Greece closes banks and imposes capital control

[Czcibor]

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.

 

[lisab]

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)?

 

[phinds]

Evil Troika (IMF, Eurozone and ECB)

Evil troika? Seriously?

 

[Greg Bernhardt]

Why can't the EU let Greece go if it's defaulting?

 

[StevieTNZ]

http://www.stuff.co.nz/business/ind...lar-shares-fall-as-greece-prepares-to-default

The effects of Greece on the NZ dollar...

 

[Czcibor]

Czcibor, you study economics - can you explain the link between Greece defaulting, and Greece exiting the EU (if there is a link)?

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.

Evil troika? Seriously?

According to Greeks is almost synonymous of pure evil ;)

 

[Czcibor]

Why can't the EU let Greece go if it's defaulting?

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... )

 

[phinds]

According to Greeks is almost synonymous of pure evil ;)

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.

 

[Tosh5457]

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.

 

[phinds]

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.

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.

 

[Czcibor]

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.

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...

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.

Democracy?

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.

So far there was already a haircut with Greek debt...

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.

I think that reasonable emigrants are easy to come by and Germans could have got them from Slavic countries or Balkans.

And since the beginning, a weaker currency than the Germany Mark, the Euro, benefited their economy.

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.

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.

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.

 

[phinds]

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.
.

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.

 

[russ_watters]

Democracy?

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.

 

[Vanadium 50]

I think Greece has demonstrated that eventually one runs out of other people's money.

 

[cpscdave]

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.

Didn't this almost happen last year with the arguments about raising the debt ceiling?

 

[russ_watters]

Didn't this almost happen last year with the arguments about raising the debt ceiling?

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.

 

[phinds]

Didn't this almost happen last year with the arguments about raising the debt ceiling?

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.)

 

[cpscdave]

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)

 

[StevieTNZ]

Stunned Greeks are facing shut banks, long supermarket lines and overwhelming uncertainty as a breakdown in talks with international lenders plunges their country deep into crisis.

With Greece's bailout expiring on June 30 and an IMF payment falling due at the same time, Prime Minister Alexis Tsipras pleaded in vain by phone with European officials to extend the programme until a referendum on July 5 on its future terms.

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?

 

[Czcibor]

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)

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.

 

[Vanadium 50]

Didn't this almost happen last year with the arguments about raising the debt ceiling?

It's exactly the opposite. The difference is that there the argument was whether or not the US should be willing to borrow. Here it's a case of Greece's creditors being unwilling to lend.

 

[StevieTNZ]

https://nz.news.yahoo.com/a/28606511/what-happens-if-greece-defaults-on-imf/ -- this article summaries nicely what will happen if Greece misses it payment today.

 

[Czcibor]

Greek Finance Minister http://www.aa.com.tr/en/mod/tag/yanis-varoufakis told the press on Tuesday that his government would sue the European Commission for the imposition of capital controls on banks, and against an eventual expulsion from the euro system.

Varoufakis said Greece would seek an injunction in the European Court of Justice to end capital controls and to block any attempt to expel http://www.aa.com.tr/en/mod/tag/greece from the euro system.

http://www.aa.com.tr/en/news/546813--greece-varoufakis-threatens-lawsuit-against-commission

Somehow I don't consider his chances as good... ;)

More serious problem: busy in making PR stunt, instead of organizing tidy exit (or hypothetically instead of making a deal with Eurozone).

 

[Vanadium 50]

They have very few choices other than stunts. Greece can't pay its debt - it needs new loans to service old loans. The lenders have recognized this, and have refused to issue new loans. The sort of financial changes needed to put Greece on a course where they could someday pay back the money they would like to borrow are politically impossible.

 

[Czcibor]

They have very few choices other than stunts. Greece can't pay its debt - it needs new loans to service old loans. The lenders have recognized this, and have refused to issue new loans. The sort of financial changes needed to put Greece on a course where they could someday pay back the money they would like to borrow are politically impossible.

There is from economic (yes, I know political trumpets that) perspective one thing to do. Organize tidy leaving. If you know that you're leaving, instead of closing banks and waiting (what for?) just start introducing drachma. No more delaying. Inform about conversion mechanism, pass laws concerning how the money is to be exchanged. Start printing ;) Waiting is only harmful for economy.

 

[russ_watters]

https://nz.news.yahoo.com/a/28606511/what-happens-if-greece-defaults-on-imf/ -- this article summaries nicely what will happen if Greece misses it payment today.

Interesting -- so just like not paying your credit card bill or mortgage, the actual process for doing something about it isn' instantaneous. But I wonder if the financial markets would be so forgiving?

 

[russ_watters]

There is from economic (yes, I know political trumpets that) perspective one thing to do. Organize tidy leaving. If you know that you're leaving, instead of closing banks and waiting (what for?) just start introducing drachma. No more delaying. Inform about conversion mechanism, pass laws concerning how the money is to be exchanged. Start printing ;) Waiting is only harmful for economy.

What about the other thing: actually behaving responsibly with their budget? That doesn't address the issue of out-of-control spending, so after they default and leave the Euro, who is going to want to lend them money again if they are just going to spend themselves into extreme debt again?

 

[Zarqon]

What about the other thing: actually behaving responsibly with their budget? That doesn't address the issue of out-of-control spending, so after they default and leave the Euro, who is going to want to lend them money again if they are just going to spend themselves into extreme debt again?

It seems Paul Krugman says the austerity measures actually helped to bring down their spending to reasonable levels. In his view the final problem was partly due to too high EU demands and partly that they had no own currency to devalue enough to make their own market competative internationally, and no longer problems with spending. For these reasons he seems to actually speak in favor of a greek exit in nytimes, an interesting read.

 

[Czcibor]

What about the other thing: actually behaving responsibly with their budget? That doesn't address the issue of out-of-control spending, so after they default and leave the Euro, who is going to want to lend them money again if they are just going to spend themselves into extreme debt again?

Problem: making them actually behave themselves failed in last few years.

No one is going to lend them money, there would be just some vivid creditors trying to get their debts back. That would be a valuable lesson in budget prudence. They are not not far away from balanced primary budget. Suddenly their economy would become competitive (sure, thanks to real wages going down, but that would be done in a silent way, and some people would even become a few new drachmas raise). They would also have a very valuable experience in state governance, that would give a reform mandate for a new political group.

I treat it line, that to start behaving reasonably, all other options have to be exhausted first.

 

[Tosh5457]

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.

The difference is that Ireland and the Balts had economies that were already structured to grow rapidly, as they were fast growing economies before the crisis. Greece was
growing sluggishly for many years and so they couldn't get out of an external shock so rapidly.

And Germany doesn't regret joining the EMU, look how it helped their balance of trade, that except for the break in 2008, it's growing at a much faster rate than it was ever before the monetary union:

Anyway, I don't believe in the far-left Greek government, as obviously European partners don't either, given their electorial plans of restoring much of the spending cuts, which were necessary, and unwillingness to continue the structural reforms. In their ideology, their country was ok as it were a few years ago, and during the crisis only if the EU helped them more, it would all be ok. They should still try to negotiate better terms, because what they were doing before wasn't obviously working, but again the cause of all these issues in the negotiations is a (justified) distrust in this administration. Anyway, I hope EU makes serious reforms in the Union after all these problems, like a stricter control on the debt and budget of their members, on the corruption of a given government, and a softer response to government debt crisis that doesn't escalate like this last one.

 

[Czcibor]

Greece wasgrowing sluggishly for many years and so they couldn't get out of an external shock so rapidly.

With Greek data you're just showing that they already had serious structural problems before. Which honestly mean that they shouldn't have been let in at start to EMU.

OK, you presented graph of German trade balance. How it proves the thesis "euro helped"? Because from the graph all I see - a growth trend line plus a disturbance to during the crisis. To prove your point there should be a sudden increase somewhere around 1999 or 2001.
I'm not saying that euro haven't helped Germans a bit, however:
-what helped them more is a package of their reforms -Agenda 2010;
-it's a bit pointless to have a trade surpluses and at the end drown those money; (only to have a bit undervalued currency and trade surpluses would be nice, sure).

What about this:
http://www.tutor2u.net/economics/revision-notes/a2macro-eu-greece3.png

Big deficit all the time, also in good years. I consider big deficit in 2007 as an impressive result because at that time there were boom years both in Europe and USA.

 

[Astronuc]

When one has to borrow money to pay debt, there's a big problem. What does Greece export? What are the major sources of income?
How could the economy be developed or improved to meet the needs of the Greek population and allow the government to repay it's debt?
Interestingly, Australia has one of the largest Greek communities (folks who immigrated from Greece or are descendants of Greek immigrants) in the world outside of Greece. Either they are quiet, or not in the news.

Crunch time for Greece as IMF debt looms and bailout ends
http://finance.yahoo.com/news/crunch-time-greece-imf-debt-083523126.html
Without an 11th-hour deal, the government is unlikely to repay a debt of about 1.6 billion euros ($1.9 billion) to the International Monetary Fund also due Tuesday — a move that would amount to default and would increase fears the country could fall out of the euro currency bloc.

A brief history of financial crises in Greece
http://finance.yahoo.com/news/a-brief-history-of-financial-crises-in-greece-214114194.html

 

[Czcibor]

I've found one good summary on the net:

"Greece are handling the negotiation like they handled their finances."

;)

 

[phinds]

I've found one good summary on the net:

"Greece are handling the negotiation like they handled their finances."

;)

Best summary yet !

 

[Tosh5457]

With Greek data you're just showing that they already had serious structural problems before. Which honestly mean that they shouldn't have been let in at start to EMU.

OK, you presented graph of German trade balance. How it proves the thesis "euro helped"? Because from the graph all I see - a growth trend line plus a disturbance to during the crisis. To prove your point there should be a sudden increase somewhere around 1999 or 2001.
I'm not saying that euro haven't helped Germans a bit, however:
-what helped them more is a package of their reforms -Agenda 2010;
-it's a bit pointless to have a trade surpluses and at the end drown those money; (only to have a bit undervalued currency and trade surpluses would be nice, sure).

What about this:
http://www.tutor2u.net/economics/revision-notes/a2macro-eu-greece3.png

Big deficit all the time, also in good years. I consider big deficit in 2007 as an impressive result because at that time there were boom years both in Europe and USA.

Czibor, I can't export that data on Germany's balance of trade, but I think it's clear in the chart that in 2001 the up trend became significantly steeper. I think you're missing my point; I'm not arguing that Greece wasn't mismanaged before the crisis, nor blaming other countries for their failure, in fact I already said that in an earlier post, what I'm saying is that given the circunstances now, should we let the country fall apart along with its 11 million citizens because of past mistakes of the Greek elite? And In that case, how would that be different to have let Germany fall apart after WWII, since they were the ones starting the War that lead to millions of deaths (and coming from a party that got elected democratically)? Even if the Greeks should be punished for that, I think they've been punished enough already.