Greece closes banks and imposes capital control

[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.

 

[JorisL]

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.

One obvious reason is that a lot of the industry was blown to smithereens during the war. Big cities destroyed so the people didn't have anywhere to live.
Another is political. Tsipras has somewhat provoked the other negotiators by refusing to give in even a little as I understand it.
Meanwhile he tried to establish closer relations with Russia, probably to put the EU/ECB under pressure.
At a given point people get fed up with such tactics and stop cooperating fully.

And finally as said before, other countries have shown it is possible to get back on track.
They have made sacrifices but I suppose everything will get back as it was or better in the end.

My 0.02 €

 

[StevieTNZ]

Just over two hours to go until Greece is suppose to pay up:

Greece's international bailout expires at midnight central European time, after which the country loses access to billions of euros in funds. At the same time, Greece has said it will not be able to make a payment of 1.6 billion euros to the IMF.

http://news.yahoo.com/tsipras-defiant-banks-shut-markets-rocked-051350780.html

 

[Czcibor]

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.

Yes, but there were in the same time plenty of other structural reforms in Germany like agenda 2010 (2003) or Hartz reforms 2003-2005. But sure, in long run, euro prevented increased German competiveness to be just turned into stronger Deutsche Mark.

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.

I know that speaking about guilt, sin, punishment and so on is trendy but its not my point. (In German "schuldig" means both "in debt" and "guilty" :D )

What's really the choice? The EU was able to force some troubled member countries to implement reforms by using some implicit threats. Prior Greek parties were not specially good, but at least pretended doing something. Greece under Syriza decided to say no. What's the EU choice:
a) accept "no" and let Greece drown
b) just throw lots of money on to the project

Let's think about consequences of "b":
-Greece would be left unreformed;
-Taxpayers in the North countries would be angry, some anti-EU reaction is possible not only in UK (my guess: ex. Finland);
-Voters in other South countries would decide to repeat Syriza success at home (after all - what for reform country if you just have to make a brawl in Brussels?)

Do you think that if Syriza approach would become more popular in the South, the EU would survive that?

"past mistakes of the Greek elite"?
But those were highly popular mistakes... And Greek society would like to repeat them if given a chance... They are mistakes only for us, outsiders...

If you're bringing here Germans after WW2... Big hopes of Germans changing policies (really not applicable here) and need to use them in geopolitical game (mostly not applicable here)...

 

[StevieTNZ]

Greece made last-minute overtures to its international creditors for financial aid on Tuesday, but it was not enough to save the country from becoming the first developed economy to default on a loan with the International Monetary Fund.

http://www.stuff.co.nz/business/wor...ults-on-imf-loan-despite-late-appeals-for-aid

 

[Czcibor]

Source, and whole article
https://yougov.co.uk/news/2015/06/25/europeans-expect-grexit-happen-and-few-want-stop-i/

 

[Stephen Tashi]

Are their historical studies of general phenomenon of economic crises?

Examples of a few leaders wrecking an economy probably exist in the days of government by emperors and kings. On the other hand, I don't know whether there are ancient examples of a "general economic downturn" or depression.

 

[phinds]

Are their historical studies of general phenomenon of economic crises?

Examples of a few leaders wrecking an economy probably exist in the days of government by emperors and kings. On the other hand, I don't know whether there are ancient examples of a "general economic downturn" or depression.

Why would it matter? We never learn from our mistakes anyway.

To paraphrase someone or other "those who do not learn the lessons of history probably aren't any good at math either "

 

[Stephen Tashi]

To paraphrase someone or other "those who do not learn the lessons of history probably aren't any good at math either "

I like:
"Those who do not learn from the lessons of history are destined to repeat it and those who do learn from the lessons of history are destined to face something entirely different."

 

[Czcibor]

I knew a different version:
"Those who study history are doomed to watch others repeat it"

Concerning this case - except from quantitative easing (pioneered by Japan in '90s) and problems to coordinate within a monetary union - that may have been new. Housing bubble, banking crisis, sovereign debt crisis - that was repeated many times, plenty of data on that.

 

[tom aaron]

Greece was a second world nation offered free entry into the first world economy...same with Portugal and Spain.

Instead of taking advantage of this and developing an appropriate economic infrastructure the Greeks twiddled their thumbs for two decades.

Now that Western Europe is about to cut off the allowance, they have no modern infrastructure to fall back on. They were the grasshopper that played while he should have been preparing for winter. They have had a taste of first world living...decent education, health care, social service...but are going to return to a day to day life of 'getting by'.

I grew up on the French/German border. I can't imagine any politician offering even more to greece without having rocks thrown at him. Bottom line...Greece doesn't matter economically. It's a liability. It only matters politically for those with a pan Europe vision.

 

[StatGuy2000]

Greece was a second world nation offered free entry into the first world economy...same with Portugal and Spain.

Instead of taking advantage of this and developing an appropriate economic infrastructure the Greeks twiddled their thumbs for two decades.

Now that Western Europe is about to cut off the allowance, they have no modern infrastructure to fall back on. They were the grasshopper that played while he should have been preparing for winter. They have had a taste of first world living...decent education, health care, social service...but are going to return to a day to day life of 'getting by'.

I grew up on the French/German border. I can't imagine any politician offering even more to greece without having rocks thrown at him. Bottom line...Greece doesn't matter economically. It's a liability. It only matters politically for those with a pan Europe vision.

Was Greece even a second world nation at all? From what I understand of the history of modern Greece, Greece had all the hallmarks of a Third World/developing nation -- unstable governments switching between democracies and military dictatorships, economies that depended on a very small number of sectors (in the case of Greece, primarily tourism -- Greece has few natural resources, nor much capability in either manufacturing or services) and thus highly susceptible to boom and bust cycles, large number of emigrants seeking their fortunes elsewhere, etc. Much more in common to countries in Latin America, the Middle East, sub-Saharan Africa, or parts of Asia than Europe.

I have always found it hard to understand why Greece was even allowed to join the European Union or the eurozone given the political and economic realities of the time when Greece in fact joined. Granted, I have always been skeptical of the euro to begin with, since by joining the euro, each of the member states are essentially sacrificing their national sovereignty (specifically, their ability to set monetary policy) without correspondingly sacrificing their individual sovereignty in terms of fiscal policy. Given the disparity in the economic situation across different member EU nations, the leaders of the member states, along with the general population of the member states, should have understood that there may come a situation where certain member states will need to subsidize other member states to ensure that each nation stays in the euro.

Now we're at the stage where Greek exit is all but inevitable, the question would then be about the other member states that are struggling economically (Italy, Spain, Portugal). Will contagion spread there?

 

[phinds]

Now we're at the stage where Greek exit is all but inevitable, the question would then be about the other member states that are struggling economically (Italy, Spain, Portugal). Will contagion spread there?

That seems to be WAY less of a worry now than it was a couple of years ago. Maybe it's wishful thinking, but the news reports I've seen say that European political and economic leaders just don't seem worried about it this time around.

 

[tom aaron]

Was Greece even a second world nation at all? From what I understand of the history of modern Greece, Greece had all the hallmarks of a Third World/developing nation -- unstable governments switching between democracies and military dictatorships, economies that depended on a very small number of sectors (in the case of Greece, primarily tourism -- Greece has few natural resources, nor much capability in either manufacturing or services) and thus highly susceptible to boom and bust cycles, large number of emigrants seeking their fortunes elsewhere, etc. Much more in common to countries in Latin America, the Middle East, sub-Saharan Africa, or parts of Asia than Europe.

I have always found it hard to understand why Greece was even allowed to join the European Union or the eurozone given the political and economic realities of the time when Greece in fact joined. Granted, I have always been skeptical of the euro to begin with, since by joining the euro, each of the member states are essentially sacrificing their national sovereignty (specifically, their ability to set monetary policy) without correspondingly sacrificing their individual sovereignty in terms of fiscal policy. Given the disparity in the economic situation across different member EU nations, the leaders of the member states, along with the general population of the member states, should have understood that there may come a situation where certain member states will need to subsidize other member states to ensure that each nation stays in the euro.

Now we're at the stage where Greek exit is all but inevitable, the question would then be about the other member states that are struggling economically (Italy, Spain, Portugal). Will contagion spread there?

Those countries are very different from each other other than being on the brink of insolvency. Italy is a huge market...Spain also but lesser so. Portugal is insignificant.

Italy is psychologically part of modern Europe. Spain is a newcomer. When I was a boy we would take vacations to Spain and it was a lot like being in North Africa...more like Morocco. The modern trappings in Spain today are a veneer without much underpinning it...corruption, inefficiency. I still find it hard to understand why the more industrial, educated northeast (Barcelona) hasn't separated.

As for resources...Denmark and the Netherlands that are on par with other affluent nations...their resources other than 'people' are near zero. They have an educated, efficient society.
Greece's issue is not debt but the ability to generate value. The homeless man with no debt and 50 dollars in his pocket is less well off than the guy with a good education, job, house but owes ten thousand dollars. Greece is like that homeless guy...no prospects. Germany, Denmark, etc. are like the latter.

 

[Tosh5457]

Yes, but there were in the same time plenty of other structural reforms in Germany like agenda 2010 (2003) or Hartz reforms 2003-2005. But sure, in long run, euro prevented increased German competiveness to be just turned into stronger Deutsche Mark.I know that speaking about guilt, sin, punishment and so on is trendy but its not my point. (In German "schuldig" means both "in debt" and "guilty" :D )

What's really the choice? The EU was able to force some troubled member countries to implement reforms by using some implicit threats. Prior Greek parties were not specially good, but at least pretended doing something. Greece under Syriza decided to say no. What's the EU choice:
a) accept "no" and let Greece drown
b) just throw lots of money on to the project

Let's think about consequences of "b":
-Greece would be left unreformed;
-Taxpayers in the North countries would be angry, some anti-EU reaction is possible not only in UK (my guess: ex. Finland);
-Voters in other South countries would decide to repeat Syriza success at home (after all - what for reform country if you just have to make a brawl in Brussels?)

Do you think that if Syriza approach would become more popular in the South, the EU would survive that?

"past mistakes of the Greek elite"?
But those were highly popular mistakes... And Greek society would like to repeat them if given a chance... They are mistakes only for us, outsiders...

If you're bringing here Germans after WW2... Big hopes of Germans changing policies (really not applicable here) and need to use them in geopolitical game (mostly not applicable here)...

IMO the negotiations should aim debt restructuring and/or partial default, because even if Greece is lent more money, it's not getting off 200%+ GDP on debt so soon and a future default is very likely in any case. IMF and similar entities loans carry a risk, and now it's the time to pay for taking that risk. This won't be popular anywhere, because Greece's bonds will be labeled as junk for the years to come.

 

[Tosh5457]

I grew up on the French/German border. I can't imagine any politician offering even more to greece without having rocks thrown at him. Bottom line...Greece doesn't matter economically. It's a liability. It only matters politically for those with a pan Europe vision.

Except that if Greece goes, there go all the bonds that European governments and banks hold, because they're not paying that in an undervalued Dracma. And I sense a bit of bigotry in your speech, as if 11 million people mean nothing.

 

[Vanadium 50]

A Greek exit is nor a foregone conclusion. Greece could conceivably fund its spending with euros, and just not pay its bondholders back. It looks like they have more than enough euros to do this. It may not be the path they take, for good reason, but it looks possible for them to stay,

 

[tom aaron]

Except that if Greece goes, there go all the bonds that European governments and banks hold, because they're not paying that in an undervalued Dracma. And I sense a bit of bigotry in your speech, as if 11 million people mean nothing.

The bonds? They are useless now. They were useless when issued. Everyone knows Greece is insolvent and will be for the foreseeable future.

Your ignorance is what's apparent. Not my bigotry. Ignoring reality may be noble to you. Ignorance, despite the saying, is not bliss...it is just ignorance.

 

[Czcibor]

IMO the negotiations should aim debt restructuring and/or partial default, because even if Greece is lent more money, it's not getting off 200%+ GDP on debt so soon and a future default is very likely in any case. IMF and similar entities loans carry a risk, and now it's the time to pay for taking that risk. This won't be popular anywhere, because Greece's bonds will be labeled as junk for the years to come.

Stop. Aaron said that in no so nice way, however he more he is right. When IMF and Eurozone were buying them they knew that the business is awful. The idea was to save Greece / save bondholders/ prevent contagion. The spread was many times lower than the market one. The point is they were intended to carry almost no risk.

A Greek exit is nor a foregone conclusion. Greece could conceivably fund its spending with euros, and just not pay its bondholders back. It looks like they have more than enough euros to do this. It may not be the path they take, for good reason, but it looks possible for them to stay,

May you explain your point? Because their euros are ultimately in ECB, and ECB is able now in any moment stop ELA and claim those money...

 

[Vanadium 50]

Yes, but the ECB does not have to seize assets. My point is not that Greek will not leave the Euro. My point is that default does not mandate it.

 

[StatGuy2000]

Those countries are very different from each other other than being on the brink of insolvency. Italy is a huge market...Spain also but lesser so. Portugal is insignificant.

Italy is psychologically part of modern Europe. Spain is a newcomer. When I was a boy we would take vacations to Spain and it was a lot like being in North Africa...more like Morocco. The modern trappings in Spain today are a veneer without much underpinning it...corruption, inefficiency. I still find it hard to understand why the more industrial, educated northeast (Barcelona) hasn't separated.

As for resources...Denmark and the Netherlands that are on par with other affluent nations...their resources other than 'people' are near zero. They have an educated, efficient society.
Greece's issue is not debt but the ability to generate value. The homeless man with no debt and 50 dollars in his pocket is less well off than the guy with a good education, job, house but owes ten thousand dollars. Greece is like that homeless guy...no prospects. Germany, Denmark, etc. are like the latter.

I would disagree with you about Denmark and the Netherlands having near zero resources since both countries do have very fertile land for agriculture (unlike Greece). Furthermore, doesn't Denmark have easy access to natural resources from neighbouring Scandinavian countries from which they have maintained strong trade and cultural links, like Norway and Sweden? And from my reading of history, the Netherlands have a long history as both a trading nation and a former colonial power (along the likes of Britain and France), with colonies in the Americas and Asia which contributed a certain degree of wealth, laying the foundation for future prosperity (in contrast to Greece, a long-neglected colony of the Ottoman Empire).

At any rate, you mentioned that Greece's issue is the ability to generate value -- I take it you are referring to the capacity of the Greek economy to grow their economy. In that respect, what I have stated earlier does not contradict this, since I have stated that Greece's economy is heavily reliant on tourism and not much else (apart from shipping, and I'm not sure how much Greece has the capacity grow that part of the economy).

 

[tom aaron]

I would disagree with you about Denmark and the Netherlands having near zero resources since both countries do have very fertile land for agriculture (unlike Greece). Furthermore, doesn't Denmark have easy access to natural resources from neighbouring Scandinavian countries from which they have maintained strong trade and cultural links, like Norway and Sweden? And from my reading of history, the Netherlands have a long history as both a trading nation and a former colonial power (along the likes of Britain and France), with colonies in the Americas and Asia which contributed a certain degree of wealth, laying the foundation for future prosperity (in contrast to Greece, a long-neglected colony of the Ottoman Empire).

At any rate, you mentioned that Greece's issue is the ability to generate value -- I take it you are referring to the capacity of the Greek economy to grow their economy. In that respect, what I have stated earlier does not contradict this, since I have stated that Greece's economy is heavily reliant on tourism and not much else (apart from shipping, and I'm not sure how much Greece has the capacity grow that part of the economy).

Greece has ALL of the EU to draw upon...as much as Denmark and the Netherlands. That is the point of the EU. They are also a gateway to the Near East. They have had ample time to get their act together especially with the infusion of tens of billions in Euros. They also benefit from stable currency and EU trading agreements with the rest of the world.

The Greeks have been masters of their own fate. There is no excuse for an inept system of tax infrastructure, inefficient social programs, etc. They have had ample opportunity to implement reforms and collect a billion of unpaid domestic taxes than ask the Germans for another billion.

 

[Czcibor]

Constantine Michalos, head of the http://www.uhc.gr/newsite/english/index.php?menu=main_menu&page=home , said lenders are simply running out of money. "We are reliably informed that the cash reserves of the banks are down to €500m. Anybody who thinks they are going to open again on Tuesday is day-dreaming. The cash would not last an hour," he said.

"We are in an extremely dangerous situation. Greek companies have been excluded from the electronic transfers of Europe's Target2 system. The entire Greek business community is unable to import anything, and without raw materials they can't produce anything," he said.

Pavlos Deas, owner of an olive processing factory in Chalkidiki, told The Telegraph that he may have to shut down a plant employing 250 people within days.

"We can't send any money abroad to our suppliers. Three of our containers have been stopped at customs control because the banks can't give a bill of lading. One is full of Spanish almonds, the others full of Chinese garlic," he said.

"We don't know how we are going to execute and export an order of 60 containers for the US. We don't even have enough gas. We asked for 10,000 litres but they are only letting us have 2,000. It's being rationed by the day. Factories are closing around us in a domino effect and we're all going to lose everything if this goes on," he said.

The fast-moving events come amid signs of deep dissension within the coalition over the wisdom of http://www.telegraph.co.uk/news/worldnews/europe/greece/11707952/Greek-referendum-what-will-a-Yes-or-No-vote-mean.html. The vote was originally intended to secure a stronger negotiating mandate for a showdown with Europe's creditor powers, but it is rapidly turning into an "in-or-out" decision on euro membership and the survival of the Syriza government.

http://www.telegraph.co.uk/finance/...500m-in-cash-reserves-as-economy-crashes.html

 

[mheslep]

As for resources...

See Hong Kong, Singapore for examples of societies with strong economic output and almost no native resources.

 

[Tosh5457]

The bonds? They are useless now. They were useless when issued. Everyone knows Greece is insolvent and will be for the foreseeable future.

Your ignorance is what's apparent. Not my bigotry. Ignoring reality may be noble to you. Ignorance, despite the saying, is not bliss...it is just ignorance.

So you admit you're a bigot, just that it's not so apparent?

Stop. Aaron said that in no so nice way, however he more he is right. When IMF and Eurozone were buying them they knew that the business is awful. The idea was to save Greece / save bondholders/ prevent contagion. The spread was many times lower than the market one. The point is they were intended to carry almost no risk.

That's a contradiction, if the business was awful it means the risk was actually much higher than the spread they agreed with.

 

[mheslep]

Good, recent Greek debt/default primer here:

June 29th, 2015
http://faculty.chicagobooth.edu/anil.kashyap/research/papers/A-Primer-on-the-Greek-Crisis_june29.pdf
http://www.chicagobooth.edu/faculty/directory/k/anil-kashyap

1) How did Greece get into such trouble?
2) Wasn’t Greece already bailed out in 2010?
3) Why did that rescue fail?
4) What is the troika (or the institutions) and what do they have to do with this?
5) Wasn’t Greece also bailed out in 2012?
6) Why is Greece in trouble again now?
7) What is the Greek government asking for?
8) Why do the institutions disagree with the government?
9) Why is the IMF loan that is coming due so important?
10) What did the ECB decide this weekend and why is Greece closing its banks?
11) What can Greece do to save its economy now?
12) Why not just bring back the drachma?
13) Will the Greek crisis spread?
14) What is likely to happen next in Greece?
15) What happens to the IMF if its loan is not repaid?
16) What happens to the ECB if Greece defaults?
17) Can the ECB survive if Greece defaults?
18) What should have been done to avert this crisis?