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Sunday, July 5, 2015

One Last Word on Greece (Well, Maybe)

As I write, Greeks head to the polls to vote on a referendum which asks the very clear and understandable question,
“Should the plan of agreement, which was submitted by the European Commission, the European Central Bank and the International Monetary Fund in the Eurogroup of 25.06.2015 and is comprised of two parts that constitute their unified proposal be accepted? 
The first document is entitled “Reforms For The Completion Of The Current Program And Beyond” and the second “Preliminary Debt Sustainability Analysis.”
OK, OK, yes, it's all Greek to me. Nobody really knows what is being asked (read the press accounts--everybody has a different view) especially since the "plan of agreement" has been withdrawn.  Nobody seems to know what either a "YES" or a "NO" result would mean.

Insofar as I can tell, we're down to symbolism. A "YES" vote means, apparently, that Greeks want to keep trying to work things out with the EU, the ECB, and the IMF; a "NO" vote means, apparently, that Greeks want to keep trying to work things out with the EU, the ECB, and the IMF, but with a nasty tone in their collective negotiating voice.

Stock markets are going nuts; bureaucrats are setting their hair on fire; chickens are quacking; ducks are roaring; lions are barking; horses are mewing; Democrats are owning up to their racist past and present; Obama loves America; global warming is real; Australians have given up cricket for crochet; the world has stopped spinning; and I am going to watch the Women's World's Soccer Cup. Go USA!

P.S.: Given that the MSM is calling it too close to call, I guess that means the "NO" will win . . .

26 comments:

  1. Women's football?

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    1. As to women's soccer, big whoop.

      Our dykes beat their dykes. I'm so proud to be on the winning side.

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  2. Looks like your right on the mark. When ever media says too close to call it means it is not going the way they would like it. Beautiful sounds to my ears to hear CNN, MSNBC, Times, Washington Post all proclaiming too close to call in late October 2016.

    BTW: The Greeks voted no, and it wasn't close. Guess it's time to fire up the Drachma press.

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    1. Aye, it was a very shrewd remark. Congrats to the blogger.

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  3. sounds all but confirmed at this point... was a joke of a question... "should we stay in this HOA, or make our own subdivision and declare that nobody can change the colors of their houses?"

    I suspect there's very little really at stake here... money's already been burnt... how the EU goes about recognizing the loss doesn't really matter.. smart move to kick out Greece since they can't pay back their debts.

    - reader #1482

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  4. PS.. thanks for a new post pushing that pic down the line.. might not have been for me, but much appreciated anyways.. :)

    - reader #1482

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  5. What I can't understand is why markets in stable countries (like USA) are dropping "in response to the Greek crisis". Surely this loss has already been factored into the prices of equities and bonds.

    Graham

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    1. The problem is that it isn't just a 'Greek' crisis, it's a crisis of most countries in the EU, and there is a lot of foreign investment in the EU generally. Most of these EU countries owe money since they are living beyond their means and it's all based on this situation continuing. With Greece upsetting the applecart and refusing to double down on their financial serfdom to their debtors, this situation may change.

      Some investors were betting that Greece would prostrate itself at its debtors feet and accept more money with a promise to sell their assets, change their banking and political systems, and keep Greeks financial beggars in the EU. Even if this could not last forever (and it could not since the amount borrowed is insufficient to pay off the interest on their existing debt), the investors in other countries were hanging on hoping that they would be able to capitalise on their investment before the inevitable crash would wipe out these investments.

      The worry for non-EU investors is that if Greece can refuse continued unsustainable loans (to sustain potentially worthless investments), then others might do the same. And then where would we be?

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    2. I'm not sure this entirely describes the situation. Generally with these kinds of bailout type situations, the expectation is that economic growth will obviate the debt in the future. Just like Americans tend to see mortgages as greater than their 'GDP' to be a good bet... these nations are doing the same.. epxcept without collateral. :)

      - reader #1482

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    3. Normally you borrow in the expectation that the money will be invested in productive ventures that will both pay back the interest in the loan and also the principal borrowed. In the case of Greece (and so many other countries) this is cannot happen and money borrowed is used to service existing debt or pay pensions, welfare and government employees. Their structural debt is so great that the traditional way of dealing with it - by devaluing the currency - is not available while the Greek Euro is tied to the EU Euro.

      Few Greeks are involved in businesses or industries that generate strong tax revenues, all are seemingly involved in their national sport of tax evasion, and then combine this with a reproduction rate of 1.4 children per couple, the problem is going to get worse before it gets better. Contrary to many people's belief, the government employing more people makes the deficit issue worse since their wages have to come from somewhere and that somewhere is usually more debt. The inefficiency of government almost guarantees that they are not adding more value to the economy than they are taking from it.

      The bailout is a temporary measure - every economist and government knows it, but I suspect that all want the collapse to occur at any time after the day after they cease to need to do anything about it (retire, lose government or die).

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    4. There are a lot of reasons but the biggest is that all of the large European banks are basically insolvent (though everyone is pretending that the are not). The current Greek situation may (finally) require acknowledgement of that fact, and since the entire financial infrastructure is interconnected (basically, it requires the trust that counterparties to contracts will fulfill their obligations), contagion in the large European banks will definitely affect the United States. So the European banks have exposure to Greece (they will lose a lot of money when Greece defaults), and the American banks have exposure to the European banks.

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    5. to 7:07 Anon
      Did the banks make loans to reasonable qualifying entities that are now in default? or loans to cronies that are walking away with the depositor's funds.... or loans to entities after government regulators gave them the Don Corleone line about " nice place you have here, shame if something happened to it... "(from memory not verbatim)

      Which of those three does make a HUGE VAST difference IMHO.

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  6. Greece is nearing the end of the Far Lefts inevitable economic outcome. Having been told they may no longer spend other peoples money (Germany) the Greeks have thrown a tantrum and shouted 'NO.'
    What remains to be seen is if the Euro-zone has the stones to cut Greece lose (with a lesson learned and a warning to other Leftist Governments to get their houses in order) or will they continue to coddle the Greeks at the expense of the entire experiment.

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  7. This comment has been removed by a blog administrator.

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    1. This comment has been removed by the author.

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    2. Evidently all passed with flying colors.

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  8. The problem is...that Greece insists on getting more money now, and the admission that they don't have to pay back what they "borrowed" before (with the position that if they get enough additional money now they will only default on that part of the debt due now instead of the open threat of defaulting on all of it)
    Add to the framing of the problem is that the Greeks elected a new government that promised both no new taxes to pay the notes, and an end to the "austerity" measures that might have allowed them to be able to repay those notes without large tax increases.

    My understanding is it boils down to two positions, with caveats, deceits, and weasel-wordings; as filtered through the cold hard math of loan repayment.

    1) The EU is so desperate to keep Greece that they legitimize the default on the existing loans, and give the Greeks more money to reward the No Austerity Party and its supporters.
    2) The portions of the EU that would lose the value on the existing notes and likely get stuck paying the "bailout" program say "NO MORE!!, if you leave you leave, but we are not going to further loot our pensions to fund yours."

    Please note that neither position is heavily influenced by the Greek referendum except to the extent that the money people holding the notes can deceive themselves that they will get their money back and thus don't go after punitive measures while they have that hope. The actual referendum itself is about putting pressure on the EU for option 1, while shifting blame off the Greek ruling party who campaigned for exactly that.

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  9. Dear Hellenosocialists: Will the resurrected drachma or whatever cover the obligations to which all Greeks are entitled?

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    1. I think the answer is 'yes' by definition?
      Greece will declare the revival of the drachma, print (or 'quantitative ease', whatever you want to call it) a bunch and declare it of equal value to Greece's outstanding debt. All internal payments will be in drachma and only a select few will be allowed to turn drachma into USD or euro at the officially fixed exchange rate. It'll basically be the same thing as any south-of-the-equator banana republic. What it probably wont be, is a disaster.
      There may be some additional losses at Greece disengages from the EU, but their pains from that may be shored up by working with the 'multipolars', ie russia and china. Either way, I can't see how this winds up being big potatoes. I mean, Greece's GDP is like 10% of California's. Greece's impact probably wont be larger than the latest round of California cities going bankrupt.

      - reader #1482

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    2. "Either way, I can't see how this winds up being big potatoes."

      I would never put that in writing (just because of the potential of all of Europe blowing up). :)

      I HOPE it won't be a big deal, but really, Portugal, Italy, Spain, and even France, are all in the same leaky boat - unsustainable debt that people have refused to believe. Greece leaving the Eurozone could topple the entire edifice (for many reasons).

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    3. George Will pointed out last night that Greece's economy is about the size of Louisiana's .

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  10. As others have said, perhaps it is time for Germany to leave the Euro, not Greece.

    Graham

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  11. The Greeks were never bailed out. In 2010 Greece was bankrupt and the bailout allowed Greece to borrow from the EU and European governments so that the could pay the existing bonds held by European banks, mainly French and German banks. Given that Greese couldn't pay the original debt; why anyone would think that the could pay it back with the more interest tacked on is beyond me.

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    1. ... it seemed apparently to me that they were hoping the economy would rebound after the financial crisis... also, inflation reduces the value of existing debts, so everybody might've been hoping for a little more of that. With enough of both, and assuming that Greece wasn't so messed up that they can't thrive in a booming economy (incorrect assumption), it probably wasn't a crazy attempt to kick the can down the road to where they thought a pot of gold lay? :)

      - reader #1482

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