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

[sandandfoam]

I have a feeling that the problem isn't so much the debt they allready have, but the fact that the government is spending WAY more money they get in.

They recieved billions of € in a bailout package so that they could afford to par peoples salaries. A few month later all that money was gone and the overspending problem not solve.

This is going to be a problem nomatter if they default or not.

If they don't default they will have to make all those cuts in public spending the EU and IMF demand, and that is not going to be popular.

If they default,they wil have trouble borrowing more money, and they just won't have the money to pay peoples salaries. That is not going to be popular either.

Either way, is not going to be popular.

Greece has implemented a lot of 'austerity'. We're in the same boat in this country. Our incomes have been savaged by the government and there's another 'austerity budget' that's going to kick us about the place again on the way.
Spending is dropping like a stone because people have no money.
For as long as governments implement austerity governments will end up spending more than they collect because tax revenues plummet as incomes and spending crash.
The EU and IMF can impose austerity that drives us back into the stone age but it won't make it any more possible that impossible debt can be repaid.
Governments are always going to spend way more than they bring in when what they are bringing in is forced to fall.

 

[sandandfoam]

This sounds about right. The majority should dictate what the minority does with their money. :ignore:

The German's where fools getting away from the d-mark.

I was listening to the radio this morning and this post came to my mind.
You're wrong. Taking on the euro was the smartest thing ever for the Germans.
Because they have the euro, the German economy (and the French and the other strong economies) are being subsidised by the weaker European economies. We in Ireland have a much stronger currency than we should. We are prohibited from devaluation, we are uncompetative. Greece Portugal Italy etc the same.
The Germans and French on the other hand have the benefit of an undevalued currency to amplify the strength of their already strong economies.
They are ruining us, they have taken our sovereignty, they have our subsidy and they are requiring thanks at the same time. It is a masterstroke.

 

[Flankerl]

You know no one forced you to implement the Euro.
Other EU countries never adopted the Euro and are just fine.

 

[Terrywoodenpic]

You may ask why the Banks have agreed to write off half of their loans to Greece? the answer is perhaps that the money was formed by the debt in the first place. That is what money is.
Writing off the debt only reduces the interest they would have received from the loan.
If the loan had been paid off the interest payments would also have stopped anyway.

The banks simply create more money by lending elsewhere.

So who loses... hopefully no one... provided the banks retain confidence, money creation will continue as long as debt increases. In this horrible system, provided Banks can continue to find people to lend to, and comply to what ever the statutory requirements are current in that country.Then the monetary system is secure. It is only when they can not create money by lending because people no longer trust them, that there is a problem.

 

[Kathryn]

If I have a house on stilts and all four stilts are strong, it's good. But if one of those stilts is weakened, my house is destabilized and in danger of tumbling down.

The European economy is the house. The stilts are the countries. Several of the stilts are cracked or warped and the whole house of cards is in danger of tumbling down.

For the life of me I can't see how Germany and France benefit from this instability.

I lived in Germany when it was unified. I saw how East Germany sucked West Germamy dry (it's STILL more drag than lift, 20 years later).

I never did think this whole EU thing was a good idea.

 

[Kathryn]

The banks simply create more money by lending elsewhere.

So who loses... hopefully no one... provided the banks retain confidence, money creation will continue as long as debt increases. In this horrible system, provided Banks can continue to find people to lend to, and comply to what ever the statutory requirements are current in that country.Then the monetary system is secure. It is only when they can not create money by lending because people no longer trust them, that there is a problem.

That's a big "if."

Sometimes it's not that people don't trust the banks - it's the other way around. Banks don't want to lend money to people who won't pay that money back. If a bank lends Joe $20,000 and Joe doesn't pay it back, the bank doesn't just recoup that money by lending Tom $20,000. It's an actual loss.

They'd have to lend Tom, Mary, Jean, Bill, and a bunch of their friends $20,000 to even begin to recoup that loss from Joe's default. Oh, and then here's the tricky part - they'd all have to actually repay their loans.

The trouble today isn't that banks aren't willing to lend - it's that their pool of potential debtors has shrunk -due to many factors, including lowered incomes, higher debt to income ratios, and poor credit scores.

 

[Flankerl]

The problem is that the EU got way too big. A relative small "EU" consisting of france, germany, the BeNeLux and perhaps austria and denmark would work better. Perhaps even sweden.

But thats big enough.
I mean what sane human being would admit bulgaria or romania into the EU? Its just not a good idea.

Or even poland a relatively rich country. They got into the EU and from day one just spouted anti franco-german propaganda of how the germans are going to come back and drive them from their land.
And the next day you are on the train and see how an average conscript of the army basically gets ignored, looked at with distrust and really just feel a bad mood coming from the people around him. And then you are like "oh yeah the germans are really gonna mess you up...."

 

[Terrywoodenpic]

You know no one forced you to implement the Euro.
Other EU countries never adopted the Euro and are just fine.

Not Quite true... we are all connected by trade, and will all feel the pain.

The problem is that when the Euro was adopted, those countries failed to put any fiscal controls in place. Individual countries can spend and borrow with out limit.
This is exactly what many did. The problem now is setting in place a central budget system to prevent further abuse. This inevitably means loss of financial sovereignty.

If this was done the present levels of debt would be no more a problem than before the bank collapse. Repayments of debt could be refinanced at lower central interest rates and controlled.

At the moment the Euro is uncontrolled and at the mercy of the whims of the individual countries.

 

[Terrywoodenpic]

That's a big "if."

Sometimes it's not that people don't trust the banks - it's the other way around. Banks don't want to lend money to people who won't pay that money back. If a bank lends Joe $20,000 and Joe doesn't pay it back, the bank doesn't just recoup that money by lending Tom $20,000. It's an actual loss.

They'd have to lend Tom, Mary, Jean, Bill, and a bunch of their friends $20,000 to even begin to recoup that loss from Joe's default. Oh, and then here's the tricky part - they'd all have to actually repay their loans.

The trouble today isn't that banks aren't willing to lend - it's that their pool of potential debtors has shrunk -due to many factors, including lowered incomes, higher debt to income ratios, and poor credit scores.

Not quite true... that $20,00 was created by the bank by agreeing the debt... True there are a lot of figures on the various balance sheets. but it represents only a very small, if any, loss to the real assets of the bank, and it results in a loss of interest earnings. The Nations general moneygoround would hardly notice a blip.

Banks do not lend "Real" money. It is simply added to both sides of the balance sheet. Money creation. It is only when a bank fails and the books are balanced that we find the real situation. If they were lending actual deposited money the situation would be different.

If Banks do not lend, they in effect cease trading... lending is their life blood. They need to lend money even more than an individual needs to borrow. It is a matter of confidence. The economy needs to improve, that will not happen without investment and employment, it is a closed system. It takes governments to break the cycle.

 

[Terrywoodenpic]

The problem is that the EU got way too big. A relative small "EU" consisting of france, germany, the BeNeLux and perhaps austria and denmark would work better. Perhaps even sweden.

But thats big enough.
I mean what sane human being would admit bulgaria or romania into the EU? Its just not a good idea.

Or even poland a relatively rich country. They got into the EU and from day one just spouted anti franco-german propaganda of how the germans are going to come back and drive them from their land.
And the next day you are on the train and see how an average conscript of the army basically gets ignored, looked at with distrust and really just feel a bad mood coming from the people around him. And then you are like "oh yeah the germans are really gonna mess you up...."

It is not that the EU got too big, it is that too many of them who had very different financial and legal positions were allowed to Join the euro.
There should perhaps have been a three tier system. A Basic member who could trade but who needed to bring their laws and finances up to an agreed standard, but who had no vote on these matters.
Senior members who had finished the process of equalisation and could vote on everything except on Euro matters.
Full members who had integrated their financial system and budgets and adopted the EURO.

 

[lunakilo]

Greece has implemented a lot of 'austerity'.

Maybe so, but I can just see money disappering.
Was it 110 billion[FONT=&quot] € the greek borrowed in May.[/FONT]
6 month later the money is gone that is over 15 billion [FONT=&quot]€[/FONT] a month!

We're in the same boat in this country. Our incomes have been savaged by the government and there's another 'austerity budget' that's going to kick us about the place again on the way.
Spending is dropping like a stone because people have no money.

For as long as governments implement austerity governments will end up spending more than they collect because tax revenues plummet as incomes and spending crash.
The EU and IMF can impose austerity that drives us back into the stone age but it won't make it any more possible that impossible debt can be repaid.
Governments are always going to spend way more than they bring in when what they are bringing in is forced to fall.

Right, but what is the alternative?
If a country spends more money that they get in via taxes+exports then they are in trouble.
If it does this for many years it is in even more trouble.

If you don't cut the spendings but in stead borrow the money you may make people happy right now because they have money to spend, but it will catch up with you eventually. You will just have to make even larger cuts in the future.

... or do the defaulting thing, but that means it is going to be difficult to borrow money and people will again not have any money.

 

[lunakilo]

You may ask why the Banks have agreed to write off half of their loans to Greece? the answer is perhaps that the money was formed by the debt in the first place. That is what money is.
Writing off the debt only reduces the interest they would have received from the loan.
If the loan had been paid off the interest payments would also have stopped anyway.

The banks simply create more money by lending elsewhere.

So who loses... hopefully no one... provided the banks retain confidence, money creation will continue as long as debt increases. In this horrible system, provided Banks can continue to find people to lend to, and comply to what ever the statutory requirements are current in that country.Then the monetary system is secure. It is only when they can not create money by lending because people no longer trust them, that there is a problem.

Well I would say there was a problem all along, people just didn't notice

It is a sick system by the way, but it doesn't change the fact that that is how it works (or doesn't work depending on how you look at it)

 

[lunakilo]

If I have a house on stilts and all four stilts are strong, it's good. But if one of those stilts is weakened, my house is destabilized and in danger of tumbling down.

The European economy is the house. The stilts are the countries. Several of the stilts are cracked or warped and the whole house of cards is in danger of tumbling down.

For the life of me I can't see how Germany and France benefit from this instability.

I lived in Germany when it was unified. I saw how East Germany sucked West Germamy dry (it's STILL more drag than lift, 20 years later).

I never did think this whole EU thing was a good idea.

The "EU thing"and the "Euro thing" are not the same "thing".

 

[lunakilo]

The problem is that the EU got way too big. A relative small "EU" consisting of france, germany, the BeNeLux and perhaps austria and denmark would work better. Perhaps even sweden.

I am so glad that I perhaps qualify

But thats big enough.
I mean what sane human being would admit bulgaria or romania into the EU? Its just not a good idea.

Or even poland a relatively rich country. They got into the EU and from day one just spouted anti franco-german propaganda of how the germans are going to come back and drive them from their land.
And the next day you are on the train and see how an average conscript of the army basically gets ignored, looked at with distrust and really just feel a bad mood coming from the people around him. And then you are like "oh yeah the germans are really gonna mess you up...."

It depends on what you want with the EU.
There are many different people who have many different visions of what the EU is supposed to be. The current version is the comprimise that satisfies no one.

But EU ≠ Euro. Remember that.

 

[Flankerl]

I am so glad that I perhaps qualify

I wrote perhaps because i know that denmark is more attached to the northern/scandinavian countries.