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The past Greek government blatantly lied about the debt they were accumulating to appease their voters. In a democratic system, unfortunately, nobody can say "i

The past Greek government blatantly lied about the debt they were accumulating to appease their voters. In a democratic system, unfortunately, nobody can say "it's not my fault" (this is unfortunately true for me too, here in Italy, even if I never voted Berlusconi). That said: - if you default as a Country and don't pay back your debts who is going to trust you again? Greece needs foreign investment - if they were forced out of the Euro, what kind of inflation and interest rates would they get in Greece? - don't forget that Greece got a lot of money from the EU programmes for poorer countries. If they were kicked out they wouldn't get any more There are many more reasons not to default, but I think these are more than enough.

guelo 15y ago
If you look at the example of Argentina's default their economy has recovered nicely, and Iceland is also starting to recover. The economies go through an initial shock but then they can recover without the burden of the debt. After a default Greece would have to immediately stop borrowing and close their budget deficits, but what is happening now is a fantasy, they are only borrowing so they can pay their previous debt, it's just a way to bailout the German banks on the backs of the Greek people. When banks make risky loans they sometimes have to take a loss, that's the point of the risk premium after all. If Greece defaulted and was kicked out of the Euro the new drachmas would be very devalued, but that would make Greek products very cheap to the rest of Europe and would increase exports. Euro monetary policy is designed for the German economy and is too tight for Greece. By the way, it's also too tight for Italy, Spain and Portugal's economy. The only way Greece can recover is to grow their economy, the austerity measures and the tight Euro are hindering not helping their growth.
- danmaz74 15y ago
  I agree with you that the BCE policy is too tight, but, for one, what makes you think that Greece, using competitive devaluations, could still be admitted in the EU common market without barriers and tariffs? Maybe a little economy like the Greek one could be allowed, but I'm pretty sure that it wouldn't be the same for Italy and Spain. And in the case of Banks that invested in Greek bonds, don't forget that the accounting was falsified exactly to get low interest rates which albeit higher than the German ones were VERY much lower than what they would have been without the Euro, to the benefit of all the Greeks. I'm sorry for those who are getting the direst consequences, but I don't see the Greeks having any moral high ground in this situation, not even against the evil German banks who lent them money.
  - guelo 15y ago
    I'm not talking about morality, I'm talking about what would make the most sense for a rational Greek people to do going forward. I'm arguing that a default would make the most sense, but in reality the interwining of the euro makes these issues very complicated. The larger picture is that this is the biggest crises the euro has faced and it might not survive, especially since the nationalistic politics make it so hard to have a coordinated response. The leaders seem to think that the austerity measures throughout all of Europe will allow them to muddle through, but that looks to me like a decade of hardship and slow growth which will bring political instability and even riots as seen in England. I think the only hope would be the creation of a euro bond which would allow borrowing to be backed by the full faith and credit of the Euro Zone as a whole, but that would mean tighter political integration between the countries which seems to be the opposite of what people want at this point.
    - danmaz74 15y ago
      I agree about the euro bond. About the rational choice, I think there are too many variables at play to really make a rationally "good" choice. In the end you have to make a bet based on insufficient data, as it is almost always the case in these matters, and I would bet on a tighter European Union, not on "everybody for themselves". Let's hope that our leaders will somehow see the light... and lead!
- Symmetry 15y ago
  The problem is that Greece isn't "only borrowing so they can pay their previous debt", Greece is still running a primary account deficit, which means that they'd still be borrowing even without having to pay interest. If they could get to where they were running one like Argentina was when it defaulted then default would start to look like a pretty reasonable option. I absolutely agree about EU monetary policy, though. Its incredible that the EU central bank is raising interest rates right now.
ristretto 15y ago
- Greek bonds are already in the "default" category, nobody trusts greece anyway - The equivalent in euros of wage cuts / taxation that we see now in greece - Going out of the eurozone doesnt mean secession from the EU In practice a default will have similar effects as the austerity packages, compressed in time (~4 years instead of 10+ which the current austerity packages propose). In fact, a devalued currency might stimulate internal growth as imports will become unaffordable.

guelo 15y ago

If you look at the example of Argentina's default their economy has recovered nicely, and Iceland is also starting to recover. The economies go through an initial shock but then they can recover without the burden of the debt. After a default Greece would have to immediately stop borrowing and close their budget deficits, but what is happening now is a fantasy, they are only borrowing so they can pay their previous debt, it's just a way to bailout the German banks on the backs of the Greek people. When banks make risky loans they sometimes have to take a loss, that's the point of the risk premium after all. If Greece defaulted and was kicked out of the Euro the new drachmas would be very devalued, but that would make Greek products very cheap to the rest of Europe and would increase exports. Euro monetary policy is designed for the German economy and is too tight for Greece. By the way, it's also too tight for Italy, Spain and Portugal's economy. The only way Greece can recover is to grow their economy, the austerity measures and the tight Euro are hindering not helping their growth.

danmaz74 15y ago
I agree with you that the BCE policy is too tight, but, for one, what makes you think that Greece, using competitive devaluations, could still be admitted in the EU common market without barriers and tariffs? Maybe a little economy like the Greek one could be allowed, but I'm pretty sure that it wouldn't be the same for Italy and Spain. And in the case of Banks that invested in Greek bonds, don't forget that the accounting was falsified exactly to get low interest rates which albeit higher than the German ones were VERY much lower than what they would have been without the Euro, to the benefit of all the Greeks. I'm sorry for those who are getting the direst consequences, but I don't see the Greeks having any moral high ground in this situation, not even against the evil German banks who lent them money.
- guelo 15y ago
  I'm not talking about morality, I'm talking about what would make the most sense for a rational Greek people to do going forward. I'm arguing that a default would make the most sense, but in reality the interwining of the euro makes these issues very complicated. The larger picture is that this is the biggest crises the euro has faced and it might not survive, especially since the nationalistic politics make it so hard to have a coordinated response. The leaders seem to think that the austerity measures throughout all of Europe will allow them to muddle through, but that looks to me like a decade of hardship and slow growth which will bring political instability and even riots as seen in England. I think the only hope would be the creation of a euro bond which would allow borrowing to be backed by the full faith and credit of the Euro Zone as a whole, but that would mean tighter political integration between the countries which seems to be the opposite of what people want at this point.
  - danmaz74 15y ago
    I agree about the euro bond. About the rational choice, I think there are too many variables at play to really make a rationally "good" choice. In the end you have to make a bet based on insufficient data, as it is almost always the case in these matters, and I would bet on a tighter European Union, not on "everybody for themselves". Let's hope that our leaders will somehow see the light... and lead!
Symmetry 15y ago
The problem is that Greece isn't "only borrowing so they can pay their previous debt", Greece is still running a primary account deficit, which means that they'd still be borrowing even without having to pay interest. If they could get to where they were running one like Argentina was when it defaulted then default would start to look like a pretty reasonable option. I absolutely agree about EU monetary policy, though. Its incredible that the EU central bank is raising interest rates right now.

ristretto 15y ago

- Greek bonds are already in the "default" category, nobody trusts greece anyway - The equivalent in euros of wage cuts / taxation that we see now in greece - Going out of the eurozone doesnt mean secession from the EU In practice a default will have similar effects as the austerity packages, compressed in time (~4 years instead of 10+ which the current austerity packages propose). In fact, a devalued currency might stimulate internal growth as imports will become unaffordable.