News Greece closes banks and imposes capital control

[tom aaron]

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?

This is a concise good summary. However, it needs to be remembered that he ECB is essentially still German, Dutch, etc taxpayers. The Finns are the angriest with the Greeks. They have worked hard to build a viable, affluent society and are 'pissed' at Greek lethargy.

The issue also extends to other arrangements such as NATO. European solidarity is not for the sake of it but based on principles of freedom, good management, competency, etc. organizations for 'good'. A positive arrangement for all.Thus why concerns over inclusion of Turkey economically, inclusion of Ukraine in defense, etc. Solidarity is built on principles.

 

[StatGuy2000]

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.

My own personal opinion is that the unpaid domestic taxes in Greece is a symptom of a general lack of trust that exists within Greek society toward the government, due to a history of dictatorships and unstable governments.

At any rate, your quote above (Greece has ALL of the RU to draw upon) epitomizes the very problem inherent with the adoption of the euro to begin with -- since each nation is sacrificing their ability to set monetary policy (and monetary policy, along with fiscal policy, are among the primary tools that allow governments to shape the economy to the extent possible for any governments), in essence, every member state is drawing upon every other EU nation. Implicit within the adoption of the euro is that the fiscal and monetary status of an EU nation is tied to all others.

It has been my opinion all along that both governments and regular citizens of each of the member states never understood the full implications of what it means to be in a true monetary union i.e. no single nation has control over their own respective monetary policy (that is why I have always felt that the adoption of the common currency under the current framework of the EU was a dubious endeavour). If they did, I would hasten to state that member states would not have been so eager to consider joining the Eurozone.

At this stage, it seems clear to me that the Greek government (and likely the bulk of its population -- we'll know more based on the results of the referendum) and the main creditor nations of the EU (e.g. Germany) are so far apart in terms of what can be agreed that it seems inevitable that Greece will default in its debt commitments, and I just do not see any further benefit for Greece to stay in the euro. Your posts in this thread is in itself a reflection of this (given that you are either German or French, since you stated earlier that you grew up near the German/French border) -- it seems quite clear to me that you do not really feel that Greeks are fellow Europeans who share a common fate with the rest of Europe (part of the rationale that was trumpeted with joining the euro).

 

[Czcibor]

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

Yes, the risk was much higher. On market no-one was willing to buy Greek bonds. (well, the market return rate of 10 year bonds was above 30% per year, which was many times above what Greek taxpayers would be realistically able to pay). In consequence it were govs (also indirectly through IMF or ECB) who bought those bonds on much lower interest rate. The idea was to make a bail out, and not to make a business.

Some of those govs, like Italy, actually lent Greeks those money cheaper than they could borrow on their own on market...

 

[tom aaron]

Yes, the risk was much higher. On market no-one was willing to buy Greek bonds. (well, the market return rate of 10 year bonds was above 30% per year, which was many times above what Greek taxpayers would be realistically able to pay). In consequence it were govs (also indirectly through IMF or ECB) who bought those bonds on much lower interest rate. The idea was to make a bail out, and not to make a business.

Some of those govs, like Italy, actually lent Greeks those money cheaper than they could borrow on their own on market...

This is what many late comers to this do not understand. Greece was insolvent. No way out. Other countries did their best 'despite' knowing that it was not an actual investment. Like helping a brother out knowing the chances of getting your money back was zilch. Ask him to stop drinking, get a job, clean up his act...here's some money. So Greece did what? Nothing.

This isn't Germany, etc. lending the Greeks money in a vacuum. It's after a lengthy record of incompetence and trying to help them out 'again'. Greece is like the brother who now promises to look for a job 'next month' when he said the same thing last month, and last year. Europe has thrown up its arms in complete frustration.

 

[Czcibor]

This is what many late comers to this do not understand. Greece was insolvent. No way out. Other countries did their best 'despite' knowing that it was not an actual investment. Like helping a brother out knowing the chances of getting your money back was zilch. Ask him to stop drinking, get a job, clean up his act...here's some money. So Greece did what? Nothing.

This isn't Germany, etc. lending the Greeks money in a vacuum. It's after a lengthy record of incompetence and trying to help them out 'again'. Greece is like the brother who now promises to look for a job 'next month' when he said the same thing last month, and last year. Europe has thrown up its arms in complete frustration.

It was more complicated then lending a brother... Let's say that Greeks instead would have defaulted. Who would be in bad situation? Seriously? Greeks... a bit worse (they would anyway shed some this debt, even though the prior borrowing was based on fraud; out of those whole aid they had a chance to spend round 10%, the rest was for debt servicing). Banks of countries that lent to Greece at start - seriously worse. Other peripheral countries - in case of a chain reaction - much worse. So there was some kind of self interest from other countries, but not the "investment" argument.

 

[mheslep]

So Greece did what? Nothing. ...

After the initial bailout Greece did reduce government spending and has reduced its primary deficit, down to near zero IIRC. Tsipras is now trying to undo some of those spending cuts. The problem has been two fold: i) the debt Greece incurred while cooking its books was so large that it swamped other spending cuts, and ii) Greece failed to do much with regard to other actions to open up the economy (thus grow the economy, thus revenues, thus shrink the GDP/debt ratio). In this "economic freedom" ranking of nations Greece ranks 130th, based on metrics like labor law and property rights.

 

[WWGD]

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

And Israel, Taiwan, South Korea. Depressingly, there are plenty of examples of the opposite: countries with plenty of resources and a broken economy. Maybe Venezuela is the most notable one, and on top of that, the world's 2nd highest murder rate. Modern, non-biblical version of Paradise lost. Not much beyond a string of beauty queens in the Miss Universe pageant.

 

[Buckleymanor]

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.

Germany didn't whine, you obviously discount the efforts of bomber Harris and his attempt to flatten Dresden.https://en.wikipedia.org/wiki/Sir_Arthur_Harris,_1st_Baronet
With some abandon!

 

[phinds]

Germany didn't whine, you obviously discount the efforts of bomber Harris and his attempt to flatten Dresden.https://en.wikipedia.org/wiki/Sir_Arthur_Harris,_1st_Baronet
With some abandon!

I don't get your point at all. No one is happy getting clobbered during war. My point was that Germans didn't whine about it after the war, they picked themselves up and got on with building what is now the strongest economy in Europe.

 

[256bits]

The Greek labor force, which amount around 5 million workers, average 2,032 hours of work per worker annually in 2011, is ranked fourth among OECD countries, after Mexico, South Korea and Chile.[74] The Groningen Growth & Development Centre has published a poll revealing that between 1995 and 2005, Greece was the country whose workers have the most hours/year work among European nations; Greeks worked an average of 1,900 hours per year, followed by Spaniards (average of 1,800 hours/year).[75]

By contrast
France and Germany had figures of 1532 and 1432 respectively.

reference,
http://stats.oecd.org/Index.aspx?DataSetCode=ANHRS

The greeks are definitely not slaggards

also,

The country's post-World War II development has largely been connected with the so-called Greek economic miracle.[60] During that period, Greece saw growth rates second only to those of Japan, while ranking first in Europe in terms of GDP growth.[60] It is indicative that between 1960 and 1973 the Greek economy grew by an average of 7.7%, in contrast to 4.7% for the EU15 and 4.9 for the OECD.[60] Also during that period, exports grew by an average annual rate of 12.6%.[60]

The downturn of the world economy was really what knocked their socks off for some reason, and they could not recover.

 

[WWGD]

By contrast
France and Germany had figures of 1532 and 1432 respectively.

reference,
http://stats.oecd.org/Index.aspx?DataSetCode=ANHRS

The greeks are definitely not slaggards

also,The downturn of the world economy was really what knocked their socks off for some reason, and they could not recover.

Seems like they may have serious productivity issues. Or maybe there are diminishing returns issues.

 

[256bits]

Seems like they may have serious productivity issues. Or maybe there are diminishing returns issues.

Economy of heavy reliance on an service based industries - tourism related I suppose might be a good part of it.

 

[phinds]

Seems like they may have serious productivity issues. Or maybe there are diminishing returns issues.

Far more significant, I think, is that they don't produce much. They once had one of the, if not the, world's leading shipping industries and it is still significant but other than that I don't think they are known for producing much of anything. The Economist's 2015 World in Figures gives their economy as 10% manufacturing and 80% services (and 3% agriculture and the rest "other"), so @256bits nailed that.

 

[WWGD]

Far more significant, I think, is that they don't produce much. They once had one of the, if not the, world's leading shipping industries and it is still significant but other than that I don't think they are known for producing much of anything. The Economist's 2015 World in Figures gives their economy as 10% manufacturing and 80% services (and 3% agriculture and the rest "other"), so @256bits nailed that.

It's way above my league how to effectively grow an economy, but it seems like a good idea to look at the cases of countries similar to Greece in many respects that have been successful.

 

[phinds]

It's way above my league how to effectively grow an economy, but it seems like a good idea to look at the cases of countries similar to Greece in many respects that have been successful.

I think when you look at such things in detail you find that high-level similarities are not nearly as applicable as one might think. A country's history and culture count for more than external technocrats credit.

 

[pondhockey]

Fascinating and informative discussion. Thanks to all and for the citations and links.

In particular, the impression I have gotten from the media (or my faulty ingestion of the media) is that the Greeks are an entitled population with short work weeks and many benefits, such as early retirement.

Evidence that is quoted above seems to debunk the idea that Greeks work less. I'm still interested to know what about benefits such as early retirement, and how those played into the crises.

 

[Vanadium 50]

I don't think any lender is arguing that they don't want to extend new loans to Greece because Greeks are lazy. They are saying that they don't want to extend new loans to Greece because they don't think they will ever be paid back. Since Tuesday, when the Greeks stopped paying them back, it's hard to say this isn't a justified concern.

You asked about Greek pension figures. Here is what Google found: http://greece.greekreporter.com/2014/12/04/75-of-greek-pensioners-enjoy-early-retirement/ I have no idea of the quality of the source.

For years, Greek candidates for public office have been promising more and more benefits, and paying for them by borrowing rather than through taxation. They are now in a situation where they cannot pay it back. The populace, justifiably, feels swindled. It's easier to redirect this anger towards the Germans and the rest of the EU than to admit that they swindled themselves.

 

[pondhockey]

I don't think any lender is arguing that they don't want to extend new loans to Greece because Greeks are lazy. They are saying that they don't want to extend new loans to Greece because they don't think they will ever be paid back. Since Tuesday, when the Greeks stopped paying them back, it's hard to say this isn't a justified concern.

You asked about Greek pension figures. Here is what Google found: http://greece.greekreporter.com/2014/12/04/75-of-greek-pensioners-enjoy-early-retirement/ I have no idea of the quality of the source.

For years, Greek candidates for public office have been promising more and more benefits, and paying for them by borrowing rather than through taxation. They are now in a situation where they cannot pay it back. The populace, justifiably, feels swindled. It's easier to redirect this anger towards the Germans and the rest of the EU than to admit that they swindled themselves.

Thank you for the article, Van.

In the mean time I had searched for information on the pension system. My own sense is that the pension system is (or at least was) way out of balance, is a huge burden to the tax payer/ bailers out and needs to be dealt with. It appears to be part of what is unsustainable about the crisis. Especially when Greeks can choose not to pay taxes.

It also looks to me that some of the debt needs to be written off, and that which cannot be needs to be restructured for there to be a possible way forward.

Finally, it appears that it is Greek politicians that sucked the populace into this mess. As harsh as it might be, there is not likely to be an enduring solution without some political pain and new political will.

 

[pondhockey]

On paying taxes (not that I don't sympathize!)
http://www.wsj.com/articles/greece-struggles-to-get-citizens-to-pay-their-taxes-1424867495

“Greeks consider taxes as theft,” said Aristides Hatzis, an associate professor of law and economics at the University of Athens. “Normally taxes are considered the price you have to pay for a just state, but this is not accepted by the Greek mentality.”

Is it really clear that Greece belongs in the EU?

 

[tom aaron]

Fascinating and informative discussion. Thanks to all and for the citations and links.

In particular, the impression I have gotten from the media (or my faulty ingestion of the media) is that the Greeks are an entitled population with short work weeks and many benefits, such as early retirement.

Evidence that is quoted above seems to debunk the idea that Greeks work less. I'm still interested to know what about benefits such as early retirement, and how those played into the crises.

Doesn't matter how hard somebody works. The Dutch work 'smart'. Australians work 'smart'. Vietnamese farm labourers in rice fields may work their buts off but American farmers will be more efficient using technology.

Greece is somewhere in between. They haven't invested in a First World economic infrastructure. They have been contented with 'getting by' when what they needed was initiative and innovation. The Germans, Danes, Singaporeans, Israelis, etc. prosper by moving forward.

 

[WWGD]

Doesn't matter how hard somebody works. The Dutch work 'smart'. Australians work 'smart'. Vietnamese farm labourers in rice fields may work their buts off but American farmers will be more efficient using technology.

Greece is somewhere in between. They haven't invested in a First World economic infrastructure. They have been contented with 'getting by' when what they needed was initiative and innovation. The Germans, Danes, Singaporeans, Israelis, etc. prosper by moving forward.

I know a few Greeks who just day dream of the Golden days. Maybe they are stuck in the old glory days.

 

[Czcibor]

My own personal opinion is that the unpaid domestic taxes in Greece is a symptom of a general lack of trust that exists within Greek society toward the government, due to a history of dictatorships and unstable governments.

Add Osman Turks occupation, which add additional layer to keeping tax evaders in specially high esteem...

Dictatorship... its not that in nicely governed country a few military leaders suddenly did a power grab... but more in a country close to becoming a failed state a few colonels thought they have to save their country on all price...

At any rate, your quote above (Greece has ALL of the RU to draw upon) epitomizes the very problem inherent with the adoption of the euro to begin with -- since each nation is sacrificing their ability to set monetary policy (and monetary policy, along with fiscal policy, are among the primary tools that allow governments to shape the economy to the extent possible for any governments), in essence, every member state is drawing upon every other EU nation. Implicit within the adoption of the euro is that the fiscal and monetary status of an EU nation is tied to all others.

It has been my opinion all along that both governments and regular citizens of each of the member states never understood the full implications of what it means to be in a true monetary union i.e. no single nation has control over their own respective monetary policy (that is why I have always felt that the adoption of the common currency under the current framework of the EU was a dubious endeavour). If they did, I would hasten to state that member states would not have been so eager to consider joining the Eurozone.

At the time of euro adoption, it was perceived (by economists) that as Milton Freedman was teaching - money was neutral. No chance of using any trick. So adopting common currency seemed reasonable, more in line of guaranteeing its stable value.

At this stage, it seems clear to me that the Greek government (and likely the bulk of its population -- we'll know more based on the results of the referendum) and the main creditor nations of the EU (e.g. Germany) are so far apart in terms of what can be agreed that it seems inevitable that Greece will default in its debt commitments, and I just do not see any further benefit for Greece to stay in the euro. Your posts in this thread is in itself a reflection of this (given that you are either German or French, since you stated earlier that you grew up near the German/French border) -- it seems quite clear to me that you do not really feel that Greeks are fellow Europeans who share a common fate with the rest of Europe (part of the rationale that was trumpeted with joining the euro).

At this moment I think there is shared disdain on both sides. Think about it in line of Greeks showing the rest Europe that they do not share common values or are not interested in any serious cooperation, while the EU showing unwillingness to send another bushel of money.

 

[Czcibor]

In particular, the impression I have gotten from the media (or my faulty ingestion of the media) is that the Greeks are an entitled population with short work weeks and many benefits, such as early retirement.

It makes an easier to tell story. It's easier to say something like that then describe pathologies of society / political system.
They feel very entitled, just those who don't work in public sector have to work quite hard, that must be frustrating. So in desperation they vote for a politicians who promise to relive them from such pain through early retirement, public sector work, whatever...

It also looks to me that some of the debt needs to be written off, and that which cannot be needs to be restructured for there to be a possible way forward.

Yep, just other member states demand reform first, then as reward for reforms partial debt relieve.

What - do you think that's a well thought trap, not to relieve Greek of any debts? ;)

Finally, it appears that it is Greek politicians that sucked the populace into this mess. As harsh as it might be, there is not likely to be an enduring solution without some political pain and new political will.

And to deal with dysfunctionality of their politicians Greeks, elected new guys with new ideas... Syriza... ... Not, it seems as more problem of what they expect from politician and who they elect...

 

[Buckleymanor]

I don't get your point at all. No one is happy getting clobbered during war. My point was that Germans didn't whine about it after the war, they picked themselves up and got on with building what is now the strongest economy in Europe.

Well excuse me for the literal take on it. If you bothered to read the wiki article Germany only recently objected to a statue commemorating Mr, Harris's accomplishments.
So in my wrong interpretation of events the Germans are still whining today.
May-be if the Germans did not receive the financial help they did after the war the Greeks and I might agree with your point.

 

[Czcibor]

I found another nice comment on the net:
[The referendum] gives new meaning to the term "exit poll."

 

[Czcibor]

From opinion pools it looks like "Oxi" (No), but its not certain yet.

http://www.theguardian.com/business...ferendum-gets-under-way--eu-euro-bailout-live

 

[phinds]

From opinion pools it looks like "Oxi" (No), but its not certain yet.

http://www.theguardian.com/business...ferendum-gets-under-way--eu-euro-bailout-live

That's a sign (if we still needed on) that even if the vote is "yes", the number of people in Greece who distrust the European authorities is so large that meaningful reforms will be seen as being imposed by the outside "evil" forces and thus VERY hard to legislate/implement.

 

[Czcibor]

That's a sign (if we still needed on) that even if the vote is "yes", the number of people in Greece who distrust the European authorities is so large that meaningful reforms will be seen as being imposed by the outside "evil" forces and thus VERY hard to legislate/implement.

Yes, the worst result would be a tiny majority for yes. (neither to kick out nor to save)

OK, so far (20% counted) it seems safe margin of around 60% for "No".

Politicians on both sides speak about further negotiations... So far it looks like scenario of leaving Eurozone in the most painful way...

Should ECB suggest some end of life treatment care? ;)

 

[phinds]

Yes, the worst result would be a tiny majority for yes. (neither to kick out nor to save)

OK, so far (20% counted) it seems safe margin of around 60% for "No".

Politicians on both sides speak about further negotiations... So far it looks like scenario of leaving Eurozone in the most painful way...

Should ECB suggest some end of life treatment care? ;)

It seems that the Greek people believe that a "no" means they get a better deal in the negotiations. I think they should take Junker more seriously. He's been on their side all along, but even he is fed up w/ them now and has made that clear. Hard to see why they don't take him seriously.

 

[tom aaron]

It seems that the Greek people believe that a "no" means they get a better deal in the negotiations. I think they should take Junker more seriously. He's been on their side all along, but even he is fed up w/ them now and has made that clear. Hard to see why they don't take him seriously.

The happiest people with this outcome are the German taxpayers. Finally now able to stop the travesty of leaders ignoring reality. No pouring more money into a cesspool hoping its going to make it stink less.