7 ms·

Is Greece entering a Death Spiral?

54 points by cwan 16y ago

rick888 16y ago
Greece is a good example of what happens with an over-reaching government, high taxes, and expensive social programs. If things continue, the US won't be far behind.
- duairc 16y ago
  What? How is that the cause of the situation in Greece?
- trevelyan 16y ago
  Respectfully, this is a classic liquidity trap. Falling government spending is exacerbating the collapse of demand in the private sector. If this were simply an issue of inefficient government activity "crowding out" the private sector, austerity cuts would have stimulated an increase, not collapse in private sector economic activity. The problem is that Greece has very few policy options given its existing debt burden, and inflating out of the crisis is not an option given its need to support the Euro. As with the US government, what Greece can afford to spend on social programs in equilibrium depends largely on what it spends elsewhere.
  - SamAtt 16y ago
    I disagree. Nothing was going to create immediate improvement in Greece so they were going to be in this mess no matter what they did. No one is going to invest in Greece right now regardless of how much the Government spends. So I don't see how the austerity cuts are "causing" this. They are clearly not helping yet either but keep in mind the current cuts were only enacted in May of this year. What the government is trying to do is send a message to the world that they'll be prudent with their finances from this point on. That's why they've gone above and beyond what was required of them as far as austerity cuts go. It's a long term strategy that will hopefully draw private investment back to Greece in the future.
    - trevelyan 16y ago
      You argue that cutting spending will attract investment to Greece and thereby solve the country's problems. Points of disagreement: I do not understand why increasing Greek debt is supposed to be a solution to a crisis of overindebtedness. The conventional solution to debt crises is reducing the size of debt relative to GDP. The problem with Greece is that the country is stuck in deflation. It's GDP is contracting and that is making it even harder to pay off its debt. So the situation is getting worse because the government is pulling money out of the economy. The more insidious problem with your proposed solution as I understand it is that investment is not highly responsive to interest rates in a liquidity trap. Keynes was the first one to talk about this. He has been proven empirically right: people don't borrow for a host of reasons in protracted economic slumps. This is why Japan can have a nominal interest rate of effectively zero for a decade and yet the private sector hasn't invested enough to create much growth. The solution for Greece is fairly simple: debt restructuring to reduce its debt burden relative to GDP, so that the government doesn't need to plunge the country into deflation by pulling money out of the economy. France and Germany seem to prefer forcing economic contraction on Greece since this avoids their bondholders taking a cut or opens them to accusations of being soft on Greece. I'm not sure what the best balance of interests here is in part because I don't know how bad it really is in Greece, but however the distributional politics play out, I don't think your post makes much economic sense. So I'm not sure if I'm missing the picture, or if you're trying to get at something else.
- frossie 16y ago
  Greece is a good example of what happens with an over-reaching government, high taxes, and expensive social programs. You are joking, right? Greece is a good example of what happens when the state fails in two of its most important functions: efficient tax collection and an incorruptible civil service.
  - d2viant 16y ago
    I haven't heard this before. How was their tax collection inefficient? Are you referring to tax evasion?
    - ramanujan 16y ago
      He's talking about the satellite photo story from a while back in which Greeks had many more (taxable) private pools than were reported to the government. http://boingboing.net/2010/05/04/satellite-photos-cat.html http://boingboing.net/2010/05/04/satellite-photos-cat.html The question though is whether "more efficient tax collection" is really the cure for Greece's ailments. It really boils down to whether you think a centralized government can better allocate your dollars to your benefit, or whether you can. You could certainly make an argument that people would free ride and/or greatly underestimate the benefit that spending 10 cents of each dollar on (say) the military or roads would provide, and this furthermore justifies taking that 10 cents by force as part of the price of membership in a community. However, I personally find it less persuasive to argue that centralized allocation programs will produce greater wealth than distributed ones. A remote government simply doesn't have all the information and can't know your preferences. One thing I find interesting is that many people can come to fairly good agreement on what the problem is (bad economy, low unemployment, etc.) but disagree very dramatically on what the solution should be. frossie is likely a Keynesian and rick888 is probably a Hayekian; in my experience, Keynesianism is in the water supply and the "default belief" for most college graduates, but most entrepreneurs tend to end up Hayekian: http://www.youtube.com/watch?v=d0nERTFo-Sk http://www.youtube.com/watch?v=d0nERTFo-Sk
      - StavrosK 16y ago
        Speaking as a Greek, a centralised government would be far worse at allocating funds simply because it would embezzle a good chunk.
- okaramian 16y ago
  Also mass tax evasion, which is ignored for obvious reasons. http://online.wsj.com/article/NA_WSJ_PUB:SB10001424052748704182004575055473233674214.html http://online.wsj.com/article/NA_WSJ_PUB:SB10001424052748704... http://www.nytimes.com/2010/05/02/world/europe/02evasion.html http://www.nytimes.com/2010/05/02/world/europe/02evasion.htm...
- die_sekte 16y ago
  Not exactly. Sure, Greece has all those things, but also: extremely shoddy regulations and high levels of tax evasion. High taxes and expensive social programs seem to work in Germany, Denmark, Sweden, ...
  - rick888 16y ago
    "High taxes and expensive social programs seem to work in Germany, Denmark, Sweden, ..." Give them time. Talk to people in those countries. It's very difficult to find a job right now in any of those countries. Not to mention the fact that 70%+ of our monthly income goes to the government (which means less freedom and choices for you).
    - die_sekte 16y ago
      You do realize that the US has higher unemployment rates than any of those three countries? And, yeah, it's not always easy to find a job and there have been layoffs, but there's a bit of a worldwide recession. The welfare programs in Germany have worked for some time (started around 1900, IIRC). And I'm not sure were you got that tax rate. Because it's certainly false. I think you are deluding yourself.
      - lionhearted 16y ago
        > The welfare programs in Germany have worked for some time (started around 1900, IIRC). I'd say Germany 1900 to 1950 is a pretty compelling argument against government authority and managing of the economy and welfare of the people.
        Robin_Message 16y ago
        And the US 1950–2000 has been a great argument for government authority and leaving the economy to the rich and welfare to chance? </sarcasm>
      - rick888 16y ago
        "You do realize that the US has higher unemployment rates than any of those three countries? And, yeah, it's not always easy to find a job and there have been layoffs, but there's a bit of a worldwide recession." You do realize that many of the states that are failing (California and Michigan) have had some of the highest taxes, largest wages for city workers (Some in California were paid > $200,000/year), and many expensive social programs (Just look at all the money that was pumped into Detroit over the past 20 years). In Michigan, businesses are taxed on gross income rather than net (A few other states do this too). I don't see how anyone can think this is a good idea. The more difficult you make it for a business, the less likely a business will want to be there (and there will be less jobs). "And I'm not sure were you got that tax rate. Because it's certainly false. I think you are deluding yourself." You can't just look at income tax. You need to include VAT, sales, and everything else that you need to pay on a yearly basis.
- seanalltogether 16y ago
  I disagree. American culture still idolizes the self made man & entrepreneur more then any other country in the world. Countries like Greece tend to have decades of influence telling them that the community will provide you a job, and the government will help with your problems.
  - StavrosK 16y ago
    Ugh, that's really frustrating. There's a prevailing mentality that the best sort of job you can find is a government job. That's not far from the truth, really, since people who work in companies tend to work 12-14 hours a day for a bit over minimum wage, but most Greeks don't even know how easy it is to start your own business. I was chatting with someone on a flight once, and I mentioned that I have my own company, and he said "yeah, but it was, like... your dad's, right?" I said no, "I founded it". He couldn't believe that someone under 40 could start a company...
  - oiuytghyuj 16y ago
    Yes they admire the flinty eyed self reliant cowboy - while he collects his farm subsidy check and writes his humvee off as a work truck.
- barredo 16y ago
  Sweden is a good example of what happens with an over-reaching government, high taxes, and expensive social programs. Denmark is a good example of what happens with an over-reaching government, high taxes, and expensive social programs.
zeteo 16y ago
It's somewhat unfair to limelight the situation of a one-industry town (Perama). Greek shipbuilding was probably on its way to China anyways (just like US steel making, and uncounted other industries), and the crisis merely sped up the process. The article overall seems a bit on the sensationalistic side, full of cherry-picked alarmist anecdotes. I would take it with a decent dose of salt.
- w00pla 16y ago
  > Greek shipbuilding was probably on its way to China anyways (just like US steel making, and uncounted other It doesn't have to be that way. Japan has some of the highest labour rates and expensive electricity. It has to import both iron ore and coal. Yet it is home to the very profitable steel mill: http://en.wikipedia.org/wiki/Nippon_Steel http://en.wikipedia.org/wiki/Nippon_Steel
SamAtt 16y ago
I'm sorry but this is shoddy journalism. The article leads with "unemployment has hit an unbelievable 70 percent in some places" but waits 16 more paragraphs before saying the nation wide number is expected to be 12.1% by the end of the year (which incidentally is lower than the state I live in which is California) The whole article is stuff like that. They go on about the guy who used to work 300 days a year but now can only get 25 or the street where half the shops are closed but gloss over the reality that GDP only dropped 1.5% in the last quarter (2.5% in the last 12 months) In the end Greece has it a lot better than they could have had it. To me this is like the guy who spent all his money and had to be bailed out by his neighbors complaining that his neighbors aren't doing enough for him.
- phunel 16y ago
  I second the parent's comments. I'm living in Greece at the moment (am actually on a ferry to the islands typing this right now) and the country, which of course has seen better days, is still humming along strongly. The cafes are packed, the hotels are booked, and people are living, I assure you, a spectacularly fortunate life. One of the primary disconnects is that the economy has traditionally been cash based, and to an extent still is. This means much of the money coming in and out of the country is not declared, making accurate statistics of the country's financial health difficult at best. People are anxious and have been through a lot, no doubt, but the exaggeration by the media is extraordinary. Though, I have to admit, I don't blame the ship owners for repairing in other ports. The bureaucracy and union strikes are maddening drains on productivity.
- shaddi 16y ago
  To me this is like the guy who spent all his money and had to be bailed out by his neighbors complaining that his neighbors aren't doing enough for him. Arguably it's not merely like that, it is exactly that.
  - watchandwait 16y ago
    Actually, it is worse. Greek politicians cheated foreign bond investors and lied to the EU about their budgets.
jpcx01 16y ago
Things need to get worse before it gets better. Seems like the best idea is to ditch the Euro, deflate the currency, and wait for companies to come back when prices are cheap enough where its worth doing work there. It'd be painful, but at least it'll be over eventually and things will start to grow again. Right now it looks like they are on the path to perpetual stagnation.
- Retric 16y ago
  The only long term solution is to deal with corruption.
- DilipJ 16y ago
  I think you mean inflate the currency. Deflation would make their debt burdens worse. But I agree, they are going to stagnate. The country owes its success over the last few decades to generous transfer payments from the EU. Now those transfer payments are going to the poorer former Soviet Bloc countries like Romania and Bulgaria. Greece is going to have to learn to rely more on itself, which means stripping down government expenses. Considering the strength the public unions have there, I think that's unlikely to happen.
  - electromagnetic 16y ago
    Trade unions are devastating to the people they're supposedly working for. I know here in Ontario, in the middle of a recession the Teacher's Union was fighting like hell to get a strike going in the midst of the government funding reeducation programs for the recently laid off. It was stupid, most of the teachers were worried about supporting themselves because the college and university association wasn't budging. Unions make themselves relevant by always pushing for a strike. If a union doesn't strike, people stop caring about going union in trades where it isn't mandatory. The careers where unionization is essentially mandatory should be seriously be overhauled (IIRC crane operators is one here where unionization is mandatory).
  - po 16y ago
    > Greece is going to have to learn to rely more on itself, which means stripping down government expenses. I never understand this logic. I'll agree that building an economy on payments from the EU is bad. But now that that damage has been done, how exactly do you then make the jump to the concept that government expenses are an instance of not relying on yourself? You're right, inflating the currency would help (if they weren't on the euro) but if you have high nationwide unemployment, the private sector isn't employing people, and they need to be employed to have health insurance, then the government should start paying these people to dig holes and fill them in again.
tomjen3 16y ago
Why doesn't Greece default on hits debt if things are really so bad as the article makes it out to be?
- SamAtt 16y ago
  Because they share a currency with most of the rest of Europe and defaulting on their debt would cause the value of that currency to tank. Which could very well tear apart the European Union entirely. That's the big reason why the IMF was willing to bail them out.
  - watchandwait 16y ago
    A Greek default has no impact on the Euro. A Greek default will drill the French and German banks that hold their debt. That's the issue.
    - noverloop 16y ago
      European leaders have already set aside a bailout package for their banks in case any pigs-nation defaults. It's hard to imagine the defaulting nation to remain in the Eurozone though. The penalties of defaulting are probably already negotiated to far outweigh the penalty of stark austerity measures.
      - riffraff 16y ago
        but there is no way of getting out of the eurozone, both in the "no actual procedure" and in the "no actual chance". If greece got out of the euro, it would get instant weimar-like inflation. Moreover, the SPV and the bailout plans in the eu seem to be more like smoke and mirrors than concrete stuff (e.g. bailing out greece with money coming from portugal which is in the same position)
  - tomjen3 16y ago
    No would only happen if they started to print currency (which they can't even do). Greece debt may be denominated in Euros, but that is the only thing it would have in common with German debt.
bosch 16y ago
Startup founders should take away from this how important good financial records are. Also, how important a business model is that provides enough capital to fund current operations without you having to go over your allotted budget.
- startuprules 16y ago
  You also want to make sure you track down deadbeat clients (bad tax collection) and not get a long expensive office lease (offer retirement at age 50)

54 points by cwan 16y ago

Greece is a good example of what happens with an over-reaching government, high taxes, and expensive social programs. If things continue, the US won't be far behind.

duairc 16y ago
What? How is that the cause of the situation in Greece?
trevelyan 16y ago
Respectfully, this is a classic liquidity trap. Falling government spending is exacerbating the collapse of demand in the private sector. If this were simply an issue of inefficient government activity "crowding out" the private sector, austerity cuts would have stimulated an increase, not collapse in private sector economic activity. The problem is that Greece has very few policy options given its existing debt burden, and inflating out of the crisis is not an option given its need to support the Euro. As with the US government, what Greece can afford to spend on social programs in equilibrium depends largely on what it spends elsewhere.
- SamAtt 16y ago
  I disagree. Nothing was going to create immediate improvement in Greece so they were going to be in this mess no matter what they did. No one is going to invest in Greece right now regardless of how much the Government spends. So I don't see how the austerity cuts are "causing" this. They are clearly not helping yet either but keep in mind the current cuts were only enacted in May of this year. What the government is trying to do is send a message to the world that they'll be prudent with their finances from this point on. That's why they've gone above and beyond what was required of them as far as austerity cuts go. It's a long term strategy that will hopefully draw private investment back to Greece in the future.
  - trevelyan 16y ago
    You argue that cutting spending will attract investment to Greece and thereby solve the country's problems. Points of disagreement: I do not understand why increasing Greek debt is supposed to be a solution to a crisis of overindebtedness. The conventional solution to debt crises is reducing the size of debt relative to GDP. The problem with Greece is that the country is stuck in deflation. It's GDP is contracting and that is making it even harder to pay off its debt. So the situation is getting worse because the government is pulling money out of the economy. The more insidious problem with your proposed solution as I understand it is that investment is not highly responsive to interest rates in a liquidity trap. Keynes was the first one to talk about this. He has been proven empirically right: people don't borrow for a host of reasons in protracted economic slumps. This is why Japan can have a nominal interest rate of effectively zero for a decade and yet the private sector hasn't invested enough to create much growth. The solution for Greece is fairly simple: debt restructuring to reduce its debt burden relative to GDP, so that the government doesn't need to plunge the country into deflation by pulling money out of the economy. France and Germany seem to prefer forcing economic contraction on Greece since this avoids their bondholders taking a cut or opens them to accusations of being soft on Greece. I'm not sure what the best balance of interests here is in part because I don't know how bad it really is in Greece, but however the distributional politics play out, I don't think your post makes much economic sense. So I'm not sure if I'm missing the picture, or if you're trying to get at something else.
frossie 16y ago
Greece is a good example of what happens with an over-reaching government, high taxes, and expensive social programs. You are joking, right? Greece is a good example of what happens when the state fails in two of its most important functions: efficient tax collection and an incorruptible civil service.
- d2viant 16y ago
  I haven't heard this before. How was their tax collection inefficient? Are you referring to tax evasion?
  - ramanujan 16y ago
    He's talking about the satellite photo story from a while back in which Greeks had many more (taxable) private pools than were reported to the government. http://boingboing.net/2010/05/04/satellite-photos-cat.html http://boingboing.net/2010/05/04/satellite-photos-cat.html The question though is whether "more efficient tax collection" is really the cure for Greece's ailments. It really boils down to whether you think a centralized government can better allocate your dollars to your benefit, or whether you can. You could certainly make an argument that people would free ride and/or greatly underestimate the benefit that spending 10 cents of each dollar on (say) the military or roads would provide, and this furthermore justifies taking that 10 cents by force as part of the price of membership in a community. However, I personally find it less persuasive to argue that centralized allocation programs will produce greater wealth than distributed ones. A remote government simply doesn't have all the information and can't know your preferences. One thing I find interesting is that many people can come to fairly good agreement on what the problem is (bad economy, low unemployment, etc.) but disagree very dramatically on what the solution should be. frossie is likely a Keynesian and rick888 is probably a Hayekian; in my experience, Keynesianism is in the water supply and the "default belief" for most college graduates, but most entrepreneurs tend to end up Hayekian: http://www.youtube.com/watch?v=d0nERTFo-Sk http://www.youtube.com/watch?v=d0nERTFo-Sk
    - StavrosK 16y ago
      Speaking as a Greek, a centralised government would be far worse at allocating funds simply because it would embezzle a good chunk.
okaramian 16y ago
Also mass tax evasion, which is ignored for obvious reasons. http://online.wsj.com/article/NA_WSJ_PUB:SB10001424052748704182004575055473233674214.html http://online.wsj.com/article/NA_WSJ_PUB:SB10001424052748704... http://www.nytimes.com/2010/05/02/world/europe/02evasion.html http://www.nytimes.com/2010/05/02/world/europe/02evasion.htm...
die_sekte 16y ago
Not exactly. Sure, Greece has all those things, but also: extremely shoddy regulations and high levels of tax evasion. High taxes and expensive social programs seem to work in Germany, Denmark, Sweden, ...
- rick888 16y ago
  "High taxes and expensive social programs seem to work in Germany, Denmark, Sweden, ..." Give them time. Talk to people in those countries. It's very difficult to find a job right now in any of those countries. Not to mention the fact that 70%+ of our monthly income goes to the government (which means less freedom and choices for you).
  - die_sekte 16y ago
    You do realize that the US has higher unemployment rates than any of those three countries? And, yeah, it's not always easy to find a job and there have been layoffs, but there's a bit of a worldwide recession. The welfare programs in Germany have worked for some time (started around 1900, IIRC). And I'm not sure were you got that tax rate. Because it's certainly false. I think you are deluding yourself.
    - lionhearted 16y ago
      > The welfare programs in Germany have worked for some time (started around 1900, IIRC). I'd say Germany 1900 to 1950 is a pretty compelling argument against government authority and managing of the economy and welfare of the people.
      - Robin_Message 16y ago
        And the US 1950–2000 has been a great argument for government authority and leaving the economy to the rich and welfare to chance? </sarcasm>
    - rick888 16y ago
      "You do realize that the US has higher unemployment rates than any of those three countries? And, yeah, it's not always easy to find a job and there have been layoffs, but there's a bit of a worldwide recession." You do realize that many of the states that are failing (California and Michigan) have had some of the highest taxes, largest wages for city workers (Some in California were paid > $200,000/year), and many expensive social programs (Just look at all the money that was pumped into Detroit over the past 20 years). In Michigan, businesses are taxed on gross income rather than net (A few other states do this too). I don't see how anyone can think this is a good idea. The more difficult you make it for a business, the less likely a business will want to be there (and there will be less jobs). "And I'm not sure were you got that tax rate. Because it's certainly false. I think you are deluding yourself." You can't just look at income tax. You need to include VAT, sales, and everything else that you need to pay on a yearly basis.
seanalltogether 16y ago
I disagree. American culture still idolizes the self made man & entrepreneur more then any other country in the world. Countries like Greece tend to have decades of influence telling them that the community will provide you a job, and the government will help with your problems.
- StavrosK 16y ago
  Ugh, that's really frustrating. There's a prevailing mentality that the best sort of job you can find is a government job. That's not far from the truth, really, since people who work in companies tend to work 12-14 hours a day for a bit over minimum wage, but most Greeks don't even know how easy it is to start your own business. I was chatting with someone on a flight once, and I mentioned that I have my own company, and he said "yeah, but it was, like... your dad's, right?" I said no, "I founded it". He couldn't believe that someone under 40 could start a company...
- oiuytghyuj 16y ago
  Yes they admire the flinty eyed self reliant cowboy - while he collects his farm subsidy check and writes his humvee off as a work truck.
barredo 16y ago
Sweden is a good example of what happens with an over-reaching government, high taxes, and expensive social programs. Denmark is a good example of what happens with an over-reaching government, high taxes, and expensive social programs.

zeteo 16y ago

It's somewhat unfair to limelight the situation of a one-industry town (Perama). Greek shipbuilding was probably on its way to China anyways (just like US steel making, and uncounted other industries), and the crisis merely sped up the process. The article overall seems a bit on the sensationalistic side, full of cherry-picked alarmist anecdotes. I would take it with a decent dose of salt.

w00pla 16y ago
> Greek shipbuilding was probably on its way to China anyways (just like US steel making, and uncounted other It doesn't have to be that way. Japan has some of the highest labour rates and expensive electricity. It has to import both iron ore and coal. Yet it is home to the very profitable steel mill: http://en.wikipedia.org/wiki/Nippon_Steel http://en.wikipedia.org/wiki/Nippon_Steel

SamAtt 16y ago

I'm sorry but this is shoddy journalism. The article leads with "unemployment has hit an unbelievable 70 percent in some places" but waits 16 more paragraphs before saying the nation wide number is expected to be 12.1% by the end of the year (which incidentally is lower than the state I live in which is California) The whole article is stuff like that. They go on about the guy who used to work 300 days a year but now can only get 25 or the street where half the shops are closed but gloss over the reality that GDP only dropped 1.5% in the last quarter (2.5% in the last 12 months) In the end Greece has it a lot better than they could have had it. To me this is like the guy who spent all his money and had to be bailed out by his neighbors complaining that his neighbors aren't doing enough for him.

phunel 16y ago
I second the parent's comments. I'm living in Greece at the moment (am actually on a ferry to the islands typing this right now) and the country, which of course has seen better days, is still humming along strongly. The cafes are packed, the hotels are booked, and people are living, I assure you, a spectacularly fortunate life. One of the primary disconnects is that the economy has traditionally been cash based, and to an extent still is. This means much of the money coming in and out of the country is not declared, making accurate statistics of the country's financial health difficult at best. People are anxious and have been through a lot, no doubt, but the exaggeration by the media is extraordinary. Though, I have to admit, I don't blame the ship owners for repairing in other ports. The bureaucracy and union strikes are maddening drains on productivity.
shaddi 16y ago
To me this is like the guy who spent all his money and had to be bailed out by his neighbors complaining that his neighbors aren't doing enough for him. Arguably it's not merely like that, it is exactly that.
- watchandwait 16y ago
  Actually, it is worse. Greek politicians cheated foreign bond investors and lied to the EU about their budgets.

jpcx01 16y ago

Things need to get worse before it gets better. Seems like the best idea is to ditch the Euro, deflate the currency, and wait for companies to come back when prices are cheap enough where its worth doing work there. It'd be painful, but at least it'll be over eventually and things will start to grow again. Right now it looks like they are on the path to perpetual stagnation.

Retric 16y ago
The only long term solution is to deal with corruption.
DilipJ 16y ago
I think you mean inflate the currency. Deflation would make their debt burdens worse. But I agree, they are going to stagnate. The country owes its success over the last few decades to generous transfer payments from the EU. Now those transfer payments are going to the poorer former Soviet Bloc countries like Romania and Bulgaria. Greece is going to have to learn to rely more on itself, which means stripping down government expenses. Considering the strength the public unions have there, I think that's unlikely to happen.
- electromagnetic 16y ago
  Trade unions are devastating to the people they're supposedly working for. I know here in Ontario, in the middle of a recession the Teacher's Union was fighting like hell to get a strike going in the midst of the government funding reeducation programs for the recently laid off. It was stupid, most of the teachers were worried about supporting themselves because the college and university association wasn't budging. Unions make themselves relevant by always pushing for a strike. If a union doesn't strike, people stop caring about going union in trades where it isn't mandatory. The careers where unionization is essentially mandatory should be seriously be overhauled (IIRC crane operators is one here where unionization is mandatory).
- po 16y ago
  > Greece is going to have to learn to rely more on itself, which means stripping down government expenses. I never understand this logic. I'll agree that building an economy on payments from the EU is bad. But now that that damage has been done, how exactly do you then make the jump to the concept that government expenses are an instance of not relying on yourself? You're right, inflating the currency would help (if they weren't on the euro) but if you have high nationwide unemployment, the private sector isn't employing people, and they need to be employed to have health insurance, then the government should start paying these people to dig holes and fill them in again.

tomjen3 16y ago

Why doesn't Greece default on hits debt if things are really so bad as the article makes it out to be?

SamAtt 16y ago
Because they share a currency with most of the rest of Europe and defaulting on their debt would cause the value of that currency to tank. Which could very well tear apart the European Union entirely. That's the big reason why the IMF was willing to bail them out.
- watchandwait 16y ago
  A Greek default has no impact on the Euro. A Greek default will drill the French and German banks that hold their debt. That's the issue.
  - noverloop 16y ago
    European leaders have already set aside a bailout package for their banks in case any pigs-nation defaults. It's hard to imagine the defaulting nation to remain in the Eurozone though. The penalties of defaulting are probably already negotiated to far outweigh the penalty of stark austerity measures.
    - riffraff 16y ago
      but there is no way of getting out of the eurozone, both in the "no actual procedure" and in the "no actual chance". If greece got out of the euro, it would get instant weimar-like inflation. Moreover, the SPV and the bailout plans in the eu seem to be more like smoke and mirrors than concrete stuff (e.g. bailing out greece with money coming from portugal which is in the same position)
- tomjen3 16y ago
  No would only happen if they started to print currency (which they can't even do). Greece debt may be denominated in Euros, but that is the only thing it would have in common with German debt.

bosch 16y ago

Startup founders should take away from this how important good financial records are. Also, how important a business model is that provides enough capital to fund current operations without you having to go over your allotted budget.

startuprules 16y ago
You also want to make sure you track down deadbeat clients (bad tax collection) and not get a long expensive office lease (offer retirement at age 50)