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> 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'

by 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.
elorant 11y ago
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. It’s already happening. ECB issued a QE program in January for buying out national bonds for one trillion Euros. 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. Sure, the economy has tanked but the main reason that happened is that pretty much all the economy was state funded. Once the state run out of money businesses started collapsing. That’s why we had a 30% drop in GDP while other EU countries that issued similar austerity programs faced far less GDP drop. If you take a look at the top 10 biggest companies in Greece for example, most are either state owned or subsidiaries of multinational corporations. There isn’t a single privately owned company in Greece that makes more than a billion in sales annually. I’m not a great fan of the austerity measures but I won’t argue that it’s the root of all our problems. The root of our problems is the model of our economy and there’s better chances we solve it inside EU than on our own.
- quonn 11y ago
  > It’s already happening. ECB issued a QE program in January for buying out national bonds for one trillion Euros. That's a measure to adjust the inflation rate, nothing else. Greek bonds are excluded. The ECB has made it very clear that it will buy no weak bonds that give the impression it finances government spending. Furthermore, since they are still normal government bonds and just ownership changes from banks to the ECB, they will eventually have to be payed back by the countries that issued them, as far as I understand. > I’m not a great fun of the austerity measures but I won’t argue that it’s the root of all our problems. I agree that it's not the root of your problems. But it is what has prolonged the current crisis and will prevent a solution. > The root of our problems is the model of our economy and there’s better chances we solve it inside EU than on our own. If Greece gets a real chance to do that within the EU, yes. That would imply getting out of the crisis first and it would also imply a serious haircut. And on a reasonable timescale, say within the next five years. But it seems clear to me that the Eurogroup does not have the necessary courage to make that happen. I hope the change their mind, but if they do not, getting out looks better to me than just kicking the can down the road.

by quonn 11y ago

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.

elorant 11y ago

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. It’s already happening. ECB issued a QE program in January for buying out national bonds for one trillion Euros. 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. Sure, the economy has tanked but the main reason that happened is that pretty much all the economy was state funded. Once the state run out of money businesses started collapsing. That’s why we had a 30% drop in GDP while other EU countries that issued similar austerity programs faced far less GDP drop. If you take a look at the top 10 biggest companies in Greece for example, most are either state owned or subsidiaries of multinational corporations. There isn’t a single privately owned company in Greece that makes more than a billion in sales annually. I’m not a great fan of the austerity measures but I won’t argue that it’s the root of all our problems. The root of our problems is the model of our economy and there’s better chances we solve it inside EU than on our own.

quonn 11y ago
> It’s already happening. ECB issued a QE program in January for buying out national bonds for one trillion Euros. That's a measure to adjust the inflation rate, nothing else. Greek bonds are excluded. The ECB has made it very clear that it will buy no weak bonds that give the impression it finances government spending. Furthermore, since they are still normal government bonds and just ownership changes from banks to the ECB, they will eventually have to be payed back by the countries that issued them, as far as I understand. > I’m not a great fun of the austerity measures but I won’t argue that it’s the root of all our problems. I agree that it's not the root of your problems. But it is what has prolonged the current crisis and will prevent a solution. > The root of our problems is the model of our economy and there’s better chances we solve it inside EU than on our own. If Greece gets a real chance to do that within the EU, yes. That would imply getting out of the crisis first and it would also imply a serious haircut. And on a reasonable timescale, say within the next five years. But it seems clear to me that the Eurogroup does not have the necessary courage to make that happen. I hope the change their mind, but if they do not, getting out looks better to me than just kicking the can down the road.