Greece

SCC wrote:@Tenshinai, the thing is that Iceland is apparently in a better situation then Greece for not taking ECB money

Oh yes, they most defintely are. But it´s IMF rather than ECB that is the primary problem.

Like i said above, almost no country that allows IMF to "help" it, recovers well. Most commonly they are plunged into a debt/recession spiral.

Tenshinai wrote:

SCC wrote:@Tenshinai, the thing is that Iceland is apparently in a better situation then Greece for not taking ECB money

Oh yes, they most defintely are. But it´s IMF rather than ECB that is the primary problem.

Like i said above, almost no country that allows IMF to "help" it, recovers well. Most commonly they are plunged into a debt/recession spiral.

Iceland, of course, isn't even in the EU, far less under the mandate of the ECB. So, solutions to Iceland don't matter that much for Greece.
As to the IMF and its medicine: There's always a reason if the IMF is called. In other words, there's a major problem with a state's finances. For "developing" countries it's often gross mismanagement by a reigning clique (read: flagrant corruption and out-right robbery of state assets). Greece, as I understand the issues, is in the unique position that they had raised the "national standard of living" (read salaries, pensions, etc.) after accession to the Euro way over their means (read: productivity and taxes actually collected). To make up for that, Greece resorted to debt - and unfortunately, they found lenders and ended up with a huge mountain of national debt.
There's no simple solution to that problem, especially since Greece decided to stay in the Eurozone after their debt party initially collapsed. (Neither the IMF nor the ECB are allowed to forgive debt, and - most - of their Eurozone partners won't.) Now Greece is between a rock and a hard place: Their state is run dismally, plundered by their elites and by other interest groups, they are dependent on outside help, and with their fundamental economic problems even exiting from the Euro won't save them.
In that situation, creditors demanding those kinds of reforms (read: cuts into the standard of living) Greece has been unable to do on its own, which are essential for eventually ending the Greek debt party, seems to be sensible. Unfortunately, a lot of Greek politicians seem to believe that TANSTAAFL does not apply to economics. Well, they're wrong...

As to the IMF and its medicine: There's always a reason if the IMF is called. In other words, there's a major problem with a state's finances.

Compare the few who has rejected IMF "help" with those who accepted it. Those who rejected it and came up with another solution to the acute part of the crisis always end up in much better shape.

even exiting from the Euro won't save them.

It is by far the most effective help they can get though. Greece used to be THE holiday nation in Europe, then they were allowed into the euro at a far too high and fixed rate, and now it´s twice as expensive to go there, or even more, so their single biggest industry, tourism, has crashed to something like 1/4(or below half depending on how you count).

In that situation, creditors demanding those kinds of reforms (read: cuts into the standard of living) Greece has been unable to do on its own, which are essential for eventually ending the Greek debt party, seems to be sensible.

A sizeable portion of Greeks are already at the point where they are unable to survive, and something like a third of the commercial sector are not getting any business, because too many don´t have money to spend.

Backstabbing the economy at this point without something to pull it up would be suicidal. Or murder.

Look at what the austerity demands when the Greek troubles began caused. Definitely did not solve any problems. Made it worse, which is why this is where they ended up.


The SMART thing to do would have been to have Greece default on the original debts, and have governments of the banks that would then crash elect whether to keep them upright by buying stocks at a "fair" price, or let them crash.
Let the idiots who lent the money take the risks of their actions instead of just buying them out at a ridiculous 1:1 rate.

Tenshinai wrote:Compare the few who has rejected IMF "help" with those who accepted it. Those who rejected it and came up with another solution to the acute part of the crisis always end up in much better shape.

I can't comment on that, lacking the data. The important question would be why certain countries fail.

Tenshinai wrote:

even exiting from the Euro won't save them.

It is by far the most effective help they can get though.

Well, there are good chances that that's true in the medium or long term. But in the short term, there would be more severe disruptions than with "austerity". Greek governments and EU decision makers have shied away from that option because they don't want to take that risk. Incidentially, Varouvakis and Schäuble seem to be on the same page on this issue...

Tenshinai wrote:Look at what the austerity demands when the Greek troubles began caused. Definitely did not solve any problems. Made it worse, which is why this is where they ended up.

The situation was bound to get worse, since the Greek economy was founded on debt. That situation became unsustainable when Greek didn't find lenders anymore. Now, asking other people(s) to pay for such a bubble won't fly. Hence "austerity". Unfortunately, neither Greek goverments nor the Greek society accepted that situation. Consequently, they didn't try to go for long-term solutions.

Tenshinai wrote:The SMART thing to do would have been to have Greece default on the original debts, and have governments of the banks that would then crash elect whether to keep them upright by buying stocks at a "fair" price, or let them crash.
Let the idiots who lent the money take the risks of their actions instead of just buying them out at a ridiculous 1:1 rate.

I unreservedly agree with the first halve. But that would have meant for Greece to be broke in 2010. And with the situation in Spain and Italy in dire straits at that moment, EU decision makers were again not willing to take that risk. They probably believed their bankers harping on the Lehman precedent. As to the buyout, it wasn't 1:1 (although France would probably have preferred that).
This buy-out, unfortunately, had another consequence: Greece was now indebted to its Eurozone partners. And this was kind of a devil's deal because Greece simply can't treat its partner nations the way it could private creditors.

Greece didn't have that big a debt problem, while it was running a gross deficit of 7%, but I've seen comments that suggest the net was closer to 3%. Which at the height of the GFC really isn't that bad. And their existing was only 100% of GDP, a level that Britain has apparently had for generations.

So the original problem was probably their creditors calling the debts in early. Well that and the tax dodging prevent there among the rich, Greece has one of the lowest tax loadings in the world, 33%, on par with the US. OH, and bonus points, as a percentage of GDP FRANCE spends more then Greece.

And while the IMF might be bad, this whole thing with Greece and the other Euro states proves that the ECB is worse, Greece is already in the debt spiral and this whole mess was in part trying to break it. Heck, the IMF is telling the Greek creditors to ease up on demanding loan repayments.

SCC wrote:Greece didn't have that big a debt problem, while it was running a gross deficit of 7%, but I've seen comments that suggest the net was closer to 3%. Which at the height of the GFC really isn't that bad. And their existing was only 100% of GDP, a level that Britain has apparently had for generations.

The whole mess was triggered (yet not caused) by the newly elected Greek government's announcement in 2010 that Greek governments had falsified their financial numbers and Greece was actually running a deficit of ~ 12% and with debt to GDP ratios in excess of 100%. This further increased Greek bond yields and degraded the situation. So, the country was already running a primary deficit (a hefty one) due to its untenable situation in several sectors of the economy, including the extent of the public sector and problems with taxation. And that was the end of the Greek debt party.
The problem for Greece was that they couldn't inflate themselves out of their debts - and then neither them nor the EU leaders were prepared to let them go bankrupt when that was still feasible.

At the start of all this Greece business, whould it have been better just to let the stupid banks who gave out the bad loans and are now unable to call them ... just go belly up and fail on their own non merit? There would have been no government bail outs at all? Would that have been better? HB

HB of CJ wrote:At the start of all this Greece business, whould it have been better just to let the stupid banks who gave out the bad loans and are now unable to call them ... just go belly up and fail on their own non merit? There would have been no government bail outs at all? Would that have been better? HB

Probably not. But what they could have done is provide them with enough money to meet their actual needs, like what is being done with Greek banks at the moment, then allow them to profit off the mess.

And anwi, I think those figures I quoted might have been for an earlier point, like '08

HB of CJ wrote:At the start of all this Greece business, whould it have been better just to let the stupid banks who gave out the bad loans and are now unable to call them ... just go belly up and fail on their own non merit? There would have been no government bail outs at all? Would that have been better? HB

Indeed, Eurozone governments should have bailed out systemic banks after the Greek default. However, they would have needed to bail out the Greek government, too, as Greece was determined to keep the Euro. Running that primary deficit, the state would have simply run out of money. And then you'd get a situation quite like we've seen the last few weeks, only worse. If that outcome would've been better than protracting the crisis for 5 years, I can't judge.

By the way: It'll be interesting to see how the US copes with the upcoming default by Puerto Rico.

HB of CJ wrote:At the start of all this Greece business, whould it have been better just to let the stupid banks who gave out the bad loans and are now unable to call them ... just go belly up and fail on their own non merit? There would have been no government bail outs at all? Would that have been better? HB

Probably, yes. Greece would have had to leave the Eurozone and at the time, there were large exclamation marks hanging over Spain and Italy. There still are, but they look more like question marks now.

The bailout of Greece was largely done out of an act of political confidence - that the same recovery plan could be imposed upon Ireland, Spain, Italy and Greece and would work across the board.

To exit probably would have caused as much pain for Greece in one year as the last five years combined, but afterwards they could start recovering. But the masters of Europe feared that would cause the Euro to tumble and trigger a domino effect of countries pulling out of the Eurozone. So they kept Greece in. And are now demanding Greek assets to hold as collateral.