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News Greece closes banks and imposes capital control

  1. Jun 28, 2015 #1
    In last days two very important stuff (Tsiparis annoucing referendum concerning accepting bailout conditions and terrorist attack in Tunisia) got covered by US homosexual couples...

    So far, for months, it was just usual bickering and last moment deals. It seems that this time is different:

    http://www.bbc.com/news/world-europe-33305019

    Executive summary for Americans:
    Greece is deep in debt, it was bailed out because its collapse was considered as threat as to Eurozone. Evil Troika (IMF, Eurozone and ECB) were supervising an austerity/reform program. ECB lead too conservative monetary policy and Greek state was a bit too dysfunctional to actually implement reform programs. Result was highly unpopular mixture of tax increase and spending cut which made Greek society vivid. Add to it huge unemployment for which a bit ECB can be blamed and lack of structural reforms which are to blame both Greek political class and Greek society.

    In January 2015 a populist politician on anti-austerity agenda (or "EU give us more money agenda") was elected and it moved from bad to worse. So far it looked as mixture of bluff and game of chicken negotiations. Now his failure to reach a deal withEurogroup and instead his asking of bailout extension to have enough time to make a referendum whether to accept this bailout conditions lead to a mass cash withdrawal.
     
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  3. Jun 28, 2015 #2

    lisab

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    This really worries me. Tomorrow (Monday), the government has ordered the banks to close:

    http://www.bbc.com/news/world-europe-33305019

    Czcibor, you study economics - can you explain the link between Greece defaulting, and Greece exiting the EU (if there is a link)?
     
  4. Jun 28, 2015 #3

    phinds

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    Evil troika? Seriously?
     
  5. Jun 29, 2015 #4
    Why can't the EU let Greece go if it's defaulting?
     
  6. Jun 29, 2015 #5
  7. Jun 29, 2015 #6
    Theoretically - no such requirement

    In practice:
    -Under normal conditions local financial institution can borrow money from central bank using his gov bonds as collateral. Under normal conditions they are automatically considered as a good collateral (while it may be more tricky with corporate bonds or municipal). So far ECB was stretching its rules to accept Greek bonds, in case of uncontrollable collapse it ECB may give up. In such case it would mean that Greek financial system could be without cash until the situation calms down.
    -There is no procedure to leave Eurozone, but from the Reforming Treaty there is a procedure for leaving the EU.
    -Greek banks would be busted and require immediate assistance. Greeks who had some money in their banks should be protected up to 100 000 euros (EU regulation which may be a bit problematic in that moment).
    -Greece would leave a few debts behind. You've seen the long list on BBC site. I'd add a liability of 100 000 mln euro from Target 2 system (which so far is merely an info about imbalance in settlements between Eurozone countries, but in case of leaving Eurozone should be settled). Taxpayers in a Eurozone countries would be vivid and may seek revenge or just to collect EU funds directed to Greece (no idea which procedures would work here).

    Honestly? Doable in both way. In the EU there was a strong political pressure to keep Greece at all cost. The good will is mostly exhausted in societies. My guess (disclaimer: don't take economist guess too seriously) is not Greece leaving immediately EU, but an escalation of conflicts that leads Greece to leave the EU. (As one of many, but less known issues of contention - Baltic states are poorer than Greece, had recently an extreme austerity and somehow survived that. Greece asking them for money and in the same time flirting with Russia is for them an abomination). There is also plenty of politics (including internal politics in member states) and last moment deals done outside of cameras. Honestly - hard to say.

    According to Greeks is almost synonymous of pure evil ;)
     
  8. Jun 29, 2015 #7
    Because at this moment gov debt is mostly owned by govs? So some people would like to see their money back...

    Plus there is there is the same logic that kept the USA in Vietnam for a while... (Yes, a joke. But think about a case where it looks that a problem is clearly solvable at start. So you put money. Then you discover that you have to put some extra money from time to time. It would be a shame to the politician during whose term it would collapse, so let's continue the process... )
     
  9. Jun 29, 2015 #8

    phinds

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    I typed a long response to this but I find that I simply cannot remain honest and not insult Greeks to a degree that is probably (and should be) against forum rules so I deleted it.
     
  10. Jun 29, 2015 #9
    EU can't let Greece go mostly for political reasons: they're near the Middle East, so we need a stable country in that area (keeping their military strong, preventing terrorists from entering Europe, etc..), and EU doesn't want Greece to come under Russia's influence.

    Many of former Greek government people in the last administrations should go to jail due to their corrupt mismanagement, but we can't blame their whole population for this. On the EU, Germany has an excessive influence over the Union, and so they can defend their position without much troubles, which is making countries pay what they owe no matter what their situation is. Also ironic that after WWII there was solidarity with Germany, and debt defaulting/ renegotiation, despite their obvious blame in starting the War, just so they wouldn't enter in an economic depression just to pay what they owed.
    Now they're ruthless with the countries that helped them before, and no country can follow their own national interest. Further more, the debt crisis in peripheral countries was in part due to EU plan of increasing government spending when the economic crisis started, with the avail of the ECB. When our governments got in trouble, ECB looked the other way and did nothing to help. Now they blame Southern Europe, which is laughable due to the benefits that Germany got from qualified immigration from the South, with the education paid by their native countries of course. And since the beginning, a weaker currency than the Germany Mark, the Euro, benefited their economy. This wasn't like successful Unions such as the United States were formed; there needs to be solidarity between states, within acceptable boundaries. Austerity was necessary, don't get me wrong, but from the begginning, the implementation of austerity should've been slower, and the monetary policy should have been adjusted to the current situation like it happens in any developed country. In Greece it's obvious that it was past that point where with austerity, the country could still be saved, so they either bail out Greece now, or it defaults.
     
  11. Jun 29, 2015 #10

    phinds

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    Absolutely true, but neither should we find it acceptable that the Greek population seems to blame Europe for their troubles rather than their own corrupt and incompetent government. I don't mind that they want help to bail them out of their problem, and it seems to be in everyone's interest for that to happen, but I find it deeply offensive that they blame others for their troubles. Germany didn't whine about having had the crap bombed out of it during the war and they were grateful for the help they got from a former enemy that was under no obligation to help them rebuild. The Greeks seem to want a free lunch.
     
  12. Jun 29, 2015 #11
    I remember the same fears concerning Cyprus and it turned out that Russia was uninterested in paying, even though it was more rational as it could have saved Russian oligarchs money.
    But actually I want Russia to try to buy some support of Greece for high price...

    Democracy?

    So far there was already a haircut with Greek debt...
    I think that reasonable emigrants are easy to come by and Germans could have got them from Slavic countries or Balkans.

    I bet that if Germans regret joining EMU, and if had a chance to pick their poison they would prefer to fight with overvalued currency as Swiss do.

    While I agree with problem with too strict monetary policy (which now, after QE and negative deposit rate is no longer an issue) there are a few important aspect that you seem to ommit
    -Austerity not working... Yep, but Troika insisted also on structural reforms and Greeks were even less cooperative with that.
    -there was a few days ago on table a bail out proposal - but you know, if Greek stance is "we don't want austerity, we don't want reforms, give us more money", then there is an uncomfortable question whether Eurozone is not sending good money after bad. And cutting losses seems rational.

    There is also inconvenient question why on Earth quite a few countries of Eurozone, after a crash were able to repair their economies (like Ireland or Latvians). And why Greeks are unable to do that.

    And for a few second without using word "blame", "guilt", "fault", etc. Just a purely technocratic question - is Eurozone able to impose reforms on Greeks to lead them on reasonable path, against will of their nation and political class? (I'm talking about solving problem, not just delaying problem by a few months) If such aim looks almost impossible, then maybe just give up and concentrate money and organizational effort on solvable issues.
     
  13. Jun 29, 2015 #12

    phinds

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    Exactly. The Greeks caused the problem, exacerbated the problem and now want a free lunch on top of previous free lunches and are furious that no one wants to give them one unless they learn how to make their own. The way their politicians talk you'd think they'd at least be good at making bologna sandwiches.
     
  14. Jun 29, 2015 #13

    russ_watters

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    Nothing against the Greek people per se, but I'd like to see them sleep in the bed that they've made. I'm tired of "too big to fail" at any level and I think it sets a bad precedent when people aren't forced to suffer the consequences of their bad decisions.

    That, and if the US ever got to that point, there'd be no one capable of bailing us out: too big to fail but too big to save.

    My hope is that a collapse of Greece (and Eurozone depression?) will wake up the American people/population to do something about our own debt/entitlement problems before our situation becomes similarly untenable.

    I also hope Jurassic Park opens soon, too.
     
  15. Jun 29, 2015 #14

    Vanadium 50

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    I think Greece has demonstrated that eventually one runs out of other people's money.
     
  16. Jun 29, 2015 #15
    Didn't this almost happen last year with the arguments about raising the debt ceiling?
     
  17. Jun 29, 2015 #16

    russ_watters

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    No. That was an internal political game, not a real debt crisis. For the US, Republicans threatened to not authorize increasing the debt, for Greece, it is the creditors who are not willing to lend any more money. Even if no one blinked in the US debt crisis, there always existed the possibility that we could just get out of it by making a decision - so a default would have been relatively meaningless. For Greece, there simply is no more money to be had.
     
  18. Jun 29, 2015 #17

    phinds

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    To add to what Russ said, it's the difference between having a totally screwed up government and no money (Greece) and having a totally screwed up government but still having money (the U.S.)
     
  19. Jun 29, 2015 #18
    Having no one willing to lend you money, and not being legally allowed to continue borrowing money they both result in the same outcome. Not having enough cash to handle your day to day finances.
    Yes I'll agree that in the situations the US was still in a much better off position than the greeks find themselves today. The one outcome is a lot of countries need to seriously examine how they handle their finances. We simply cannot keep on maintaining these levels of debt and expect there to never be consequences. (Although my money is on countries simply inflating their way out lol)
     
  20. Jun 29, 2015 #19
    http://www.stuff.co.nz/business/wor...g-talks-break-down-after-snap-referendum-call

    If they default, what ripple effects will that have on the global economy?
     
  21. Jun 29, 2015 #20
    Concerning comparison Greece vs. USA, I highly recommend you Fukuyama's "Political Order and Political Decay". Greece was shown as example of "bad", USA as "average", while as "good" - Denmark.


    One more issue that may be unclear to Americans: why no decisions? It would seem as reasonable to just do something in one way or another, to end uncertainty on markets. It's a political issue. EU wanted to avoid self fulfilling prophecy, so top politicians avoided to officially consider Greek leave, up to a level that it was sounding as denial phase. Also everyone is preocupied in making everything look as irresponsible decision of the other side. So decisive moves, just continuing the mess.
     
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