27 ms·

Why had German banks invested in Greek securities at all? They must have known that the criteria for the Euro had been only fulfilled on paper. Or asked the ot

by tkk23 4y ago

Why had German banks invested in Greek securities at all? They must have known that the criteria for the Euro had been only fulfilled on paper. Or asked the other way round: Why do countries join the Euro when neither Sweden nor Great Britain do and (almost) all economists say that it doesn't work if you have a weak economy?

Mikeb85 4y ago
> Why do countries join the Euro when neither Sweden nor Great Britain do and (almost) all economists say that it doesn't work if you have a weak economy? Politics. If you have a weak economy it's perceived by the population that switching to a strong currency will instantly increase their purchasing power.
- nickdothutton 4y ago
  If you have a weak economy and weak currency (which you have repeatedly printed in order to pay off debt, like Greece, Italy, etc) then your borrowing cost eventually becomes high as banks get wise to your behaviour. If you switch to the Euro then your borrowing cost magically becomes low (since you cant unilaterally just print money). If your economy still doesnt reform then eventually you cant pay your euro debt… and you have the Greek situation. Can’t print, no-longer have a low-cost, low wage, low tax, low regulation economy (since you conformed to the EU/Euro area regulations). The trick for politicians is getting out of there before the public realises this.
ggm 4y ago
I class "they must have known" in the same bucket as "the Greeks lied about their economy" -both wrong, but the European banking system decided Greece must pay and Germany must not pay these consequences. To me, that undermined the mutuality which is presumably why the EU exists. Both Sweden and Great Britain looked at national specific economic things. GB I think in the main it was for city of London finance sector reasons and parochialism about the pound. Sweden, it was put to referendum.
- tkk23 4y ago
  Why should Germany pay for these consequences and not those German banks? And yet, there is payment happening in the form of Target2 [1], with current numbers [2] not being much different than the graph in the article. However, who has to pay is not my point. That 'secret' €2.8 billion loan doesn't fundamentally change the analysis of the Greek economy. 'They must have known' cannot be ignored. The Greek situation fulfilled economic theories that are broadly known. So why did banks willingly underestimate the risk? If you look at Piraeus [3], crushing Greece cannot be a long term strategic target. *edit: The mutuality was crushed in the setup. There was no perspective for Greece to develop inside the Euro. Subsidies to compensate the strong Euro don't work because the economy aligns to those subsidies and not to market demands. The mutuality is that the richer countries keep paying subsidies and the 'lucky' individual receivers have a good life within their poor community. That's not a good outlook. Question remains: Can something be done to allow for economic prosperity in Greece within this framework? How can the startups be selected that rebuild the Greek economy so that every citizen benefits? [1] https://en.wikipedia.org/wiki/TARGET2 https://en.wikipedia.org/wiki/TARGET2 [2] https://gm-media-library.s3.eu-west-1.amazonaws.com/image_7fbbaa873f.png https://gm-media-library.s3.eu-west-1.amazonaws.com/image_7f... [3] https://en.wikipedia.org/wiki/Port_of_Piraeus#Ownership https://en.wikipedia.org/wiki/Port_of_Piraeus#Ownership

by tkk23 4y ago

Mikeb85 4y ago

> Why do countries join the Euro when neither Sweden nor Great Britain do and (almost) all economists say that it doesn't work if you have a weak economy? Politics. If you have a weak economy it's perceived by the population that switching to a strong currency will instantly increase their purchasing power.

nickdothutton 4y ago
If you have a weak economy and weak currency (which you have repeatedly printed in order to pay off debt, like Greece, Italy, etc) then your borrowing cost eventually becomes high as banks get wise to your behaviour. If you switch to the Euro then your borrowing cost magically becomes low (since you cant unilaterally just print money). If your economy still doesnt reform then eventually you cant pay your euro debt… and you have the Greek situation. Can’t print, no-longer have a low-cost, low wage, low tax, low regulation economy (since you conformed to the EU/Euro area regulations). The trick for politicians is getting out of there before the public realises this.

ggm 4y ago

I class "they must have known" in the same bucket as "the Greeks lied about their economy" -both wrong, but the European banking system decided Greece must pay and Germany must not pay these consequences. To me, that undermined the mutuality which is presumably why the EU exists. Both Sweden and Great Britain looked at national specific economic things. GB I think in the main it was for city of London finance sector reasons and parochialism about the pound. Sweden, it was put to referendum.

tkk23 4y ago
Why should Germany pay for these consequences and not those German banks? And yet, there is payment happening in the form of Target2 [1], with current numbers [2] not being much different than the graph in the article. However, who has to pay is not my point. That 'secret' €2.8 billion loan doesn't fundamentally change the analysis of the Greek economy. 'They must have known' cannot be ignored. The Greek situation fulfilled economic theories that are broadly known. So why did banks willingly underestimate the risk? If you look at Piraeus [3], crushing Greece cannot be a long term strategic target. *edit: The mutuality was crushed in the setup. There was no perspective for Greece to develop inside the Euro. Subsidies to compensate the strong Euro don't work because the economy aligns to those subsidies and not to market demands. The mutuality is that the richer countries keep paying subsidies and the 'lucky' individual receivers have a good life within their poor community. That's not a good outlook. Question remains: Can something be done to allow for economic prosperity in Greece within this framework? How can the startups be selected that rebuild the Greek economy so that every citizen benefits? [1] https://en.wikipedia.org/wiki/TARGET2 https://en.wikipedia.org/wiki/TARGET2 [2] https://gm-media-library.s3.eu-west-1.amazonaws.com/image_7fbbaa873f.png https://gm-media-library.s3.eu-west-1.amazonaws.com/image_7f... [3] https://en.wikipedia.org/wiki/Port_of_Piraeus#Ownership https://en.wikipedia.org/wiki/Port_of_Piraeus#Ownership