4 ms·

Choices for Greece, All of Them Daunting

23 points by nopinsight 15y ago

nodata 15y ago
The article could be more informative: "If it left the euro zone, Greece could reap the substantial benefits of a currency depreciation, but doing so would also set off huge runs on banks. And the country has no alternative paper currency ready for use." This is the only part of the article that considers not repaying debts.
- JulianMorrison 15y ago
  A run on the banks, or a surprise lock-out followed by exit and devaluation = poor now. Decades of austerity measures = poor for the rest of your life. I know which sounds more sensible to me.
  - quanticle 15y ago
    Its a false choice. Both options lead to poverty, because neither option deals with the fundamental problem: the Greek government doesn't make enough money to cover its yearly expenses without borrowing. Either we can have an orderly devaluation, or we can have a disorderly devaluation. Austerity measures allow for the first. A hasty exit from the Euro makes the second inevitable. Now which option looks more appealing?
ristretto 15y ago
The scenarios for the greek crisis are turning more and more to be science fiction. To me it's inconceivable how it can be expected that us greeks will have to put up with "austerity measures" for what is essentially the rest of our lives. I 've been a supporter of an immediate exit from the euro from the onset of the crisis. Greece is not ready to compete with the rest of europe, let alone with the rest of the world, so it's best to introspect, build a diversified internal economy which will bring true sustainable growth. People are just not interested in putting up with the terms of the additional loans, it's going to take a shift of generations for the change in attitudes. Trying to fake a developed economy via the introduction of the euro was an experiment that failed miserably. There is a middle-eastern-style business culture in which corruption has been promoted to a science. Income taxes are higher than Germany, yet financial law enforcement is virtually non-existent. As a small startup owner, i don't see any reasons to keep my business in this country.
- nodata 15y ago
  For the long term I'd like to see a bloc-wide currency as well as local currencies. A "Greek-Euro" with an exchange rate for "Europe-Euros" if you like.
  - intellection 15y ago
    Interesting currency combine.
- quanticle 15y ago
  >I 've been a supporter of an immediate exit from the euro from the onset of the crisis. The problem with changing currency is that its impossible to pull off without having bank runs that would make the Great Depression look like a bad ATM line. Changing a country's currency takes a lot of preparation. New bills have to be printed. New coins have to be minted. The currency has to be distributed to banks. Exchange rates between the new and old currencies have to be set. Do you really think that this can be done in secret? No, if Greece decided to go back to the drachma, there would be a massive financial panic as everyone with a Greek bank account tried to pull their Euros out and move them overseas. The civil unrest that would cause would make the current protests look like a small crowd of rowdy teenagers.
  - nhaehnle 15y ago
    The comparison with the Great Depression in connections with bank runs is not a good one. Yes, there may have been one or the other bank run bank in those days, but the main feature of the Great Depression was rampant unemployment - more or less exactly what Greece is already experiencing. Greece must exit the Euro to avoid prolonged Great Depression-style unemployment. So this becomes a short vs. medium term tradeoff. Introducing a new currency will most likely be chaotic, but in the medium term it allows Greece the flexibility to restart the internal economy. Without introducing a new currency, the short term chaos can be avoided at the cost of a very prolonged downturn that is destructive for the country's prospects and may lead to political chaos in the medium-to-long term.
skyhyve 15y ago
Option one, banks will join in the rescue effort and the ECB will allow for a temp default of greece. Ewald Nowotny hinted this today. Option two, "Eurobonds" will be issued. This will allow Germany to lend money for Greece at a very low interest. (costs Germany a lot of money as their national interest will be increased, last resort) Option three, some of the debt will be dropped and reissued as longer ten year loans releasing the choke hold. Paul Achleitner from allianz hinted. Option four, EFSF will buy Greek bonds. Unemployment rates went down in Greece from 16,2% to 15,8% last month. Which hints their economy is growing a bit. There's talk of a banking tax, which let banks pay a small % to help build a buffer for these situations. I'm personally more worried about the United States then the euro zone.
- ristretto 15y ago
  regarding unemployment, i would very much doubt the economy is growing, and it's not going to grow for a good 1-2 years. Unemployment drops in the summer months because of tourism, too.
- nhaehnle 15y ago
  Unemployment rates went down in Greece from 16,2% to 15,8% last month. Which hints their economy is growing a bit. Careful: The implication "unemployment rate goes down => economy is growing" is not true in general. The rate of unemployment is always defined relative to the active part of the population, where active means either employed or looking for work. In extreme downturns, as Greece has experienced, the participation rate naturally drops because people become disillusioned. This can have the bizarre effect that the unemployment rate drops even though the total number of jobs actually decreases. So the absolute number (and then also the rate) of unemployed decreases not because the unemployed become employed, but rather because they become economically inactive (i.e., they give up). I am not sure if this is what is happening in Greece, but I wouldn't be surprised if it was. The interfaces of most national statistics institutions are really horrible, so I haven't looked at the numbers. I assume you got those numbers out of some newspaper or similar, and I just wanted to point out that especially in extreme economic circumstances, reporting only the unemployment rate is irresponsible - but unfortunately, that's what most media is. Final thought: Comparing the United States to the Eurozone is to misunderstand the nature of the beasts. Both have a common currency, but the US has a significant central monetary sovereign. The Eurozone has no monetary sovereign. The differences this implies are enormous.
harywilke 15y ago
If Greece leaves the euro zone, don't expect it to stop using the euro. it will become like Andorra, Kosovo and Montenegro who use the euro as their De Facto currency even though they are outside the euro zone. Would you want to get paid, as a company or an employee, in a currency that is designed to loose value? Devaluation will only happen if people accept using the new currency.
deleted 15y ago
[deleted]

23 points by nopinsight 15y ago

The article could be more informative: "If it left the euro zone, Greece could reap the substantial benefits of a currency depreciation, but doing so would also set off huge runs on banks. And the country has no alternative paper currency ready for use." This is the only part of the article that considers not repaying debts.

JulianMorrison 15y ago
A run on the banks, or a surprise lock-out followed by exit and devaluation = poor now. Decades of austerity measures = poor for the rest of your life. I know which sounds more sensible to me.
- quanticle 15y ago
  Its a false choice. Both options lead to poverty, because neither option deals with the fundamental problem: the Greek government doesn't make enough money to cover its yearly expenses without borrowing. Either we can have an orderly devaluation, or we can have a disorderly devaluation. Austerity measures allow for the first. A hasty exit from the Euro makes the second inevitable. Now which option looks more appealing?

ristretto 15y ago

The scenarios for the greek crisis are turning more and more to be science fiction. To me it's inconceivable how it can be expected that us greeks will have to put up with "austerity measures" for what is essentially the rest of our lives. I 've been a supporter of an immediate exit from the euro from the onset of the crisis. Greece is not ready to compete with the rest of europe, let alone with the rest of the world, so it's best to introspect, build a diversified internal economy which will bring true sustainable growth. People are just not interested in putting up with the terms of the additional loans, it's going to take a shift of generations for the change in attitudes. Trying to fake a developed economy via the introduction of the euro was an experiment that failed miserably. There is a middle-eastern-style business culture in which corruption has been promoted to a science. Income taxes are higher than Germany, yet financial law enforcement is virtually non-existent. As a small startup owner, i don't see any reasons to keep my business in this country.

nodata 15y ago
For the long term I'd like to see a bloc-wide currency as well as local currencies. A "Greek-Euro" with an exchange rate for "Europe-Euros" if you like.
- intellection 15y ago
  Interesting currency combine.
quanticle 15y ago
>I 've been a supporter of an immediate exit from the euro from the onset of the crisis. The problem with changing currency is that its impossible to pull off without having bank runs that would make the Great Depression look like a bad ATM line. Changing a country's currency takes a lot of preparation. New bills have to be printed. New coins have to be minted. The currency has to be distributed to banks. Exchange rates between the new and old currencies have to be set. Do you really think that this can be done in secret? No, if Greece decided to go back to the drachma, there would be a massive financial panic as everyone with a Greek bank account tried to pull their Euros out and move them overseas. The civil unrest that would cause would make the current protests look like a small crowd of rowdy teenagers.
- nhaehnle 15y ago
  The comparison with the Great Depression in connections with bank runs is not a good one. Yes, there may have been one or the other bank run bank in those days, but the main feature of the Great Depression was rampant unemployment - more or less exactly what Greece is already experiencing. Greece must exit the Euro to avoid prolonged Great Depression-style unemployment. So this becomes a short vs. medium term tradeoff. Introducing a new currency will most likely be chaotic, but in the medium term it allows Greece the flexibility to restart the internal economy. Without introducing a new currency, the short term chaos can be avoided at the cost of a very prolonged downturn that is destructive for the country's prospects and may lead to political chaos in the medium-to-long term.

skyhyve 15y ago

Option one, banks will join in the rescue effort and the ECB will allow for a temp default of greece. Ewald Nowotny hinted this today. Option two, "Eurobonds" will be issued. This will allow Germany to lend money for Greece at a very low interest. (costs Germany a lot of money as their national interest will be increased, last resort) Option three, some of the debt will be dropped and reissued as longer ten year loans releasing the choke hold. Paul Achleitner from allianz hinted. Option four, EFSF will buy Greek bonds. Unemployment rates went down in Greece from 16,2% to 15,8% last month. Which hints their economy is growing a bit. There's talk of a banking tax, which let banks pay a small % to help build a buffer for these situations. I'm personally more worried about the United States then the euro zone.

ristretto 15y ago
regarding unemployment, i would very much doubt the economy is growing, and it's not going to grow for a good 1-2 years. Unemployment drops in the summer months because of tourism, too.
nhaehnle 15y ago
Unemployment rates went down in Greece from 16,2% to 15,8% last month. Which hints their economy is growing a bit. Careful: The implication "unemployment rate goes down => economy is growing" is not true in general. The rate of unemployment is always defined relative to the active part of the population, where active means either employed or looking for work. In extreme downturns, as Greece has experienced, the participation rate naturally drops because people become disillusioned. This can have the bizarre effect that the unemployment rate drops even though the total number of jobs actually decreases. So the absolute number (and then also the rate) of unemployed decreases not because the unemployed become employed, but rather because they become economically inactive (i.e., they give up). I am not sure if this is what is happening in Greece, but I wouldn't be surprised if it was. The interfaces of most national statistics institutions are really horrible, so I haven't looked at the numbers. I assume you got those numbers out of some newspaper or similar, and I just wanted to point out that especially in extreme economic circumstances, reporting only the unemployment rate is irresponsible - but unfortunately, that's what most media is. Final thought: Comparing the United States to the Eurozone is to misunderstand the nature of the beasts. Both have a common currency, but the US has a significant central monetary sovereign. The Eurozone has no monetary sovereign. The differences this implies are enormous.

harywilke 15y ago

If Greece leaves the euro zone, don't expect it to stop using the euro. it will become like Andorra, Kosovo and Montenegro who use the euro as their De Facto currency even though they are outside the euro zone. Would you want to get paid, as a company or an employee, in a currency that is designed to loose value? Devaluation will only happen if people accept using the new currency.

deleted 15y ago

[deleted]