Wither Greece?

Loan sharks will threaten to break your kneecaps but in the long run they'd rather have the money.

I think this would be against EU rules. Much as some may want a federal EU, plenty are opposed to the idea and so we don't actually have one. Brussels can't manage major infrastructre projects directly; these have to be done by providing EU funding to national governments based on proposals submitted by those governments. Changing that would mean a treaty change, which isn't possible, since that would require the consent of 28 governments + 28 parliaments + the electorates of whichever countries are constitutionally obliged, or think it politically expedient, to hold a referendum.

Details are sparse at this point, but doesn't the latest bailout agreement with Greece just guarantee more austerity on into the indefinite future? There's a sale of 55 billion of Greek assets in the agreement, to be managed by an investment fund based in Athens, but it isn't clear whether those funds go to Greece to help keep their economy afloat or are targeted at debt repayment. The bailout package itself is 86 billion. This will keep the Greek economy going for a few years, but current Greek debt already totals 323 billion and the country is running a deficit that is 180% of GDP. With austerity grinding down Greek GDP year after year, just where does the Eurozone see Greek debt repayments coming from?In 2009 total Greek debt was 300 billion. Six years later it is 323 billion. What in the world convinces Europe that more austerity is the answer?The new agreement includes concessions by Greece that reform the tax and pension system, open up closed professions, relax Sunday trading laws, and deregulate many businesses, which sounds like same-old same-old to me. Nowhere have I seen mention of stimulus of the Greek economy. Again, what in the world convinces Europe that the same old bailout but "this time we're going to be really, really strict" is going to work this time?Here's a nice graph of the GDP's of Eurozone countries through 2014. Without looking at the key, guess which line is Greece? If the Eurozone technocrats truly believe this bailout deal means they're eventually going to see their money repaid then they are seriously deluded. They're just pushing the crisis off into the future because they just can't bear to admit to themselves that they're not going to see their money again, at least not all of it. And while they're taking their sweet time acknowledging reality Greece suffers under crushing austerity. Greek unemployment currently stands at 25%, and among young workers it is 60%. This is absurd.I know I've used the debtor's prison analogy already in this thread, but it's still the most apt. These bailout plans have as much chance of resulting in full debt repayment as does throwing a debtor in prison.--Percy

We were on holiday in Spain last week, and my wife saw a BBC World anchorbot describe the bullet points of the Greece deal. The last point was thrown in almost as an afterthought: "Oh, and Greece's ports will all be privatised." This has been a years-long controversy in Greece, and the current crisis has been a green light to the carpetbaggers.On the lighter side, we saw a Greece-related headline on a French newspaper that was delightfully Joycean: Partez Oui ou Parthnon?

At its heart, this situation wasn't completely (perhaps not even mostly) about economics - primarily, I think, it's political. Europe couldn't be seen by its non-Greek electorate as backing down. And also, I think there was an element of slapping down Tsipras, even as he pushed his bluff to its absolute limits, in order to send a message to similar anti-austerity groups in the rest of Europe. In other words, you play it our way, or you go bust.I suspect that what Europe will do, is see whether Greece can rid itself of the corruption and the productivity/benefits imbalance, and then quietly restructure and write down debts, to help the recovery of a Greece which has been restructured into a more credible economy. There was no way they were just going to let Greece go back to the way things were.

My understanding is that part of the deal is that the Greek government will sell off 50bn in state-owned assets to start an asset fund controlled by Athens with heavy supervision from Brussels. 25bn is to go to Greek banks for lower interest-rate loans to the private sector spurring investment and inventories, 12.5bn will go to infrastructure projects within Greece to generate employment and income streams and rest will be used to make payments on present loans.It's a start, at least, even if a rather minimal one.

Interesting chart. It's odd that Greek GDP velocity was actually quite good during the financial crisis when everyone else was trending poorly. Now, it has fallen off a cliff.Italy isn't doing too well either. And moving in the wrong direction. And although Spain and Portugal have had slight trend reversals, a minor hiccup in the global economy could see that go the wrong way. And they are still at nightmarish unemployment rates, especially for their youth.

And the UK is doing better than the lot and isn't in the Euro. Just sayin'.

Listening to the news on this and I couldn't believe what I was hearing.Greeks will now be paying an outrageous sales tax rate of 20%!! (They were already paying 16(?)%.)It seems it wasn't clear enough that corruption and letting the rich skate without paying their share of taxes was at the heart of the problem to begin with, now they decide to implement more schemes to tax the poor more than the rich.And of course sales taxes don't generate any government revenue if nobody has any money to buy stuff.Greece is soon to be another one of many failed states.ABE: I guess this tax would only be on meals, but sales taxes are increased generally, which hurts industries such as tourism.Edited by Jon, : No reason given.

I'm not sure what's so outrageous about this. That would be the same rate as Austria, Bulgaria, Estonia, France, Slovakia and the UK. Here in Czech Republic we pay 21%.I think you've misunderstood, though. Greece's sales tax is currently 23%. Food was, however, taxed at a lower rate of 13%. If you say it's only on meals, then I guess they're moving eating out at a restaurant into a higher tax category of 20%, and leaving only groceries at 13%.

Sales taxes are regressive.The higher they are, the more they shift the tax burden to the poor and off the rich.The folks who wrote up this deal are delusional if they think it will actually help Greece.

The deal may now be facing a bigger probem, in that it's not sure who will pay for it. Poland and the UK have rejected any idea of using EU funds for a rescue package, on the basis that it's not the responsibility of the rest of the Union to pay for the Eurozone's troubles.

Yesterday's NYT contained an editorial (The Eurozone’s Damaging Deal for Greece) castigating the Eurozone for doing no more than guarantee that the Greek problem will rise again. Best excerpts:

quote:

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In the end, after trying every possible tactic, Prime Minister Alexis Tsipras of Greece threw in the towel and accepted the toughest demands yet made by creditors to extend life support for Greece and keep it in the eurozone. That may avert an immediate catastrophe, but there is little to celebrate since it will do little to address, much less repair, the slow-moving disaster of the Greek economy.
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The one advantage of the agreement reached early Monday is that it buys some time. But unless that time is used to discuss how to really reduce the Greek debt and restore its moribund economy to life, it will not be long before eurozone leaders are locked in another agonizing debate about what to do. Germany and its allies have driven a hard bargain, but in forcing Greece to submit they have not resolved the crisis of the monetary union or advanced the European project.

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In related news, the IMF has rejected the bailout plan (I.M.F. Demands Greece Debt Relief as Condition for its Participation in Bailout), insisting that it's not viable, that Greece will never be able to pay a debt that increases while the economy worsens, that the debt and will rise to 200% of GDP before it ever begins to decline, and that debt relief must be part of any plan. Since the Eurozone insisted that the IMF be included as part of the bailout plan, and since the IMF is rejecting that plan, it's anyone's guess what happens from here.--PercyEdited by Percy, : Wordsmithing.Edited by Percy, : More wordsmithing.

That statement demonstrates what many have been saying up to this point: this 'agreement' has nothing to do with fundamental economics and has everything to do with politics.The Eurozone leaders (mostly Germany) are thinking about how to save face in regards to their constituents. At the same time, they want to do everything to squash the likelihood that any other leftist party might gain traction in other countries like Spain or Italy.Unfortunately, all that is occurring is the can is being kicked down the road yet again. Greece will likely continue to decline. At some point (if it hasn't already been reached) a breaking point will occur and the outcome could be far worse. i.e. they will default on a much larger amount of debt. At the same time, as the other countries in similar situations continue to flounder, that could lead to the contagion spreading despite Merkel's best efforts to keep it contained.

One additional follow-up:I watched Fareed Zacharia this weekend and he had Paul Krugman as a guest to discuss the Greek bailout. As one might guess, Paul thinks the bailout was a horrible idea and will end badly for Greece. He also believes that a Grexit is inevitable in light of the additional austerity that will cripple their economy.As a side-bar, he also gave a pretty sour opinion of the Syriza party, saying they basically played chicken but had absolutely no contingency plans in place. i.e. having the ability to fall back to an alternate currency (the Drachma) or any indications of mechanisms in place to shore up their banking system.So while we can lay blame on the ECB and Germany for being too strident, we can also say that the Greek government was woefully ill prepared and borderline incompetent in its execution.