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Greece May Be First EU Default
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Greece May Be First EU Default

  #21 (permalink)
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@choke35
any comments on this one ?

http://www.zerohedge.com/news/2015-07-
09/real-reason-eu-finished

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  #22 (permalink)
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imo any system must find means to sort out bad eggs.

Consequently I would interpret many of the possible outcomes as positive for the EMU.
This also includes x bn€ of humanitarian aid from E(M)U countries to Greece, which would
benefit the people and not former and current cleptocrats and cronies.

Concerning the rising market rates: It might sound cynical, but if politicians aren't able
to balance their budgets even now with years of cheap and cheapest money, markets will
balance it for them. To me, this built-in failure of politicians doesn't only contain Europe,
but all countries that have established public debt like Ponzi schemes at the expense of
future generations. Guess, a politician who gets by still has to be invented.

One last remark: Cui bono?
When I read ZH posts like that, I'm certainly not the first one to ask this question ( @Big Mike ).
And if we think back: Wasn't it GS that tuned Greece's finances and stats up to the point that
they could enter the EMU? (e.g. http://www.bloomberg.com/news/articles/2012-03-06/goldman-secret-greece-loan-shows-two-sinners-as-client-unravels)

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  #23 (permalink)
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Compounded nonsense. Written by a capital investment firm to distribute a free investment report.

"When you shred democracy and the central tenants of a legal system ...."

I think democracy is more under fire in the US than it is in Europe. The US obviously has a longer democratic tradition than many countries in Central Europe, but it is turning into an Orwellian police and surveillance state. Europe has a lot of younger democracies who still lack both traditions and institutions. There are some anti-democratic tendencies in Hungary and Poland. But those countries have been part of the totalitarian Soviet Empire just 25 years ago.


"The EU was formed based on financial regularions and border regulations ....."

Absolute nonsense. The EU started out as Economic Union in 1957. Only in 1993 it became the European Union with the objective to harmonize foreign and defense policy, legislation, justice and domestic policies. The Schengen Treaty came in 1995. The 3% limit for the deficit spending was more of a political curiosity, as it was proposed by the French Socialist Government in 1981, after they had doubled their deficit from 1.3% to 2.6%. This figure somehow found its way into the Maastricht treaty later on. Something like this was requested by the Germans as they did not want to have their D-Mark turned into a high inflation currency.


"When Spain and Italy come knocking asking for debt forgiveness... it's GAME OVER for the Euro. "

This is true indeed. If you allow a comparatively rich country (compared with Eastern European countries) like Greece to cut their debt a second time (they have already benefitted from a debt reduction of 50 billion Euro in 2012) poorer countries and countries like Italy (country with the highest outstanding debt) do not have any incentive to enforce budgetary discipline.

If you think about it, when you do not enforce budgetary discipline by penalizing non-compliance with the rules that were set up, there is no more incentive to stick to the rules. You will end up in a prisoner's dilemma that will lead to a disintegration of the Euro.

In fact game theory clearly tells us that rules must be enforced. Allowing Greece to cut its debt is the equivalent of saving banks during the financial crisis that followed the US mortage bubble. I still believe that it was necessary to let Lehman Brothers down. They should have closed more of those institutions.

Recapitalizing Greece with European taxpayers' money is similar to recapitalizing banks with taxpayers' money after the financial crisis. This is called Moral Hazard.

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http://www.independent.co.uk/news/world/europe/greek-debt-crisis-goldman-sachs-c...oined-euro-10381926.html

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  #25 (permalink)
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new bailout for Greece, but with very severe reform conditions
how viable is it ?

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  #26 (permalink)
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rleplae View Post
new bailout for Greece, but with very severe reform conditions
how viable is it ?

A default + Grexit might have the better option economically.

http://www.cepr.net/documents/publications/argentina_recovery_2007_10.pdf

But it would have had further political implications, such as the Greek feeling that they are expulsed from Europe. Also the Grexit was not prepared. Therefore it was no option.

The current solution is just a fix of an old car, which will disassemble again after a few miles. But Europe might help with an additional invesment program.

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  #27 (permalink)
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rleplae View Post
new bailout for Greece, but with very severe reform conditions
how viable is it ?

We will see what the Greek parliament delivers til Wednesday.

With that interestingly short deadline the EU countries show how much credibility
the Greek government has wasted since January. Before Wednesday, Syriza cannot
abscond into early elections (as their Labor Minister had already demanded) and will
be among those who vote on Greek reforms that have been sent to the creditors by
their own leaders.

Vice versa: Everything is possible til Wednesday/Thursday (can bet on the next night
sessions), because different from last Friday/Saturday these Greek shining lights
are under real pressure now.

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  #28 (permalink)
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It bottom-line boils down to the fact that a single currency (and associate interest policies), can not work for a vast region as Europe, which is so different from North to South in many aspects.

There is still a big hurdle to take the plan through Greek parliament and put it into law.

When this tactical fix (i agree with @Fat Tails view) is in place, it will be just a matter of time
before the same structural problems resurface...

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  #29 (permalink)
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Greece == Textbook example for the Dead Horse Strategy

"The tribal wisdom of Dakota Indians, passed on from generation to generation, says that, when you discover that you are riding a dead horse, the best strategy is to dismount.

In modern government, however, a whole range of far more advanced strategies is often employed, such as:
◾Buying a stronger whip
◾Changing riders
◾Threatening the horse with termination
◾Appointing a committee to study the horse
◾Arranging a visit to other countries to see how others ride a dead horse
◾Lowering the standard so that dead horses can be included
◾Re-classifying the dead horse as “living impaired”
◾Hiring outside contractors to ride the dead horse
◾Harnessing several dead horses together to increase the speed
◾Providing additional funding and/or training to increase the dead horse’s performance
◾Doing a productivity study to see if lighter riders improve the dead horse’s performance
◾Declaring that, as the dead horse does not have to be fed, it is less costly, carries lower overhead and, therefore, contributes substantially more to the bottom line of the economy than do some other horses
◾Re-writing the expected performance requirements for all horses
◾Promoting the dead horse to a supervisory position.
..."


I don't know how many of these strategies you count that have been adopted to Greece, I count several ...

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Fat Tails View Post
A default + Grexit might have the better option economically.

http://www.cepr.net/documents/publications/argentina_recovery_2007_10.pdf

But it would have had further political implications, such as the Greek feeling that they are expulsed from Europe. Also the Grexit was not prepared. Therefore it was no option.

The current solution is just a fix of an old car, which will disassemble again after a few miles. But Europe might help with an additional invesment program.


rleplae View Post
It bottom-line boils down to the fact that a single currency (and associate interest policies), can not work for a vast region as Europe, which is so different from North to South in many aspects.

There is still a big hurdle to take the plan through Greek parliament and put it into law.

When this tactical fix (i agree with @Fat Tails view) is in place, it will be just a matter of time
before the same structural problems resurface...

I think these are both right on target.

You can't think that the fundamental economics have changed: Greece still owes much more than it is going to be able to repay.

The additional austerity that has been required, and accepted, is not going to improve the Greek economic picture -- probably it will worsen it. In any case, there is likely just more depression ahead for Greece.

It should be understood that the point of any additional funding is simply to loan Greece more money to meet its payments for old loans. This is not going to affect the underlying picture or actually move anything forward, and is not a viable solution longer term.

That said, an immediate crisis has apparently been prevented. Greek banks will apparently not run out of money this week (well, they'll probably stay closed -- but probably there will be funding for them soon), which had been inevitable without some deal. Not getting a deal would have meant Greece going off the Euro, because there would have been no Euros left, basically.

As @Fat Tails wrote, there was no preparation for this. The Greek government seems to have believed that they could not afford to go off the Euro, and made no plans to go onto a new currency or to deal with the chaos that would have come, so in the end all they really could do was accept what they were given, whether a good deal or not. The decision to stay with the Euro no matter what (which the Greek people also strongly agreed with according to the polls) meant that the entire effort by the Greek government to change their situation was not going to go far. As it seems to have turned out, the deal is now much worse for them than the one that was rejected in the referendum last week, and they are out of options.

We will, of course, hear more about Greece in the future. This deal has kicked the can down the road and ended the immediate crisis, but there will be more. Grexit may not be inevitable, but in fact probably is still the better option long-term. In any case, there will be more to come at some point....

Bob.

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