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To retaliate against this, can't the EU threaten to kick Greece out of its system while force-converting all their EU-denominated assets into a newly setup Gree

To retaliate against this, can't the EU threaten to kick Greece out of its system while force-converting all their EU-denominated assets into a newly setup Greek currency. (We can view this as the default of their agreement to support Greece--in response to the Greek refusal to pay off its debt.) The new currency will immediately weaken significantly, basically forcing austerity measures onto the whole economy. When the Greeks are on their own, without having EU as their sugar daddy, they will have to absorb (or receive) the direct consequences of their actions--whichever fiscal/monetary path they choose to follow. The technical issues of force-conversion of currency their assets are denominated in are probably quite immense, but it is better than losing hundreds of billions of dollars. Moreover, if it can be done, all other troubled economies in Europe will have much greater incentives to follow any rules set up by the EU.

wisty 15y ago
There's no mechanism, so it would probably need some sort of vote. This would take too long, and the plan would probably leak, so the Greeks would have time to cash out all their EU assets.
- nopinsight 15y ago
  If the EU coordinates with the US, Japan, and all larger economies (perhaps via IMF), couldn't they still force Greek out of any currency their assets are cashed out into? The incentives of other countries to go along is the prevention of contagion economic depression. Of course, Greece could still convert them into a currency not controlled by this coalition (Zimbabwean dollar? ;-)), but small currencies in this role cannot support Greek economic downfall and will be significantly affected by Greek economic results. This will still accomplish the goal of getting Greece to take responsibility for their economic decisions. (If the only choices are smaller currencies, Greece will probably choose to set up their own currency instead.)
sprovoost 15y ago
That's probably exactly what the greeks would want, except they would add one step to this: default on foreign debt. With a weaker currency they would be very competitive and with 0 debt even more so. It's pretty risky though: 1 - the EU and others could erect trade barriers after such a default 2 - the rest of the EU could collapse with them, which means they won't be buying much stuff either
- nopinsight 15y ago
  I don't think the Greeks would like to have their currency badly weakened. Any imported goods will become much more expensive and their exports will earn them much less income. Everyone, the rich, the poor, the politicians, will be affected. Basically most of them will need to be more frugal, something they are protesting against. Also, in 2010 their import is 44.9 billion dollars twice the amount they export, 21.1 billion. Even if their exports go up because of weaker currency, the pain from higher import prices will be much worse than the rises of income in the short run. Your consequence number 1: trade barrier is an interesting possibility, but 2: the collapse of EU is unlikely to happen given that the Greek economy is only 3% of EU, and this strong measure will have threatened other troubled economies enough they will be much less likely to default and cause more issues. The measure might in fact prevent the collapse of EU at least in the short- to medium- term.
  - sprovoost 15y ago
    Weak currencies have worked great for countries like China. It creates a lot of employment for export. It's a way to trick people into working at lower salaries I guess, a way to lower minimum wage yet give people the impression that it goes up (inflation has a similar effect). More jobs has a strong political effect too; people will probably tolerate more austerity if it's not combined with unemployment. The article explains pretty well in my opinion why that 3% is very capable of collapsing the rest of the EU. If Greece defaults, investors lose their money. That's not too bad (although there could be a domino effect with banks), however investors will also start worrying more about a default of Ireland and Portugal, followed by Spain and Italy. Such worry translates to higher interest rates leading to the horror scenario of Spain needing a bailout (which noone can afford to give them). Anything that amounts to Greece not repaying their debts, will be considered a default by the market, likely leading to what I described in the above paragraph.
    - sprovoost 15y ago
      To put in another way: the greatest punishment for the Greek people is to actually repay their debts. It means low wages and high taxes for decades. Of course, the most mobile part of the population and most companies would emigrate under such circumstances. Default (in some form) is a very attractive alternative, but the EU will keep coming up with better and better deals to prevent it.
yaix 15y ago
That would not solve the problem. Greek would still not pay they money back to the French and German banks they took it from. The EU has to get Greece on track, and this is a good moment to do it. Greece has lied (falsified financial data) to get into the euro, and their internal economic system is not sustainable. These will be tough year for Greece but at the end they will be better off.
- rdtsc 15y ago
  Can their sovereignty be weakened? As in the French and Germans slowly just taking over Greek institutions. (As in since you can't get the taxes yourself, let the Germans run the police and the tax office?). There were snide remarks and suggestions a while back of them selling off islands? That might work. Then I wonder how would the Greeks pay the money back anyway. How much feta-cheese and tourism can they sell? At some point the interest rates are just to high for them to even touch the principle when paying back, even if they start to double their feta cheese production and start actually diligently paying taxes ...
  - bartwe 15y ago
    I wouldn't want them to sell their soil to more powerful nations, sounds like a recipe for war.
  - wladimir 15y ago
    That sounds like a really, really bad idea. No one likes the idea of Germany or France taking over other European countries. We've been there...
    - yaix 15y ago
      Yes, we have. Germany took over Eastern Germany just 2 decades ago and paid huge amounts of money to get the East to a more or less equal level. The result is that the old communists that had destroyed Eastern Germany, today still get over 30% of the votes by people without memory. Its no use to help people from the outside. People must learn to run their own countries themselves. In the case of Greece, they have to learn to not cheat to get money from Europe (like they did to get into the Euro Zone) and to pay taxes if they want that the government does stuff. Especially the wealthier people in Greece seem to be extremely selfish in that regard.
ignifero 15y ago
If Greece could go out of the euro without a spillover effect, i would support it. Unfortunately, the decision is to keep greece in a zombie state, barely paying its debt for 2 more years. I don't even think there's a plan after that.

wisty 15y ago

There's no mechanism, so it would probably need some sort of vote. This would take too long, and the plan would probably leak, so the Greeks would have time to cash out all their EU assets.

nopinsight 15y ago
If the EU coordinates with the US, Japan, and all larger economies (perhaps via IMF), couldn't they still force Greek out of any currency their assets are cashed out into? The incentives of other countries to go along is the prevention of contagion economic depression. Of course, Greece could still convert them into a currency not controlled by this coalition (Zimbabwean dollar? ;-)), but small currencies in this role cannot support Greek economic downfall and will be significantly affected by Greek economic results. This will still accomplish the goal of getting Greece to take responsibility for their economic decisions. (If the only choices are smaller currencies, Greece will probably choose to set up their own currency instead.)

sprovoost 15y ago

That's probably exactly what the greeks would want, except they would add one step to this: default on foreign debt. With a weaker currency they would be very competitive and with 0 debt even more so. It's pretty risky though: 1 - the EU and others could erect trade barriers after such a default 2 - the rest of the EU could collapse with them, which means they won't be buying much stuff either

nopinsight 15y ago
I don't think the Greeks would like to have their currency badly weakened. Any imported goods will become much more expensive and their exports will earn them much less income. Everyone, the rich, the poor, the politicians, will be affected. Basically most of them will need to be more frugal, something they are protesting against. Also, in 2010 their import is 44.9 billion dollars twice the amount they export, 21.1 billion. Even if their exports go up because of weaker currency, the pain from higher import prices will be much worse than the rises of income in the short run. Your consequence number 1: trade barrier is an interesting possibility, but 2: the collapse of EU is unlikely to happen given that the Greek economy is only 3% of EU, and this strong measure will have threatened other troubled economies enough they will be much less likely to default and cause more issues. The measure might in fact prevent the collapse of EU at least in the short- to medium- term.
- sprovoost 15y ago
  Weak currencies have worked great for countries like China. It creates a lot of employment for export. It's a way to trick people into working at lower salaries I guess, a way to lower minimum wage yet give people the impression that it goes up (inflation has a similar effect). More jobs has a strong political effect too; people will probably tolerate more austerity if it's not combined with unemployment. The article explains pretty well in my opinion why that 3% is very capable of collapsing the rest of the EU. If Greece defaults, investors lose their money. That's not too bad (although there could be a domino effect with banks), however investors will also start worrying more about a default of Ireland and Portugal, followed by Spain and Italy. Such worry translates to higher interest rates leading to the horror scenario of Spain needing a bailout (which noone can afford to give them). Anything that amounts to Greece not repaying their debts, will be considered a default by the market, likely leading to what I described in the above paragraph.
  - sprovoost 15y ago
    To put in another way: the greatest punishment for the Greek people is to actually repay their debts. It means low wages and high taxes for decades. Of course, the most mobile part of the population and most companies would emigrate under such circumstances. Default (in some form) is a very attractive alternative, but the EU will keep coming up with better and better deals to prevent it.

yaix 15y ago

That would not solve the problem. Greek would still not pay they money back to the French and German banks they took it from. The EU has to get Greece on track, and this is a good moment to do it. Greece has lied (falsified financial data) to get into the euro, and their internal economic system is not sustainable. These will be tough year for Greece but at the end they will be better off.

rdtsc 15y ago
Can their sovereignty be weakened? As in the French and Germans slowly just taking over Greek institutions. (As in since you can't get the taxes yourself, let the Germans run the police and the tax office?). There were snide remarks and suggestions a while back of them selling off islands? That might work. Then I wonder how would the Greeks pay the money back anyway. How much feta-cheese and tourism can they sell? At some point the interest rates are just to high for them to even touch the principle when paying back, even if they start to double their feta cheese production and start actually diligently paying taxes ...
- bartwe 15y ago
  I wouldn't want them to sell their soil to more powerful nations, sounds like a recipe for war.
- wladimir 15y ago
  That sounds like a really, really bad idea. No one likes the idea of Germany or France taking over other European countries. We've been there...
  - yaix 15y ago
    Yes, we have. Germany took over Eastern Germany just 2 decades ago and paid huge amounts of money to get the East to a more or less equal level. The result is that the old communists that had destroyed Eastern Germany, today still get over 30% of the votes by people without memory. Its no use to help people from the outside. People must learn to run their own countries themselves. In the case of Greece, they have to learn to not cheat to get money from Europe (like they did to get into the Euro Zone) and to pay taxes if they want that the government does stuff. Especially the wealthier people in Greece seem to be extremely selfish in that regard.

ignifero 15y ago

If Greece could go out of the euro without a spillover effect, i would support it. Unfortunately, the decision is to keep greece in a zombie state, barely paying its debt for 2 more years. I don't even think there's a plan after that.