Wither Greece?

And that is what the USA should have done as well. Instead, we essentially socialized their losses by performing capital injection to the banking system and making the tax payers non-voting stock holders. They did it this way to stomach what they felt was 'nationalization' of the banking system. But in essence, what they did was far worse. They socialized the losses and privatized the gains.And now they seem shocked that the gap between rich and poor is far larger than it was before.I always find it funny how the wealthy scream about any notions of wealth redistribution. Yet in essence, that is exactly what has happened. The ZIRP policy of the Fed and QE basically gave free loans to the banks. They in turn used that money to buy stocks, distressed housing, etc when they were supposed to loan it out to free up the credit system.Regarding Greece, as someone who is Greek and still has family there, I don't see any scenario that is going to end well for them. Unfortunately. Continuing on the austerity road with crushing debt is just death by a thousand cuts. Leaving the Euro and going back to their own currency comes with numerous pitfalls as well. Although to be honest, it is probably the less egregious of the two options.Incidentally, the main reason that the ECB is hesitant on writing off the Greek debts (or at least a portion of them) is they are fully cognizant of the fact that if that occurs, countries like Spain and Portugal will go through similar referendums to achieve the same outcome. Spain especially already has rumblings with regards to electing one of their fringe parties to start getting them on a path to growth as well. The end result is the ECB would have massive write downs and losses to contend with. Which could plunge the Eurozone into a financial crisis.Edited by Diomedes, : Fixed typo

I don't know whither Greece, nor whether Greece will wither. But the whole idea of a single currency was a bad one. I'm not sure why that wasn't obvious to everyone at the time. It seemed obvious to me. I thought Britain made a wise decision in staying out of the common currency agreement.Here's the problem: the economies of different states are different and grow at different rates. With separate currencies, this is taken care of with changes in exchange rates. With a single currency, that way of adjusting is ruled out.We can look at how this works in the USA, where there is a single currency. And the way it works, is that California and New York subsidize Alabama and Mississippi. The difference in rates of economic growth are adjusted with transfers of assets. If California and New York tired of this and wanted to impose austerity measures on Alabama and Mississippi, they couldn't unless they were willing to suffer the same austerity measures themselves. That's the way a federal system works.In short, to have a unified currency, you also need a unified politics. In my estimation, Europe was not ready for that kind of political union when they moved to adopt the Euro. And they are still not ready for that kind of political union.

Not that I am his biggest fan, but Alan Greenspan said exactly that. You hit the nail on the head. Countries with internal territories (states) have federal mechanisms in place to subsidize the lower performing states with the revenue from the higher performing states. Generally speaking, you will find this is almost always affected by population. So more populous states with higher population densities will invariably yield more revenue at the federal tax level which in turn will be used to shore up the revenues of the less populous states.What we have in Europe however are vastly different countries with different agendas, business models, etc attempting to function on one currency. The result is what we are seeing. Invariably, the 'stronger' countries are now asserting undue influence on the 'weaker' countries and essentially strong-arming them into submission.One final note from a geopolitical perspective: many people in Greece are getting utterly fed up with Europe and are starting to look to Russia for assistance. Now Putin isn't exactly in the best position to offer loans, but what if he did provide some assistance in return for the usage of Greek ports for the Russian navy? As we all know, the big issue with Crimea and the reason Russia wants to retain it is because it is their only cold water port. Without it, their fleet would be frozen in during winter.Now Greece is a NATO member but who knows what desperate acts their government might take in order to get out of their current quagmire. And most may not realize it, but many in Greece are pretty pro-Russian. And this situation is only exacerbating the bad feelings they have for Europe and more positive feelings for Putin and his oligarchy.Edited by Diomedes, : Fixed typo

Paul Krugman in his editorial Ending Greece's Bleeding in today's New York Times writes: That about sums it up.--Percy

Percy, you happen to recall that classic SNL skit from the 1970s with Steve Martin as the Barber of York?NBC was kind of enough to provide the link:http://www.nbc.com/...ght-live/video/theodoric-of-york/n8661My favorite lines:Steve Martin (speaking to a wounded Bill Murray): "You'll feel better after a good bleeding!
Bill Murray: "But I'm bleeding already!"

I don't think the architects of the Euro were unaware of this. The EU does try to redistribute wealth from richer to poorer regions. Richer member states pay more to the EU budgest, since contributions are calculated based on GDP and tax revenue. Most of that money is spent on either the Common Agricultural Policy or on the structural funds - the latter of which are designed to subsidise poorer and less developed parts of the EU and promote their economic development. This is where all those 'this project part-financed by the EU' signs you often see by construction sites come from.

That's macro economics 101 and everyone was aware of it at the time, and it was for that specific reason that the UK and several other countries (most of Scandanavia) stayed out of the Euro.The decision to go for a common currency was grandly political, rather than economic, the main drivers where France and Germany that have an ultimate vision of achieving a federal Europe - they have memories of two catastrophic wars and 'never again' is a big thing for them.A unified currency was a first step and it seemed to work for quite a long time - and might still. It took fraud and lies from Greece and stupidity and wishful thinking by Eurocrats to let Greece into the group in the first place and a global economic meltdown to break it. They're circumstances that are unlikely to be repeated.

Godwin is striking early and unexpectedly in this thread as I reproduce this Yanis Varoufakis (recently resigned Greek financial minister) quote: I found the above quote in a wonderfully frank analysis of the crisis in this Newsweek article: Greece Gives Europe a Chance to AwakenAbE: This appears in the same article:

quote:

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On the same day, even the IMF conceded that Greece needs a large-scale debt relief to create a breathing space and get the economy moving (they propose a 20 years moratorium on debt payments)...

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Yes! Yes! The Eurotechnocrats response to this possibility isn't described in the article. Does anyone know the objections to a long term postponement of debt payments?--PercyEdited by Percy, : AbE.

As I understand it, it's twofold.First, if the debts aren't repaid, then to some extent or another, taxpayers in other countries will end up paying more (as a result of their countries not getting some of the cash back). The concern is that those taxpayers will see that as unfair (not an unreasonable feeling for them). However, that's more of a political issue than an existential or economic one for the EU.Second, if the EU/IMF/other creditors say yes to Greece's debt being written down, they'll face screams of "why not us too" from Portugal, Ireland and Spain - and their debts are orders of magnitude higher than Greece's. (And they went through the pain of austerity - and still are, without significant complaint). At worst, this leads to a far bigger economic crisis within the EU. At best, it significantly strengthens the hands of political parties in those countries (and elsewhere) who want an end to the EU.The solution in Greece is pretty clear, in the isolated context of Greece, but it has big political ramifications in a wider context.

"The enemy of my enemy is my friend," but Western politicians have a long history of turning their friends into enemies.

Exactly my point in my earlier post.Greece only contributes about 1-3% of the total GDP of Europe. That is a pittance. So a Grexit or even a default could theoretically be absorbed.However, a country like Spain is a full 10% of the European GDP. Their debt is intrinsically far larger. A debt write-down or a referendum asking for concessions by the ECB would be a very large pill to swallow. Such an act could destabilize the European banking system and plunge Europe into a recession. Although arguably, that may be inevitable at this stage.Spain is actually more left wing than Greece when you look at its history. Spain had a fascist government for years and their politics have always been heavily socialist. Syriza getting their way in Greece may be just the catalyst that a left-wing Spain party might need to bolster their chances in their upcoming elections.

Someone just said this on the radio'The simple mistake that was made was to pretend that Greek debt was the same as German debt.'Yup, nailed it.

2₵Debt relief and more loan guarantees, from anywhere, are not going to solve the Greek or Spanish issues. The only relief for the people as well as for greater Europe is jobs, wages, salaries and disposable income. Europe must revitalize the non-existent economies of their sickest members.The Greek government hasn’t the financial power to create the kinds of infrastructure programs required, but the rest of the budding Federal European Union does. They must keep the Greek government out of the programs as much as possible because of its history of corruption and its demonstrated incompetence is handling fiscal requirements. Think of a Greater InterEuropean Highway system fully funded, controlled and managed in Brussels using Greek labor and contractors along with projects to modernize port facilities, water conservation and dam facilities, hospitals, schools, etc. within Greece. Billions of over 5 years or less.The Greek government must be lead to end the internal corruption culture as well as institute strict tax recovery tactics aggressively pursuing and punishing tax evasions and capital flight. Extended debt repayment terms stretching into decades, not forgiveness, are also required.The Eurozone Monetary Union was set up as a first step to a full political Federal European Union. The Germans and the French, the biggest proponents of such a union, are now in a position take the next step and demonstrate to the rest of the EU members what such a Federal Union can accomplish for the good of the states within such a union.Right now Deutsche Bank and Chancellor Merkel are strangling both Greece and the hope of a Federal Republic of Europe with the same hand.Edited by AZPaul3, : some changes here, some changes there

Well, no other nation can simply step in and tell the Greek government to fuck off.No matter how much arm twisting there is, there must always be a semblance of Greek free will.And that means that if the Greeks say 'no', then 'no' it is.

Oh, even among nation-states there can be very effective ways to cajole action. Right now all that has been tried is threat.You want this multi-billion euro infrastructure investment? We'll also extend your loan installments over the next 30 years. Good?In exchange we will fund and run the infrastructure projects from here, not there and you gotta get your shit together and clean house. Deal?Of course, more diplomatically presented would make the prospect of Greece getting up off its knees with breathing room and some hope for a better future than looms before them today seem just that much more attractive.But you are right. If the Europeans want to be stupid and the Greeks want to be stupid they can flip the bird at each other and watch each other's dreams, and nations, flounder. Edited by AZPaul3, : cuz