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I think the element you are missing is that the Greek government spending is very inefficient; they're not investing in some kind of economy-growing infrastruct

I think the element you are missing is that the Greek government spending is very inefficient; they're not investing in some kind of economy-growing infrastructure revolution, they're spending money on totally unreasonable union contracts and extraordinarily early retirement for large classes of pensioners. The cuts they agreed to are something like 78 billion euros over more than 10 years, which is quite moderate, for all the screaming. The European central banks are lending money to Greece well below market rates, and they're quite within their rights to demand a reasonable budget which might actually result in this money being repaid. If Greece wants to increase government spending on infrastructure and investments, they can do that after getting their budget in order and convincing their own population to part with some money for the sake of these programs. P.S. I don't think downvoting/upvoting should be a poll on whether someone agrees with a message; it's a decision of interesting/unhelpful.

lyudmil 15y ago
I think I openly admitted that the way the Greek government was spending money was terrible. Yes, I agree with you. The Greek economy was a joke and it definitely needs to change, but let's talk about the situation as of the initial collapse. The fact was (and remains now) that they need(ed) money just to keep afloat. The CEB could have put any provision it wanted on the money lent. They chose to force the Greeks to cut spending. My argument, informed by what I've read on the topic, would be that it would have been better for them to force the Greeks to spend the money as a stimulus, making the sort of investments that you talk about. Instead, the CEB likely worsened an already pretty dire situation. I think you'll agree that the interesting part of this argument isn't Greece at all, but the case study Greece is becoming. It's clear more austerity measures are coming in more European countries and the US. I think it's a bad idea and I'm curious to find out what this community thinks.
- yaakov34 15y ago
  Suppose you have a friend who screws up and gets fired from menial jobs, spends his money on booze and gambling, and ends up in heavy debt. Now you want to help him out, so you can do one of two things: 1. I'll lend you the money if you get a steady minimum wage job and cut off the spending. 2. Look, I believe in you. I'll lend you a whole bunch of money so that you can go to college, retrain, get a much better job, and then repay me with plenty left over for yourself. Now I understand that (2.) sounds much better than (1.), but it's just not realistic. He will waste the money again, because he knows he didn't earn it. You have to be tough and force him to get his house in order. Then he can save and borrow to retrain. If Greece is spending its own money on infrastructure and investments, there is at least a chance it will be spent well. If it's spending other people's money - no chance at all. EDIT: I didn't mean this to sound like I am calling Greeks in general wastrels and boozers. It's more about how other people's money tends to get spent. See the message below.
  - waterlesscloud 15y ago
    What if you've been lending the money to him that he's spent on booze and gambling? And what if you're very well paid to make good decisions about lending money? Shouldn't you then be forced to take a very serious, if not complete, loss on the money you lent to him? It's your own fault you lent it to a wastrel. Why should you be bailed out, exactly?
    - yaakov34 15y ago
      You make a good point, and if it wasn't for the panic that's been gripping everyone for the last 3 years any time there is any kind of talk of bad debt, I'd say "stand back and let whoever lent money to them do due diligence next time." Get it over with, get the bad paper out of the system. It's not enough money to cause collapse, it's a small fraction of, say, the US housing crisis. The problem is that the panics in the market make this into a very expensive proposition.
    - stayjin 15y ago
      Exactly. I will put a little more PF (political fiction) to make it a little bit more interesting: How about if your "friend" is a drinker and gambler, but happens to have a big fortune, say islands, nature, ancient temples. So you find his girlfriend and start lending her drinking money out of your heart's "goodness" without managing your loan when it is small, just let it grow... Of course your friend gets drinking money and thanks his lucky stars and all his friends for lending him just to have the pleasure of his charm.... Of course you politely ask him to spend half of that money to buy submarines and fighter aircrafts from your shop. Then one day you go and tell him, "you know your debt is so big, me and everybody else were so surprised by the size of your debt, and really you have been only drinking and womanizing, haven't you... So we decided we will not lend you anymore. From now on you are not allowed to drink, but neither to eat, unless of course you sell to us your telecommunication industry at the amount of the next round of drinks, so what do you say?" It works like a charm, your friend starts getting depressed, and gives in... But then maybe he says, "Look I am grateful for all these drinks and all but you can't in your good sense expect me to sell my property so cheaply just because you were giving gifts to my girlfriend right. I will stop drinking, please stop giving gifts to my girlfriend and wait for a while I will give them back to you. Also I noticed you borrow money for 1% and you lend it to me for 5.2%, that is too much for "friends" isn't it, please be a sport and let me repay it to you with 1.5%." What then? [EDIT] Disclaimer, I am Greek, I have no illusions about the management abilities of my country (sometimes I think we are born without the part of brain responsible for financial planning ;-), but I have strong opinions about the economy of debt, the way it is manipulated by the "market" and it's implications on the life of people. My opinion is biased, of course.
- michaelcampbell 15y ago
  > No one argues that the Greek economy was in good shape. ... > The Greek economy was a joke and it definitely needs to change... Which is it?
  - lyudmil 15y ago
    The first sentence could either be parsed two ways which yield opposite meanings or is grammatically incorrect. I can't decide which, but in any case you have a point. The first sentence was supposed to mean that the Greek economy was in bad shape and everyone knew.
    - starwed 15y ago
      To argue a point means to advocate for it. Your statement was unambiguous, and meant what you meant it to.
      - michaelcampbell 15y ago
        To you, perhaps. Not to all. Which makes it not unambiguous.
      - michaelcampbell 15y ago
        I apologize. After re-reading, I see you are correct. Pardon my earlier post(s) on the matter.
- dia80 15y ago
  Greece has huge international debts due now. If these new loans were used as a stimulus instead of debt repayment they would default now and escalate the crisis the lenders are trying to contain. If you managed your house well in the good times then large deficit spending is an option in the bad times. However if you end the good times with debt at 100%+ of GDP you have no options.
ignifero 15y ago
FYI, almost all of this new loan is going straight to bondholders, there will be very little spending. And no, it's not enough to prevent a default or some other kind of "restructuring", "reprofiling", you-name-it.
- yaakov34 15y ago
  Well, at least after they default, they get the thing they've been trying so hard to reach: a balanced budget. For the simple reason that nobody will lend them a cent any longer. "There, fixed that for you guys."
  - ignifero 15y ago
    That may not be true if the default is done carefully with assistance from the EU. Greece could borrow from some special institution or the EU for some years (as it does now). The exit from the euro, though, would help to restart the economy faster and less painfully.
    - yaakov34 15y ago
      Really? You are from Greece, and you're serious about this? I didn't expect that this would be a serious alternative. OK, suppose that government debt gets defaulted as Greece leaves the Euro. What about private external debt, which I think is also pretty significant? Will businesses struggle to pay this in a strong currency as their own currency depreciates, or does the private sector default, too? I just thinks this sounds like almost a pure loss.
      - ignifero 15y ago
        Businesses will be called to pay in either case, either through higher taxes and emergency taxation (as is now), or through a devalued currency. Besides, private debt is actually low in greece. http://www.businessinsider.com/portugal-irelands-household-and-corporate-debt-levels-are-far-worse-than-ever-greece-2010-11 http://www.businessinsider.com/portugal-irelands-household-a...

lyudmil 15y ago

I think I openly admitted that the way the Greek government was spending money was terrible. Yes, I agree with you. The Greek economy was a joke and it definitely needs to change, but let's talk about the situation as of the initial collapse. The fact was (and remains now) that they need(ed) money just to keep afloat. The CEB could have put any provision it wanted on the money lent. They chose to force the Greeks to cut spending. My argument, informed by what I've read on the topic, would be that it would have been better for them to force the Greeks to spend the money as a stimulus, making the sort of investments that you talk about. Instead, the CEB likely worsened an already pretty dire situation. I think you'll agree that the interesting part of this argument isn't Greece at all, but the case study Greece is becoming. It's clear more austerity measures are coming in more European countries and the US. I think it's a bad idea and I'm curious to find out what this community thinks.

yaakov34 15y ago
Suppose you have a friend who screws up and gets fired from menial jobs, spends his money on booze and gambling, and ends up in heavy debt. Now you want to help him out, so you can do one of two things: 1. I'll lend you the money if you get a steady minimum wage job and cut off the spending. 2. Look, I believe in you. I'll lend you a whole bunch of money so that you can go to college, retrain, get a much better job, and then repay me with plenty left over for yourself. Now I understand that (2.) sounds much better than (1.), but it's just not realistic. He will waste the money again, because he knows he didn't earn it. You have to be tough and force him to get his house in order. Then he can save and borrow to retrain. If Greece is spending its own money on infrastructure and investments, there is at least a chance it will be spent well. If it's spending other people's money - no chance at all. EDIT: I didn't mean this to sound like I am calling Greeks in general wastrels and boozers. It's more about how other people's money tends to get spent. See the message below.
- waterlesscloud 15y ago
  What if you've been lending the money to him that he's spent on booze and gambling? And what if you're very well paid to make good decisions about lending money? Shouldn't you then be forced to take a very serious, if not complete, loss on the money you lent to him? It's your own fault you lent it to a wastrel. Why should you be bailed out, exactly?
  - yaakov34 15y ago
    You make a good point, and if it wasn't for the panic that's been gripping everyone for the last 3 years any time there is any kind of talk of bad debt, I'd say "stand back and let whoever lent money to them do due diligence next time." Get it over with, get the bad paper out of the system. It's not enough money to cause collapse, it's a small fraction of, say, the US housing crisis. The problem is that the panics in the market make this into a very expensive proposition.
  - stayjin 15y ago
    Exactly. I will put a little more PF (political fiction) to make it a little bit more interesting: How about if your "friend" is a drinker and gambler, but happens to have a big fortune, say islands, nature, ancient temples. So you find his girlfriend and start lending her drinking money out of your heart's "goodness" without managing your loan when it is small, just let it grow... Of course your friend gets drinking money and thanks his lucky stars and all his friends for lending him just to have the pleasure of his charm.... Of course you politely ask him to spend half of that money to buy submarines and fighter aircrafts from your shop. Then one day you go and tell him, "you know your debt is so big, me and everybody else were so surprised by the size of your debt, and really you have been only drinking and womanizing, haven't you... So we decided we will not lend you anymore. From now on you are not allowed to drink, but neither to eat, unless of course you sell to us your telecommunication industry at the amount of the next round of drinks, so what do you say?" It works like a charm, your friend starts getting depressed, and gives in... But then maybe he says, "Look I am grateful for all these drinks and all but you can't in your good sense expect me to sell my property so cheaply just because you were giving gifts to my girlfriend right. I will stop drinking, please stop giving gifts to my girlfriend and wait for a while I will give them back to you. Also I noticed you borrow money for 1% and you lend it to me for 5.2%, that is too much for "friends" isn't it, please be a sport and let me repay it to you with 1.5%." What then? [EDIT] Disclaimer, I am Greek, I have no illusions about the management abilities of my country (sometimes I think we are born without the part of brain responsible for financial planning ;-), but I have strong opinions about the economy of debt, the way it is manipulated by the "market" and it's implications on the life of people. My opinion is biased, of course.
michaelcampbell 15y ago
> No one argues that the Greek economy was in good shape. ... > The Greek economy was a joke and it definitely needs to change... Which is it?
- lyudmil 15y ago
  The first sentence could either be parsed two ways which yield opposite meanings or is grammatically incorrect. I can't decide which, but in any case you have a point. The first sentence was supposed to mean that the Greek economy was in bad shape and everyone knew.
  - starwed 15y ago
    To argue a point means to advocate for it. Your statement was unambiguous, and meant what you meant it to.
    - michaelcampbell 15y ago
      To you, perhaps. Not to all. Which makes it not unambiguous.
    - michaelcampbell 15y ago
      I apologize. After re-reading, I see you are correct. Pardon my earlier post(s) on the matter.
dia80 15y ago
Greece has huge international debts due now. If these new loans were used as a stimulus instead of debt repayment they would default now and escalate the crisis the lenders are trying to contain. If you managed your house well in the good times then large deficit spending is an option in the bad times. However if you end the good times with debt at 100%+ of GDP you have no options.

ignifero 15y ago

FYI, almost all of this new loan is going straight to bondholders, there will be very little spending. And no, it's not enough to prevent a default or some other kind of "restructuring", "reprofiling", you-name-it.

yaakov34 15y ago
Well, at least after they default, they get the thing they've been trying so hard to reach: a balanced budget. For the simple reason that nobody will lend them a cent any longer. "There, fixed that for you guys."
- ignifero 15y ago
  That may not be true if the default is done carefully with assistance from the EU. Greece could borrow from some special institution or the EU for some years (as it does now). The exit from the euro, though, would help to restart the economy faster and less painfully.
  - yaakov34 15y ago
    Really? You are from Greece, and you're serious about this? I didn't expect that this would be a serious alternative. OK, suppose that government debt gets defaulted as Greece leaves the Euro. What about private external debt, which I think is also pretty significant? Will businesses struggle to pay this in a strong currency as their own currency depreciates, or does the private sector default, too? I just thinks this sounds like almost a pure loss.
    - ignifero 15y ago
      Businesses will be called to pay in either case, either through higher taxes and emergency taxation (as is now), or through a devalued currency. Besides, private debt is actually low in greece. http://www.businessinsider.com/portugal-irelands-household-and-corporate-debt-levels-are-far-worse-than-ever-greece-2010-11 http://www.businessinsider.com/portugal-irelands-household-a...