Greece: Is it better to default than pay half the debt?

[lunakilo]

I keep hearing stories like this one: Greece referendum: Corrupt nation holding a gun to the EU's head | Mail Online

Greeks have never minded defaulting on their debts. The country defaulted in 1826, 1843, 1860 and 1893. It has been in default for half of its existence. Only two countries in the world have a worse record – Honduras and Ecuador.

Somehow I can't quite understand that people wouldn't accept the offer "You owe a lot of money, how about you only pay back half of it?"
But I guess "let's not pay any of it back" sounds better to some people even if that has some really bad consequences. How bad can they be right?

I also keep hearing that Italy is really worse of than Greece, they just hide it better.
And if Greece defaults Italy probably will too after a while.

The stories about the public sector in Greece sound insane to me. Are they really true? What maniacs build a system like that?

Can anyone say anything sensible about the situation?
​

 

[sandandfoam]

Can anyone say anything sensible about the situation?​

Not the Daily Mail anyway. It is a right wing rag. I wouldn't use it to clean my windows.
Greece can't pay the money back, Ireland can't pay the money back, Italy probably won't be able to pay it back. Spain and portugal too.
What's going on here is nuts and blaming it on the populations of individual countries is daft.
The hysteria with which talk of a vote in Greece has been met by commentators is instructive. Imagine a people having a say in their futures?

 

[lunakilo]

Not the Daily Mail anyway. It is a right wing rag. I wouldn't use it to clean my windows.

It is usually difficult to clean your windows with an internet article, but the particulat source isn't the point, I just posted the first article that came up on google. There are plenty more out there...

Greece can't pay the money back, Ireland can't pay the money back, Italy probably won't be able to pay it back. Spain and portugal too.

I don't know the actual numbers. I don't know if these countries would in reality be able to pay back the money or not, but people smarter than me seem to think they could.

I keep thinking Denmark in th 80's.
Denmark had spend the 60's and 70's borrowing money to sustain its huge public sector. And in the 80's the hole in the finances had grown to a size comparable to the current greek one (Not quite as huge I think, but we are talking the same magnetude).

There are alot of differences between the two too.
Danes actually trusted that the politicians were trying to save the country, not just get rich them selves.
Though thee EEC didn't like the situation and 'told' Denmark to fix it many times there was no eurozone back then and it was ultamatly Denmark's own desission to fix the situation.

It took about 10 years to pay back the money and get the economy back on its feet. I wasn't fun and I would like to never have to do anything like that again, but it was possible to do.

What's going on here is nuts and blaming it on the populations of individual countries is daft.

What do you mean?

It is the Greek government/leadership which is responsible for how Greece is run. Who else do you want to blame?
(I know ) The EU, right?

I am wondering what Greece is dooing being part of the eurozone in the first place. You can blame the EU for that, but that doesn't change the fact that it was the greek them selves (their leaders (Stupid corrupt people)) who borrowed the money in the first place.

The hysteria with which talk of a vote in Greece has been met by commentators is instructive. Imagine a people having a say in their futures?

The hystaria if you can call it that is that it is not just about their own future, but a lot of other people as well. Maybe you should let the spanish, itallian and irish people have a vote in the Greek referendum

 

[sandandfoam]

I don't know the actual numbers. I don't know if these countries would in reality be able to pay back the money or not, but people smarter than me seem to think they could.

And many smart people think they can not.

I keep thinking Denmark in th 80's.
Denmark had spend the 60's and 70's borrowing money to sustain its huge public sector. And in the 80's the hole in the finances had grown to a size comparable to the current greek one (Not quite as huge I think, but we are talking the same magnetude).

There are alot of differences between the two too.
Danes actually trusted that the politicians were trying to save the country, not just get rich them selves.
Though thee EEC didn't like the situation and 'told' Denmark to fix it many times there was no eurozone back then and it was ultamatly Denmark's own desission to fix the situation.
It took about 10 years to pay back the money and get the economy back on its feet. I wasn't fun and I would like to never have to do anything like that again, but it was possible to do.

OK the Danes are better than the feckless elsewhere. I won't include the French and Germans because I suspect their banks will eventually go wallop too.

It is the Greek government/leadership which is responsible for how Greece is run. Who else do you want to blame?
(I know ) The EU, right?

No. Wrong. If a bank lends me money that I've no hope of paying back it is tough luck. It is wrong that my children, neighbours, family and friends have their futures sacrificed to ensure that said bank get's its poorly invested money back.
I am wondering what Greece is dooing being part of the eurozone in the first place. You can blame the EU for that, but that doesn't change the fact that it was the greek them selves (their leaders (Stupid corrupt people)) who borrowed the money in the first place.

The hystaria if you can call it that is that it is not just about their own future, but a lot of other people as well. Maybe you should let the spanish, itallian and irish people have a vote in the Greek referendum

Better still, we should have our own .

 

[lunakilo]

If a bank lends me money that I've no hope of paying back it is tough luck. It is wrong that my children, neighbours, family and friends have their futures sacrificed to ensure that said bank get's its poorly invested money back.

Ok, the banks are evil, I agree with you there
But it doesn't mean that if you go to the bank and borrow money that you cannot pay back you can just blame it on the bank. You have a brain. You have the responsibility to not borrow money you cannot pay back.

Better still, we should have our own .

On what exactly?

And how does that change the fact that if the greek don't accept the bail-out it will have serious consequences for a lot of people, not just the greek?

 

[Shermana]

Let them take back Istanbul, (not "Constantinople") that should do the trick.

"Istanbul was Constantinople, now its Constantinople, not Istanbul" - projected lyrics.

 

[sandandfoam]

But it doesn't mean that if you go to the bank and borrow money that you cannot pay back you can just blame it on the bank. You have a brain. You have the responsibility to not borrow money you cannot pay back.

That's not what's happening.
As it happens the Irish people are paying back upwards of €700 million to unsecured bond holders in Anglo Irish Bank today.
These bond holders are probably hedge funds who bought paper in Anglo at a hugely discounted rate (we can only speculate because our government won't tell us who we are paying the €700 million over to)
Countries are being laid waste in order that professional investors and financial institutions suffer no loss. That is not capitalism. It is not socialism. It is insane. And somehow or other the powers that be have managed to convince people like the author of the article in the mail and your good self that it is all the fault of the feckless Irish/Greeks/Italian/Portugese etc.
Madness.
We are heading for 1920's style political instability. For whose benefit?

 

[sandandfoam]

On what exactly?

On the bailout.

 

[Cassiopia]

Greece is in debt to banks.
Italy is in debt to banks.
Portugal is in debt to banks.
Spain is in debt to banks.
Ireland is in debt to banks.
But hey, they are all small countries with relatively small economies so why should be care anyway. We can just sneer and say "Well, we wouldn't do that!"
Japan is in debt to banks.
Great Britain is in debt to banks.
The USA is in debt to banks on a scale that makes all the others added together look tiny.
And the banks are all in debt and owe there very existence to the fact that all the countries mentioned above bailed them out.
The system is crazy and unintelligible.

I didn't overdraw my bank account although for most of my life every single bank and similar institution has been encouraging me to do so. That's how the system works I have been told repeatedly, you have to speculate to accumulate.
You probably didn't overdraw your bank account either, at least not more than you know you could pay back under normal circumstances.
Most ordinary Greeks didn't do anything stupid with their money either. Nor the Italians nor the Irish... etc ...etc..
We lived our lives by the rules of the only game in town, Capitalism.
And now the ordinary workers, the pensioners, the sick and disabled are being told they should pay the price of bailing out the system again.
Meanwhile the richest bankers in London are awarding themselves 50% pay increases.
So yes; lets blame the Greeks.

 

[Kathryn]

If banks lend money indiscriminately and make too many bad loans, they go under. They SHOULD go under - they were irresponsibly managed.

That being said, a financial institution should be able to count on a loan made to a European COUNTRY being paid back in a timely manner. I mean, come on.

I'm realizing that the vast majority of politicians apparently don't understand basic economics - either that or they simply don't care. I concede that may be the case - they seem to look only at their own career and securing the next election, and are willing to sacrifice their constituents' long term financial health in order to do so.

That being said, I also believe that the people of a nation as a whole should be able, in this day and age, to understand that unrealistic and unsustainable social programs will drive their country over a cliff, taking them along for the ride.

From HuffPost:

Taxes have gone uncollected forever or have been short stopped by corrupt tax collectors. For decades, Greek governments have paid civil servants bonuses for showing up to work on time and 14 months' pay for Christmas. Retirement has averaged at 53 years of age. The other members of the "Club Med," or Club Nearly Dead, include Portugal, Spain and Italy which have soaring costs and gigantic underground, tax free economies.

There's also Ireland with governments that behaved as if their entry subsidies to the EU would never end.

The Greeks are the worst of the lot, and the Euro lenders should get in there and undertake a couple of obvious reforms in the absence of any Greek political leadership. Tax collection there should be outsourced to independent collection agencies, which know how to deploy tried-and-true measures to get taxpayers to pony up.

One condition of this latest, the fourth, bailout should stipulate the transfer of title of all Greece's publicly-owned assets so they can be foreclosed and sold to cover deficits and pay down debts. Greece, as one German legislator suggested two years ago, has hundreds of beautiful publicly owned islands and other assets that should be privatized to fix the fiscal mess.

By the way, these poorly managed nations are not going to sink the global economy but they should be of concern to everyone. Greece is economically the size of Denmark or Maryland; Ireland the size of Israel or Alabama and Portugal the size of Hong Kong or Louisiana. But if the Europeans keep tiptoeing around this situation, the unraveling of the European Project will unfold, with grave and negative ramifications geo-politically.

The root of the problem is that the euro experiment was badly designed: One cannot have monetary union without political integration, at least when it comes to fiscal and economic policies. So the fixes are obvious and anything less will fall short:

-- All euro countries must scrap their national central banks and bank regulatory systems in favor of one central bank and financial system.

-- The subsidized members must submit to stringent workouts by this new entity and avoid the embarrassment, and risk, of public bond markets. This means the crisis can remain "in house," which is where it belongs for the sake of properly managed members.

-- A portion of the workouts should include loan restructuring and a significant haircut to bond holders or banks who have known for a couple of years the risks involved. They've been betting the Euros will never stop putting bad money in after good.

It all sounds very severe, and there are Greeks protesting on the streets every day. But they were protesting when the retirement age was kept at 53 years of age and when civil servants, who were already underworked and overpaid, wanted more year after.

At least, tough remedies will give them something legitimate to protest in the streets about. That's because the Greeks, and all Euros, must realize that when a client owes a bank one million dollars and cannot pay, the client is in trouble. When a country owes its partners hundreds of billions and cannot repay, the partnership is in trouble.

Diane Francis: Greece Is Not a Country, It's a Party

 

[sandandfoam]

If banks lend money indiscriminately and make too many bad loans, they go under. They SHOULD go under - they were irresponsibly managed.

That being said, a financial institution should be able to count on a loan made to a European COUNTRY being paid back in a timely manner. I mean, come on.

I'm realizing that the vast majority of politicians apparently don't understand basic economics - either that or they simply don't care. I concede that may be the case - they seem to look only at their own career and securing the next election, and are willing to sacrifice their constituents' long term financial health in order to do so.

That being said, I also believe that the people of a nation as a whole should be able, in this day and age, to understand that unrealistic and unsustainable social programs will drive their country over a cliff, taking them along for the ride.

From HuffPost:

Taxes have gone uncollected forever or have been short stopped by corrupt tax collectors. For decades, Greek governments have paid civil servants bonuses for showing up to work on time and 14 months' pay for Christmas. Retirement has averaged at 53 years of age. The other members of the "Club Med," or Club Nearly Dead, include Portugal, Spain and Italy which have soaring costs and gigantic underground, tax free economies.

There's also Ireland with governments that behaved as if their entry subsidies to the EU would never end.

The Greeks are the worst of the lot, and the Euro lenders should get in there and undertake a couple of obvious reforms in the absence of any Greek political leadership. Tax collection there should be outsourced to independent collection agencies, which know how to deploy tried-and-true measures to get taxpayers to pony up.

One condition of this latest, the fourth, bailout should stipulate the transfer of title of all Greece's publicly-owned assets so they can be foreclosed and sold to cover deficits and pay down debts. Greece, as one German legislator suggested two years ago, has hundreds of beautiful publicly owned islands and other assets that should be privatized to fix the fiscal mess.

By the way, these poorly managed nations are not going to sink the global economy but they should be of concern to everyone. Greece is economically the size of Denmark or Maryland; Ireland the size of Israel or Alabama and Portugal the size of Hong Kong or Louisiana. But if the Europeans keep tiptoeing around this situation, the unraveling of the European Project will unfold, with grave and negative ramifications geo-politically.

The root of the problem is that the euro experiment was badly designed: One cannot have monetary union without political integration, at least when it comes to fiscal and economic policies. So the fixes are obvious and anything less will fall short:

-- All euro countries must scrap their national central banks and bank regulatory systems in favor of one central bank and financial system.

-- The subsidized members must submit to stringent workouts by this new entity and avoid the embarrassment, and risk, of public bond markets. This means the crisis can remain "in house," which is where it belongs for the sake of properly managed members.

-- A portion of the workouts should include loan restructuring and a significant haircut to bond holders or banks who have known for a couple of years the risks involved. They've been betting the Euros will never stop putting bad money in after good.

It all sounds very severe, and there are Greeks protesting on the streets every day. But they were protesting when the retirement age was kept at 53 years of age and when civil servants, who were already underworked and overpaid, wanted more year after.

At least, tough remedies will give them something legitimate to protest in the streets about. That's because the Greeks, and all Euros, must realize that when a client owes a bank one million dollars and cannot pay, the client is in trouble. When a country owes its partners hundreds of billions and cannot repay, the partnership is in trouble.

Diane Francis: Greece Is Not a Country, It's a Party

Horse manure.
In Irelands case the loans that are ruining us weren't made to the country. The treasonous government nationalised private bank losses.

 

[Kathryn]

Sorry you don't agree, Stephen.

Look, the populations of European countries elected politicians whose social policies they agreed with. These elected politicians misrepresented and mishandled the finances of these countries, and entered into corrupt alliances with financial institutions and businesses. Inept "public servants" (a phrase that always makes me smile wryly) didn't do their jobs when it came to tax collecting. People living in these countries didn't pay attention to basic math when it comes to birth rates, longevity, tax revenues, retirement age, and the costs of social programs.

Somebody has to pay the piper. He's waiting at the door, and he's not going away.

These systems are absolutely unsustainable. The only good thing I can see about it is that at least SOME Americans are paying attention to the inevitable consequences of irresponsible budgeting and corrupt alliances between politicians and financial institutions.

Maybe it's not too late for us to learn from Europe's mistakes. But I don't have really high hopes in that regard.

 

[lunakilo]

Greece is in debt to banks.
Italy is in debt to banks.
Portugal is in debt to banks.
Spain is in debt to banks.
Ireland is in debt to banks.
But hey, they are all small countries with relatively small economies so why should be care anyway. We can just sneer and say "Well, we wouldn't do that!"
Japan is in debt to banks.
Great Britain is in debt to banks.
The USA is in debt to banks on a scale that makes all the others added together look tiny.
And the banks are all in debt and owe there very existence to the fact that all the countries mentioned above bailed them out.
The system is crazy and unintelligible.

I agree.

I didn't overdraw my bank account although for most of my life every single bank and similar institution has been encouraging me to do so. That's how the system works I have been told repeatedly, you have to speculate to accumulate.
You probably didn't overdraw your bank account either, at least not more than you know you could pay back under normal circumstances.
Most ordinary Greeks didn't do anything stupid with their money either. Nor the Italians nor the Irish... etc ...etc..
We lived our lives by the rules of the only game in town, Capitalism.
And now the ordinary workers, the pensioners, the sick and disabled are being told they should pay the price of bailing out the system again.
Meanwhile the richest bankers in London are awarding themselves 50% pay increases.
So yes; lets blame the Greeks.

I am not actually blaming the greek people.
They are only responsible in as much as they havn't managed to control their own government.
It sucks, yes, but it is their government, so they pay.

 

[sandandfoam]

I agree.


I am not actually blaming the greek people.
They are only responsible in as much as they havn't managed to control their own government.
It sucks, yes, but it is their government, so they pay.

Why are the Greek people responsible for professional bankers who engaged in reckless lending?

 

[Revoltingest]

Why are the Greek people responsible for professional bankers who engaged in reckless lending?

Reckless borrowing?

Blaming others is so much easier than taking responsibility for the consequences one's actions.

 

[sandandfoam]

Reckless borrowing?

Blaming others is so much easier than taking responsibility for the consequences one's actions.

That is meaningless blather, it is trotted out all the time by those who would have us responsible for the fate of internatinal banks.

 

[lunakilo]

That's not what's happening.
As it happens the Irish people are paying back upwards of €700 million to unsecured bond holders in Anglo Irish Bank today.
These bond holders are probably hedge funds who bought paper in Anglo at a hugely discounted rate (we can only speculate because our government won't tell us who we are paying the €700 million over to)

Sound bad.
I have said many times that the way the financial system is currently put together is messed up, and the above sounds like a good (or actually bad) example of that.

Countries are being laid waste in order that professional investors and financial institutions suffer no loss.

In the Greek case I seem to recall something about 50% reduction of debts. That I would call loss of sort

But yes, again, banks and the like playing around with money and getting rich when their gambles pay off but leaving the common people with paying the bill when it doesn't is wrong. This is an area that should be regulated a lot more than it is in my opinion.

That is not capitalism. It is not socialism. It is insane. And somehow or other the powers that be have managed to convince people like the author of the article in the mail and your good self that it is all the fault of the feckless Irish/Greeks/Italian/Portugese etc.
Madness.

It may not be fair, but the fact is that it is that no matter whose fault it is, it is the people who are left with the bill.
Paying it will have consequences.
Not paying it will have consequences.

Now what to do about it?

We are heading for 1920's style political instability. For whose benefit?

I hope you are wrong about that.

It doesn't feel quite that dangerous to me. I may be wrong, I am sitting higher and dryer than the Irish/Greeks/Italian/Portugese (as far as I know ) so I may not be seeing things clearly.

 

[lunakilo]

If banks lend money indiscriminately and make too many bad loans, they go under. They SHOULD go under - they were irresponsibly managed.

But thay don't Kathryn. That is part of the problem. They are bailed out by the government.

 

[lunakilo]

The root of the problem is that the euro experiment was badly designed: One cannot have monetary union without political integration, at least when it comes to fiscal and economic policies. So the fixes are obvious and anything less will fall short:

-- All euro countries must scrap their national central banks and bank regulatory systems in favor of one central bank and financial system.

-- The subsidized members must submit to stringent workouts by this new entity and avoid the embarrassment, and risk, of public bond markets. This means the crisis can remain "in house," which is where it belongs for the sake of properly managed members.

-- A portion of the workouts should include loan restructuring and a significant haircut to bond holders or banks who have known for a couple of years the risks involved. They've been betting the Euros will never stop putting bad money in after good.

I agree that euro experiment was badly designed.
And yes something more like what you describe would work better.

It still doesn't fix the current problem does it.

 

[lunakilo]

Why are the Greek people responsible for professional bankers who engaged in reckless lending?

They are not.

But since they didn't kick them out when they engaged in reckless lending they are stuck with the bill...
... or a collepsed banking system.