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Do you think it is better to stay in the Eurozone and continue to pay down interest on a $300bn debt over the next decade, or to default on the debt, leave the

Do you think it is better to stay in the Eurozone and continue to pay down interest on a $300bn debt over the next decade, or to default on the debt, leave the Eurozone, and try to begin anew? Would the Greek economy even be strong enough to support the latter?

elorant 11y ago
It’s a common secret that once there will be a true unification of the member states all national debt will become EU owned (by issuing Eurobonds for example). Regardless of that, as it stands now the debt isn’t our real problem because we pay a very low interest (less than 3%) and the maturity has been extended and there is willingness to be extended even further. Our problems are structural ones like the fact that we pay almost 80% of the state budget in pensions and salaries, which is the highest in of all EU members. As for leaving the Eurozone, I seriously doubt whether we could default on all our debt. We can’t default on IMF’s debt for example. Or ECB’s. Because once we leave we’ll still need the support of the ECB otherwise our banks will collapse in a matter of weeks. Our economy is still very fragile, exports are less than 20% of GDP. Tourism might flourish because of the devaluation of the local currency but it still won’t be enough.
- quonn 11y ago
  > It’s a common secret that once there will be a true unification of the member states all national debt will become EU owned This is wishful thinking. It won't happen anytime soon, if ever. For example, German politicians are scared of their voters who are completely unwilling to go along with this, which is exactly the reason why they have rejected such proposals for five years now. > the debt isn’t our real problem because we pay a very low interest (less than 3%) [...] our problems are structural ones Indeed the problem is not the debt, but for now it is also not structural reforms. Structural reforms are required in the long term, but they won't fix anything now and in any case, you can't change a country in a few years. This will take a long time. The main issue is simply that the economy has tanked, unemployment is high, etc. and this won't change by imposing more austerity. The last five years have proven this beyond a shred of doubt. > I seriously doubt whether we could default on all our debt. We can’t default on IMF’s debt for example. Or ECB’s. Yes you can. There is no reason why your banks would collapse, if you have a new currency.
  - roymurdock 11y ago
    Who would want to invest in a risky country with huge structural deficits that just set a precedent of defaulting on debts? The ECB/IMF did it because Greece was part of the Eurozone so they were obligated to in order to preserve the strength of the coalition. I believe most investors would be extremely wary of placing any money into Greece post-default. And huge investments are exactly what the country needs to enact structural reform. Also, The problem with creating a new currency is that no one will have any reason to trust that the government will be able to back it with real economic value. If Greece were to come out with a new brand of money, say the "Greco", I would be extremely suspicious of holding any for fear of hyperinflation/a new currency coming out in 3 years to replace the debts taken on in Greco.
    - quonn 11y ago
      > I believe most investors would be extremely wary of placing any money into Greece post-default. Well, investors are already wary. In any case, I'm not convinced that foreign investment is the most important factor here. Exports would surely go up and similarly tourism could flourish if the currency devalues. edit: from ft.com: "Credit rating agencies already have said they will not consider non-payment to the IMF a proper default, since they only care about debts owed to private creditors." > Also, The problem with creating a new currency is that no one will have any reason to trust that the government will be able to back it with real economic value. It will take on a value, just much less than the euro currently has. If they control the supply, why would it not have value? Once again, the situation is bad, but once things have recovered a bit (say after two or three years) the future should look better than it currently looks within the euro.
      - roymurdock 11y ago
        >I'm not convinced that foreign investment is the most important factor here. Exports would surely go up and similarly tourism could flourish if the currency devalues. Which currency are you talking about? If Greece defaults and institutes a new currency, there would be no devaluation within the economy, rather a complete shift from the Euro to some new currency. Also, exports (especially in the long run) are not driven so much by currency fluctuation as they are by the cost of inputs. So unless Greece suddenly finds a huge deposit of natural resources or drastically reduces the minimum wage and pushes down manufacturing wages, then exports really won't change much. Check out this graph: https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1lOR https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=... If the value of the euro and total exports are inversely related, we would expect to see the lines moving in opposite directions. Thus exports would be rising as the exchange rate declines and vice versa. We actually see the opposite happening over the past 10 years, and we see that the relationship has especially broken down in recent months. Now check out this graph: https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1lOX https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=... We see that there truly is an (lagging) inverse relationship of exports and the value of the euro for Germany. Why? I have no idea. It probably has to do with the different type of exports coming out Germany vs. Greece. It would be naively optimistic to hope that devaluations of the currency would lead to more than a few percentage points of increase to the overall Greek GDP, and that the (supposed) growth in NE and tourism would be enough to fund vast structural reforms within Greece. >It will take on a value, just much less than the euro currently has. If they control the supply, why would it not have value? I control the supply of "Roynotes", aka squares of toilet paper that I have signed and guaranteed to be redeemable for $100USD in 3 year's time. I'll purchase $50 worth of goods from you today with one note, and you'll make a profit of $50USD over 3 years for a nominal 100% return - not bad! What do you say, partner? Joking aside, supply is only 1/2 of the value equation, and wary investors + annihilated credibility = no demand for new currency = no value of new currency.
- roymurdock 11y ago
  I'd say that "true unification" of the EU through Eurobonds is nigh impossible given the enmity and financial division between creditor and debtor countries in the EU. I'm a big fan of Friedrich Hayek, who argued against the absurdity of creating the EU from the beginning: "Though I strongly sympathise with the desire to complete the economic unification of Western Europe by completely free-ing the flow of money between them, I have grave doubts about the desirability of doing so by creating a new European currency managed by any sort of supra-national authority. Quite apart from the extreme unlikelihood that the member countries would agree on the policy to be pursued in practice by a common monetary authority (and the practical inevitability of some countries getting a worse currency than they have now), it seems highly unlikely, even in the most favourable circumstances, that it would be administered better than the present national currencies. Moreover, in many respects a single international currency is not better but worse than a national currency if it is not better run. It would leave a country with a financially more sophisticated public not even the chance of escaping from the consequences of the crude prejudices governing the decisions of the others. The advantage of an international authority should be mainly to protect a member state from the harmful measures of others, not to force it to join in their follies."

elorant 11y ago

It’s a common secret that once there will be a true unification of the member states all national debt will become EU owned (by issuing Eurobonds for example). Regardless of that, as it stands now the debt isn’t our real problem because we pay a very low interest (less than 3%) and the maturity has been extended and there is willingness to be extended even further. Our problems are structural ones like the fact that we pay almost 80% of the state budget in pensions and salaries, which is the highest in of all EU members. As for leaving the Eurozone, I seriously doubt whether we could default on all our debt. We can’t default on IMF’s debt for example. Or ECB’s. Because once we leave we’ll still need the support of the ECB otherwise our banks will collapse in a matter of weeks. Our economy is still very fragile, exports are less than 20% of GDP. Tourism might flourish because of the devaluation of the local currency but it still won’t be enough.

quonn 11y ago
> It’s a common secret that once there will be a true unification of the member states all national debt will become EU owned This is wishful thinking. It won't happen anytime soon, if ever. For example, German politicians are scared of their voters who are completely unwilling to go along with this, which is exactly the reason why they have rejected such proposals for five years now. > the debt isn’t our real problem because we pay a very low interest (less than 3%) [...] our problems are structural ones Indeed the problem is not the debt, but for now it is also not structural reforms. Structural reforms are required in the long term, but they won't fix anything now and in any case, you can't change a country in a few years. This will take a long time. The main issue is simply that the economy has tanked, unemployment is high, etc. and this won't change by imposing more austerity. The last five years have proven this beyond a shred of doubt. > I seriously doubt whether we could default on all our debt. We can’t default on IMF’s debt for example. Or ECB’s. Yes you can. There is no reason why your banks would collapse, if you have a new currency.
- roymurdock 11y ago
  Who would want to invest in a risky country with huge structural deficits that just set a precedent of defaulting on debts? The ECB/IMF did it because Greece was part of the Eurozone so they were obligated to in order to preserve the strength of the coalition. I believe most investors would be extremely wary of placing any money into Greece post-default. And huge investments are exactly what the country needs to enact structural reform. Also, The problem with creating a new currency is that no one will have any reason to trust that the government will be able to back it with real economic value. If Greece were to come out with a new brand of money, say the "Greco", I would be extremely suspicious of holding any for fear of hyperinflation/a new currency coming out in 3 years to replace the debts taken on in Greco.
  - quonn 11y ago
    > I believe most investors would be extremely wary of placing any money into Greece post-default. Well, investors are already wary. In any case, I'm not convinced that foreign investment is the most important factor here. Exports would surely go up and similarly tourism could flourish if the currency devalues. edit: from ft.com: "Credit rating agencies already have said they will not consider non-payment to the IMF a proper default, since they only care about debts owed to private creditors." > Also, The problem with creating a new currency is that no one will have any reason to trust that the government will be able to back it with real economic value. It will take on a value, just much less than the euro currently has. If they control the supply, why would it not have value? Once again, the situation is bad, but once things have recovered a bit (say after two or three years) the future should look better than it currently looks within the euro.
    - roymurdock 11y ago
      >I'm not convinced that foreign investment is the most important factor here. Exports would surely go up and similarly tourism could flourish if the currency devalues. Which currency are you talking about? If Greece defaults and institutes a new currency, there would be no devaluation within the economy, rather a complete shift from the Euro to some new currency. Also, exports (especially in the long run) are not driven so much by currency fluctuation as they are by the cost of inputs. So unless Greece suddenly finds a huge deposit of natural resources or drastically reduces the minimum wage and pushes down manufacturing wages, then exports really won't change much. Check out this graph: https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1lOR https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=... If the value of the euro and total exports are inversely related, we would expect to see the lines moving in opposite directions. Thus exports would be rising as the exchange rate declines and vice versa. We actually see the opposite happening over the past 10 years, and we see that the relationship has especially broken down in recent months. Now check out this graph: https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1lOX https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=... We see that there truly is an (lagging) inverse relationship of exports and the value of the euro for Germany. Why? I have no idea. It probably has to do with the different type of exports coming out Germany vs. Greece. It would be naively optimistic to hope that devaluations of the currency would lead to more than a few percentage points of increase to the overall Greek GDP, and that the (supposed) growth in NE and tourism would be enough to fund vast structural reforms within Greece. >It will take on a value, just much less than the euro currently has. If they control the supply, why would it not have value? I control the supply of "Roynotes", aka squares of toilet paper that I have signed and guaranteed to be redeemable for $100USD in 3 year's time. I'll purchase $50 worth of goods from you today with one note, and you'll make a profit of $50USD over 3 years for a nominal 100% return - not bad! What do you say, partner? Joking aside, supply is only 1/2 of the value equation, and wary investors + annihilated credibility = no demand for new currency = no value of new currency.
roymurdock 11y ago
I'd say that "true unification" of the EU through Eurobonds is nigh impossible given the enmity and financial division between creditor and debtor countries in the EU. I'm a big fan of Friedrich Hayek, who argued against the absurdity of creating the EU from the beginning: "Though I strongly sympathise with the desire to complete the economic unification of Western Europe by completely free-ing the flow of money between them, I have grave doubts about the desirability of doing so by creating a new European currency managed by any sort of supra-national authority. Quite apart from the extreme unlikelihood that the member countries would agree on the policy to be pursued in practice by a common monetary authority (and the practical inevitability of some countries getting a worse currency than they have now), it seems highly unlikely, even in the most favourable circumstances, that it would be administered better than the present national currencies. Moreover, in many respects a single international currency is not better but worse than a national currency if it is not better run. It would leave a country with a financially more sophisticated public not even the chance of escaping from the consequences of the crude prejudices governing the decisions of the others. The advantage of an international authority should be mainly to protect a member state from the harmful measures of others, not to force it to join in their follies."