10 ms·

>They cannot agree on who should bear the cost of today’s crisis: should it be creditors (through a write-down), debtors (through austerity) or the Germans (thr

by retube 15y ago

>They cannot agree on who should bear the cost of today’s crisis: should it be creditors (through a write-down), debtors (through austerity) or the Germans (through transfers to the south)? In theory it should, of course, be the creditors. You buy an asset (govt bonds), you're implicitly and knowingly shouldering a risk of default. The institutions that bought these assets should have known what they were buying. Caveat Emptor. Of course in practice you need to ask what the wider implications of default are. Greece _should_ be allowed to default. Absurd austerity budgets are penalising the average Greek whilst minimising the bottom line impact to (arguably wealthy and powerful) European banks. It's no wonder they're pissed. The short-sharp shock of a Greek default will be over in no time. Rolling debt and refinancing terms etc etc is likely to make things worse in the long term. But of course Italy is different, given the size of the economy. The impact of a default is likely to be far, far wider than a write-down to the creditors. But to be honest I think this worry over contagion is being over-blown. Markets often over-react. It only takes a single hedge-fund these days to move a market - even a big one like Italy debt. It's probably just Bluecrest or Moore selling the market :)

reirob 15y ago
Who knows, maybe Greece is about to get as much money as they can from the EU in order to default after? What would happen in this case?
- yequalsx 15y ago
  I believe that the money lent to Greece is just being funneled back to banks to pay their existing debt obligations. The so called bailout for Greece is really a bailout for banks. Everyone knows Greece will never pay back these loans. The hope of the ECB is that a Greek default can be pushed long enough into the future so that when it does default the banks will be in better financial shape. The fear is that right now the banking system can't handle a Greek default.
  - reirob 15y ago
    Yes, this could be an explanation. But why would the Greek government provide the money to the banks? I mean they could invest the money (that they've got from EU and IWF) in infrastructure and economy and then declare default. If I understand it well Argentina was as well helped by IWF, but in the end they defaulted - and it seems like it was the right step. So I do not really understand what is the EU's interest to absolutely safe Greece from default? They are pumping more and more money at a time where many voices say that Greece will not be able to pay back. Even George Soros thinks: "A Greek default may be inevitable but it need not be disorderly" (http://www.cnbc.com/id/43720940 http://www.cnbc.com/id/43720940). So if you could explain, why is it important for the banking system to be able to handle a Greek default? I mean throughout the financial crisis everybody is saying that it is absolutely important to save the banking system - every politician repeats this like a parrot. But why? Most of the middle/lower class population in Europe does not have spare money in a bank account but in contrary has debts for housing or other stuff. And I would guess that this is by far more than 80% of population. These people would not necessarily suffer from banks collapsing, but they are suffering from the economic cuts that the governments are doing everywhere in order to save banks - who are actually responsible because they did not mitigate the risk and triggered the subprime crisis. So if you have a good explanation, please share with me.
    - dpapathanasiou 15y ago
      "Most of the middle/lower class population in Europe does not have spare money in a bank account but in contrary has debts for housing or other stuff." Actually, unlike their government, most Greek households do not have high debts: "Greek consumers are relatively frugal, with household debt equal to just 61% of GDP, compared the American household debt of 95.7% of GDP" http://online.barrons.com/article/SB126584181497144099.html http://online.barrons.com/article/SB126584181497144099.html
      - reirob 15y ago
        Most people in EU invest their money in real estate or some other hard value. But contrary to US, most people do not handle their economics for the retirement by themselves - this is handled by the governments. So there is really not much to lose if some banks will go bankrupt. It would finally clean up the whole mess. Looking at the figures above I ask myself why Americans did bake the US government to bail out the banks - seems they should have even less interest?
samlevine 15y ago
>In theory it should, of course, be the creditors. You buy an asset (govt bonds), you're implicitly and knowingly shouldering a risk of default. The institutions that bought these assets should have known what they were buying. Caveat Emptor. Indeed. But the reason why you try to avoid a default (or the prospect of one) is that you want to continue to borrow money to finance your deficit spending. Otherwise you get the worst of both worlds: forced austerity and creditors that want nothing to do with you without high interest rates.
- retube 15y ago
  Yes, absolutely. I was going to add an edit to this effect. Damned if they do, damned if they don't. Anyway the running of these deficits _does_ need to be curbed. It's clear that Greece has been pretty terrible at collecting taxes and managing it's finances. Even now with "Austerity" the UK is still spending £4 for every £3 it earns. Austerity just means "slow the increase in debt". In fact it's prob not even a first-order change, but second order: slow the rate of increase! Edit: don't know why you've been dv'd, your point is absolutely relevant.
gaius 15y ago
It's not as simple as that. Greece is in a hole largely because tax evasion is the national sport. The "average Greek" should bear the brunt of it. He or she owes decades of back taxes anyway... The premium Greece will have to pay on it's debts won't go away with dropping out of the Euro.
- Qz 15y ago
  Except that the loans in question were made to the Greek government, not the average Greek. The creditors should have taken into account the Greek government's inability to collect proper taxes. Let's be honest, tax evasion is pretty much a national pastime in the US too -- the difference is that here the IRS will come after you if you cross the line.
  - gaius 15y ago
    Yes, whereas it's systemic in Greece - the government will call off tax inspectors in an election year! The only way forwards I see is for the Germans to take over the collection of Greek taxes, and to control Greece's spending too, at least for a generation.
    - Qz 15y ago
      I highly doubt that will happen unless Germany wants to try turning Greece into a police state because the people will not stand for that.
      - gaius 15y ago
        Yes well that was the problem - Greeks are happy to vote for high government spending, they even vote for high taxes - they just don't pay them. I think we'll also see them sell their half of Cyprus to Turkey too, for a few billion Euros, once the austerity starts to bite. And the Germans have their eye on a few of the Greek islands too.
        zeemonkee 15y ago
run4yourlives 15y ago
Of course telling creditors to suck it up is a great way of guaranteeing that you'll never see a red cent from them - or their buddies - again. Pissing off your creditors is like pissing off a business partner - you do so at your own risk; the more powerful the partner, the larger the fall out.

by retube 15y ago

reirob 15y ago

Who knows, maybe Greece is about to get as much money as they can from the EU in order to default after? What would happen in this case?

yequalsx 15y ago
I believe that the money lent to Greece is just being funneled back to banks to pay their existing debt obligations. The so called bailout for Greece is really a bailout for banks. Everyone knows Greece will never pay back these loans. The hope of the ECB is that a Greek default can be pushed long enough into the future so that when it does default the banks will be in better financial shape. The fear is that right now the banking system can't handle a Greek default.
- reirob 15y ago
  Yes, this could be an explanation. But why would the Greek government provide the money to the banks? I mean they could invest the money (that they've got from EU and IWF) in infrastructure and economy and then declare default. If I understand it well Argentina was as well helped by IWF, but in the end they defaulted - and it seems like it was the right step. So I do not really understand what is the EU's interest to absolutely safe Greece from default? They are pumping more and more money at a time where many voices say that Greece will not be able to pay back. Even George Soros thinks: "A Greek default may be inevitable but it need not be disorderly" (http://www.cnbc.com/id/43720940 http://www.cnbc.com/id/43720940). So if you could explain, why is it important for the banking system to be able to handle a Greek default? I mean throughout the financial crisis everybody is saying that it is absolutely important to save the banking system - every politician repeats this like a parrot. But why? Most of the middle/lower class population in Europe does not have spare money in a bank account but in contrary has debts for housing or other stuff. And I would guess that this is by far more than 80% of population. These people would not necessarily suffer from banks collapsing, but they are suffering from the economic cuts that the governments are doing everywhere in order to save banks - who are actually responsible because they did not mitigate the risk and triggered the subprime crisis. So if you have a good explanation, please share with me.
  - dpapathanasiou 15y ago
    "Most of the middle/lower class population in Europe does not have spare money in a bank account but in contrary has debts for housing or other stuff." Actually, unlike their government, most Greek households do not have high debts: "Greek consumers are relatively frugal, with household debt equal to just 61% of GDP, compared the American household debt of 95.7% of GDP" http://online.barrons.com/article/SB126584181497144099.html http://online.barrons.com/article/SB126584181497144099.html
    - reirob 15y ago
      Most people in EU invest their money in real estate or some other hard value. But contrary to US, most people do not handle their economics for the retirement by themselves - this is handled by the governments. So there is really not much to lose if some banks will go bankrupt. It would finally clean up the whole mess. Looking at the figures above I ask myself why Americans did bake the US government to bail out the banks - seems they should have even less interest?

samlevine 15y ago

>In theory it should, of course, be the creditors. You buy an asset (govt bonds), you're implicitly and knowingly shouldering a risk of default. The institutions that bought these assets should have known what they were buying. Caveat Emptor. Indeed. But the reason why you try to avoid a default (or the prospect of one) is that you want to continue to borrow money to finance your deficit spending. Otherwise you get the worst of both worlds: forced austerity and creditors that want nothing to do with you without high interest rates.

retube 15y ago
Yes, absolutely. I was going to add an edit to this effect. Damned if they do, damned if they don't. Anyway the running of these deficits _does_ need to be curbed. It's clear that Greece has been pretty terrible at collecting taxes and managing it's finances. Even now with "Austerity" the UK is still spending £4 for every £3 it earns. Austerity just means "slow the increase in debt". In fact it's prob not even a first-order change, but second order: slow the rate of increase! Edit: don't know why you've been dv'd, your point is absolutely relevant.

gaius 15y ago

It's not as simple as that. Greece is in a hole largely because tax evasion is the national sport. The "average Greek" should bear the brunt of it. He or she owes decades of back taxes anyway... The premium Greece will have to pay on it's debts won't go away with dropping out of the Euro.

Qz 15y ago
Except that the loans in question were made to the Greek government, not the average Greek. The creditors should have taken into account the Greek government's inability to collect proper taxes. Let's be honest, tax evasion is pretty much a national pastime in the US too -- the difference is that here the IRS will come after you if you cross the line.
- gaius 15y ago
  Yes, whereas it's systemic in Greece - the government will call off tax inspectors in an election year! The only way forwards I see is for the Germans to take over the collection of Greek taxes, and to control Greece's spending too, at least for a generation.
  - Qz 15y ago
    I highly doubt that will happen unless Germany wants to try turning Greece into a police state because the people will not stand for that.
    - gaius 15y ago
      Yes well that was the problem - Greeks are happy to vote for high government spending, they even vote for high taxes - they just don't pay them. I think we'll also see them sell their half of Cyprus to Turkey too, for a few billion Euros, once the austerity starts to bite. And the Germans have their eye on a few of the Greek islands too.
      - zeemonkee 15y ago

run4yourlives 15y ago

Of course telling creditors to suck it up is a great way of guaranteeing that you'll never see a red cent from them - or their buddies - again. Pissing off your creditors is like pissing off a business partner - you do so at your own risk; the more powerful the partner, the larger the fall out.