it an affluent country.  [ie. let's say you're poor in the US today, earning $5,000 year. Next year you earn $6,000, an increase of 20%!!!. Are you not poor any longer?]

 

The Greek economy in the 2 decades after WW2 got a boost from the Marshall plan, modernization (farm machinery, foreign investment in factories, etc), so the argument "rapid growth" is valid but....   When I said Greeks would not want to go back to those days (50s-60s), I didn't mean they wouldn't want the rate of economic growth of that period now, but I meant the conditions of poverty, the lack of goods & services. And, yes, no one would like the political extremism of the times.

 

You also say that crisis like this one will hit Greece again in several decades from now. Well, let's say I feel generous today and paid all Greece's debt. Not a cent the country owes to anyone. How long before huge debts accumulate again? Unless, you argue that the enormous debts Greece accumulated since the revolution were not the result of domestic fiscal irresponsibility....

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As far as I'm concerned, everyone is at fault.  Previous Greek governments mostly.  The Greek people also for only caring about their own self interest and voting along certain lines regardless of looking at policy.  Don't get me wrong, we could talk about the corruption and inefficiencies of lots of other countries indefinitely, but the fact remains that Greece took it to a ridiculous level.  And now they are paying.

 

The EU is also greatly at fault.  How did they think loading up a nation that is already in the red, with lots more debt would work out ?  Purely by austerity ?  Please spare me.  The experiment of "growth" via "deflation" hasn't really worked out.  All the EU is doing and has been doing since 2008 is pushing the problem down the road.  To Greece's credit they are saying enough is enough and we need a better way.

 

The only viable solution is growth.  If someone has a 100K debt and you cut his wage from 50K to 30K he's not exactly going to be in a position to pay it back easily.  If instead you get him a job paying 70K all of a sudden everyone wins.  This is what Greece needs.

 

Unfortunately, this sort of mini Marshall Plan can't happen for political reasons.  Basically, it comes down to whining and precedent.  If the EU helps out Greece then everyone else will want similar help.  If the EU helps out Greece then there is no incentive for Greece to get its s%$#! together.  The EU must help Greece but the EU can't help Greece.

 

This is why in essence the EU as an economic entity is dysfunctional and always will be.  It can't do what is require to "fix" things when they're broken.  It either doesn't have the mechanisms or doesn't have the will.  Giving it the mechanisms brings up issues of sovereignty which is a whole new ball game again.

 

Thinks will essentially stay as they are give or take a few tweaks.  Maybe Tsipras might improve things here or there, but any gains by him or any government in the next 10 or so years will be small incremental gains.  Better than nothing I suppose.

 

The only long term fix is the EU voluntarily breaking apart.  Germany definitely never wants this to happen as the value of the DM would sky rocket and smash their export industries as well as the lost of prestige.  No one wants to admit that a project they've worked on for decades is a failure.

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Bingo.

 

I'm a fan of Varoufakis, generally. But I never believed he'd be able to smash his way through the agreements and get a vastly different deal for Greece. What I expect, and hope for, are the aforementioned incremental changes to actually begin with this government. Tsipras needs to actually bring about the logical changes that previous governments agreed to but never bothered implementing - opening up industries to real competition, actually prosecuting tax cheats, and challenging the nepotism that truly forms the social and political backbone of the country.

 

As far as Varoufakis - cutting the required primary surplus (I believe he was gunning for 1-1.5%?) would be a big step in the right direction. His push for repayments being tied to economic growth is attractive, but since we've already established that Greece cannot be relied upon to publish real numbers, the country and government needs to accept that large teams of auditors and accountants will have to set up semi-permanent shop in Greece.

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Varoufaki has played his role well up until now. I too am impressed with the fact that he hasn't side stepped or withdrawn thus far. 

Edited by CHE21QNS

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Bingo.

 

I'm a fan of Varoufakis, generally. But I never believed he'd be able to smash his way through the agreements and get a vastly different deal for Greece. What I expect, and hope for, are the aforementioned incremental changes to actually begin with this government. Tsipras needs to actually bring about the logical changes that previous governments agreed to but never bothered implementing - opening up industries to real competition, actually prosecuting tax cheats, and challenging the nepotism that truly forms the social and political backbone of the country.

 

As far as Varoufakis - cutting the required primary surplus (I believe he was gunning for 1-1.5%?) would be a big step in the right direction. His push for repayments being tied to economic growth is attractive, but since we've already established that Greece cannot be relied upon to publish real numbers, the country and government needs to accept that large teams of auditors and accountants will have to set up semi-permanent shop in Greece.

 

 

do you think Syriza can open up industries to real competition and catch tax cheats...

 

you need accountable public service for this.....Public servants answerable to KPIs and reporting lines that have clear performance expectations.....will syriza sack the tax worker who only does 4 audits a week, when the target may be 12?

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Do I think they will? Probably not. Will I complain if they do? Absolutely not. Do PASOK or ND have the ability to do any of this? They've already consistently proven they can't.

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