News Greece closes banks and imposes capital control

[russ_watters]

And I am a big fan of kicking the can down the road.

Oy. I sincerely hope you aren't in charge of future planning for anything...but can you offer some advice on how to handle the California water shortage?!

 

[Tosh5457]

I've been investigating this further, and Greece is now paying only 2.6% of its GDP in interest (http://www.telegraph.co.uk/finance/...ths-about-Greeces-enormous-debt-mountain.html), due to the previous negotiations with the bondholders. This is below the payment of countries like Italy and Spain, and not too far from France and Germany's payments on interest. The debt maturities profile in 2015 was very rough, but it'll ease significantly on 2016 and beyond. I don't have access to the raw data, but looking at the graph I'd say the average is about 8 billion €/year, which is 3.5% of their GDP. Adding the 2.6%/year of the interest rates, their debt service is around 6.1% GDP/year on average. Their deficit was at 2014 in 3.5% GDP, with the debt service already accounted for of course, and I imagine with many bonds paid that year, so IMO it's perfectly possible that their nominal growth (real growth + inflation rate) could surge above their deficit for the years to come even without further cuts (and more so with spending cuts), which would put them on the sustainable path of reducing the debt. With Syriza I doubt it though, they can try to negotiate, but at the end of the day they're a far-left party that want to bring back a lot of the old spending that was cut, and so they're the problem even in the negotiations.

Greek debt maturities profile:
http://www.pdma.gr/index.php/en/public-debt-strategy/public-debt/maturity-profile-en

 

[votingmachine]

What you said before is that not every Greek "did something wrong". But pretty much all except those who are currently kids did, and the old/retired did the most wrong: they didn't pay their fair share into a fundamentally flawed system that promised to pay them back money they didn't pay in. Even the hypothetical Greek who made every "right" voting decision did this.

One can mitigate their own pain by recognizing it and making preparations for the coming disaster(see also: Social Security), but for those who do neither, I have little sympathy.

But even that aside, democracy only works if the voters take ownership of the decisions of the whole.

I disagree with the tendency to try to draw larger lessons from Greece than it warrants. It is a unique situation. I would hesitate to compare the US Social Security system to the Greek debt situation. US Social Security is very well organized in contrast. There are things that need to be fixed, but they are small.

I agree that the citizens bear the responsibility, even if the government made bad decisions and they were opposed. I doubt that it was widely seen as a fundamentally flawed system though. I am sure most of them made rosy economic assumptions, and were wrong. Most of us are rather bad at predicting the future, and I read that NYTimes article in post 797 and shook my head. I can understand the misguided belief, "this is our time" ... "debt-fueled spending can feel like hard-earned success, at least for a while."

Debt can be a powerful tool. A mortgage can let you buy a home with debt that is much higher than your income. It is very easy to mislead yourself that the future will be positive, and the debt is acceptable. When the economic future is a Great Depression, that debt just is crushing. We saw that in the recent US recession, and the government debt side is still playing out.

There is a frequent jump to judge everyone as either the thrifty Ant or the profligate Grasshopper of Aesop's fable. And sometimes that is true. And other times, reasonable people make reasonable decisions, and it doesn't work. I think the Greeks went beyond reasonable. But it is also just my own hindsight not the reality of living thru it. With hindsight, it is clear that Greece made a number of serious mistakes. But be cautious about drawing larger lessons, or fitting it into some larger morality play.

 

[votingmachine]

Oy. I sincerely hope you aren't in charge of future planning for anything...but can you offer some advice on how to handle the California water shortage?!

It is not a strategy that works for everything, but it does work for some things.

Sure I can fix the California water situation: Plan to use less water. Plan to get more water.

But if they simply kick the can down the road, and use temporary restrictions, and then the drought ends ... kicking the can down the road worked. If the drought continues, then the water shortages will get worse. They should not formulate a plan to have adequate water in the leanest water year, or to use as much water as is available in the wettest year. If you have adequate reservoir capacity, you can use the average. It sounds like you are asking for a solution to a problem that might or might not be a real problem. The west is experiencing a severe drought. If you request a plan for permanent water distribution based on that, and it is not the long term water supply, you've wasted time, and kicking the can down the road was better.

It isn't always better. I recommend California "hope for the best and plan for the worst". But in Greece, if they can keep things solvent, and their Great Depression breaks, and they catch a break with strong economic growth, everyone would be happy. If you kick the can down the road, and that happens, it is great. If you force default now, you jave to work that thru. If you kick the can down the road and they default later, it is still probably no worse.

 

[tom aaron]

I've been investigating this further, and Greece is now paying only 2.6% of its GDP in interest (http://www.telegraph.co.uk/finance/...ths-about-Greeces-enormous-debt-mountain.html), due to the previous negotiations with the bondholders. This is below the payment of countries like Italy and Spain, and not too far from France and Germany's payments on interest. The debt maturities profile in 2015 was very rough, but it'll ease significantly on 2016 and beyond. I don't have access to the raw data, but looking at the graph I'd say the average is about 8 billion €/year, which is 3.5% of their GDP. Adding the 2.6%/year of the interest rates, their debt service is around 6.1% GDP/year on average. Their deficit was at 2014 in 3.5% GDP, with the debt service already accounted for of course, and I imagine with many bonds paid that year, so IMO it's perfectly possible that their nominal growth (real growth + inflation rate) could surge above their deficit for the years to come even without further cuts (and more so with spending cuts), which would put them on the sustainable path of reducing the debt. With Syriza I doubt it though, they can try to negotiate, but at the end of the day they're a far-left party that want to bring back a lot of the old spending that was cut, and so they're the problem even in the negotiations.

Greek debt maturities profile:
http://www.pdma.gr/index.php/en/public-debt-strategy/public-debt/maturity-profile-en

Well, in theory but they had to come up with 1.6 billion to get another 7 billion in loans. They repay NOTHING. Europe is like a parent saying to a child..'go out and find a dollar towards buying a $10 toy and mommy will give you the rest.' Only junior hasn't come up with a dollar and didn't do any chores he promised to do in the last 12 years.

As for the vote of the Greek people. Too funny. My family lends their family $100 on terms they agree to (only ever to repay $60). Then their family takes a vote among themselves not to repay it. Wow. What a slap in the face to those who bent over backwards to help them.

Debt amounts. Not the issue. What matters is the capacity in an economy to generate income. Germany, the USA, the UK owe multiples more than Greece but are not insolvent as they generate income. They can manage the debt. Creditors are paid. The USA is in a quirky stable position as the US dollar is 'the' world currency. In crisis the US dollar increases in value...the net value of the USA increases. The USA is worth a couple trillion more today than Friday...may be worth a trillion less tomorrow.

 

[Stephen Tashi]

So I wondered how much money was lost on the stock market today, and how this compared to the total debt that Greece owed.
.

How do you define the money "lost on the stock market". If an investor buys a stock at $60 a share, sees it rise to $100 a share and fall to $70 a share where he sells it, then gains $10 a share even though the market dropped. Does any person actually lose money that's "lost on the stock market"?

 

[bohm2]

so IMO it's perfectly possible that their nominal growth (real growth + inflation rate) could surge above their deficit for the years to come even without further cuts (and more so with spending cuts), which would put them on the sustainable path of reducing the debt. With Syriza I doubt it though, they can try to negotiate, but at the end of the day they're a far-left party that want to bring back a lot of the old spending that was cut, and so they're the problem even in the negotiations.

Greek debt maturities profile:
http://www.pdma.gr/index.php/en/public-debt-strategy/public-debt/maturity-profile-en

I'm by no means very knowledgeable in this material but the estimates you linked are at odds with estimates that come from the 3 creditors, themselves:

Secret documents show creditors’ baseline estimate puts debt at 118% of GDP in 2030, even if it signs up to all tax and spending reforms demanded by troika...

Greece would face an unsustainable level of debt by 2030 even if it signs up to the full package of tax and spending reforms demanded of it, according to unpublished documents compiled by its three main creditors. The documents, drawn up by the so-called troika of lenders, support Greece’s argument that it needs substantial debt relief for a lasting economic recovery. They show that, even after 15 years of sustained strong growth, the country would face a level of debt that the International Monetary Fund deems unsustainable...

But under all the scenarios, which all assume a third bailout programme, looked at by the troika – the European commission, the European Central Bank and the IMF – Greece has no chance of meeting the target of reducing its debt to “well below 110% of GDP by 2022” set by the Eurogroup of finance ministers in November 2012.

IMF: austerity measures would still leave Greece with unsustainable debt
http://www.theguardian.com/business...sis-says-significant-concessions-still-needed

 

[Czcibor]

I'm by no means very knowledgeable in this material but the estimates you linked are at odds with estimates that come from the 3 creditors, themselves:

IMF: austerity measures would still leave Greece with unsustainable debt
http://www.theguardian.com/business...sis-says-significant-concessions-still-needed

Honestly? It looks now for me like a very good manipulation, done by The Guardian. Shame on them.

They are politely ignoring that most of debt would be hold by govs, which lent Greece money on much more favourable conditions. Lower interest rates - any suitability threshold would be much higher than under normal assumptions.

Look the repayment years on the graph. Big part (almost half?) is after 2030.

 

[StatGuy2000]

Well, in theory but they had to come up with 1.6 billion to get another 7 billion in loans. They repay NOTHING. Europe is like a parent saying to a child..'go out and find a dollar towards buying a $10 toy and mommy will give you the rest.' Only junior hasn't come up with a dollar and didn't do any chores he promised to do in the last 12 years.

As for the vote of the Greek people. Too funny. My family lends their family $100 on terms they agree to (only ever to repay $60). Then their family takes a vote among themselves not to repay it. Wow. What a slap in the face to those who bent over backwards to help them.

Debt amounts. Not the issue. What matters is the capacity in an economy to generate income. Germany, the USA, the UK owe multiples more than Greece but are not insolvent as they generate income. They can manage the debt. Creditors are paid. The USA is in a quirky stable position as the US dollar is 'the' world currency. In crisis the US dollar increases in value...the net value of the USA increases. The USA is worth a couple trillion more today than Friday...may be worth a trillion less tomorrow.

tom aaron, since you have stated before that the issue is the capacity of an economy to generate income, then from that standpoint, it is pointless to expect for the "troika" (Germany, ECB, IMF) to insist that Greece continue its path to austerity, given that no matter what austerity plan they are under, their capacity to generate that income will not be sufficient to pay off existing debts. So the choice comes down to either some form of debt restructuring, or Greece leaves the euro (and the EU), devalue its currency, and try to rebuild its economy.

It is also striking to me how so many of your posts here sound to me like Greek-bashing, with the assumption that the Greek people in its entirety are essentially inferior to Germans or the French. If you had made such references to a non-European people or a non-European nation, it may well sound like racist rants.

 

[Tosh5457]

I'm by no means very knowledgeable in this material but the estimates you linked are at odds with estimates that come from the 3 creditors, themselves:

IMF: austerity measures would still leave Greece with unsustainable debt
http://www.theguardian.com/business...sis-says-significant-concessions-still-needed

They're basing that conclusion solely on the assumption that debt over 110% of GDP is unsustainable, which just isn't true in Greece's case, due to the negotiations they had with their creditors on extension and interest rates; even historically, UK had over 200% of its GDP in public debt at one point, and they never missed a payment.

 

[Vanadium 50]

UK had over 200% of its GDP in public debt at one point, and they never missed a payment.

But Greece has missed a payment.

It appears that the only way for Greece to manage the debt it has is with new debt to pay off the old. Is this sustainable?

 

[Czcibor]

There was another improtant meeting and... Greece failed to bring a detailed plan.

Let's look at timeline and reaction of markets (Greek 10 year bond):

A year ago - stable gov, bonds pay something like 5% /year - so risky, but within reasons.

Middle of October - PASOK gov starts to crumble - 8%
Middle of January - Syriza won - 9%-10%
Some aggressive negotiations - reach 13%, but returns to not much more than 10%
Referendum announced - jump immediately to 15%, then slides to 14%
Referendum results - exceeds 18%.

If markets price Greek debt so lowly, it means that they have their reasons ;)

 

[tom aaron]

There was another improtant meeting and... Greece failed to bring a detailed plan.

Let's look at timeline and reaction of markets (Greek 10 year bond):

A year ago - stable gov, bonds pay something like 5% /year - so risky, but within reasons.

Middle of October - PASOK gov starts to crumble - 8%
Middle of January - Syriza won - 9%-10%
Some aggressive negotiations - reach 13%, but returns to not much more than 10%
Referendum announced - jump immediately to 15%, then slides to 14%
Referendum results - exceeds 18%.

If markets price Greek debt so lowly, it means that they have their reasons ;)

It certainly has. With each month that goes by, the Greek economy shrinks and the net value of Greek assets shrink. If you are now earning 3/4s of last years salary, your house is worth half as much and you have failed to make any provisions for stopping the deterioration then...? Certainly much higher risk of repaying loans.

Greece ran out of options a couple years ago. Rather than recognizing the issue it did zip. Nothing. Greeks will now be treated by Northern Europe as welfare recipients. Humanitarian aid for pensioners, medicine, fuel. The German, Dutch, Finnish populations, etc. will continue to pick up the tab.

 

[Czcibor]

Myth of crushing interests rates debunked:
http://www.ft.com/intl/cms/s/0/6e5532c0-a310-11e4-ac1c-00144feab7de.html#axzz3fGBDyqJW

(Italy clearly paid more in relation to GDP)

 

[Tosh5457]

But Greece has missed a payment.

It appears that the only way for Greece to manage the debt it has is with new debt to pay off the old. Is this sustainable?

That's why they have to kill the deficit as fast as possible, to fund debt and interest payments with their own revenues. They were getting close to that point, with the deficit at 3.5% GDP already, and decreasing every year...

 

[Czcibor]

It seems there is a deal:

• The Greek parliament must immediately adopt laws to reform key parts of its economy - by Wednesday. The reforms include: streamlining the pension system and boosting tax revenue - especially from VAT
• A commitment to liberalise the labour market, privatise the electricity network and extend shop opening hours
• The eurozone agrees in principle to start negotiations on a loan package for Greece worth €82bn-86bn (£59bn-£62bn; $91bn-$96bn)
• The loan will come mainly from the European Stability Mechanism (ESM) - the eurozone bailout fund. But the International Monetary Fund will also be asked to make a contribution from March 2016
• A new trust fund will be set up, managed by Greece, with €50bn of Greek assets. It is a mechanism for paying off part of the total ESM loan. Half of the €50bn will be used to fund recapitalisation of Greek banks, the other half will go towards reducing Greece's debt mountain - by privatising assets - and investing in Greece.
• Greece will get short-term bridge financing to avoid bankruptcy - separate from the ESM. The amount is estimated to be €7bn by next Monday and another €5bn by mid-August
• Out of the total ESM loan about €10bn will be used immediately to recapitalise Greek banks - but the banks may need €25bn in total
• The European Central Bank, eurozone finance ministers and the IMF will tightly monitor Greek compliance with the bailout conditions
• Negotiations on the ESM bailout will begin only after the plan is approved by the parliaments of Finland, Germany and Greece
• The eurozone is ready if necessary to extend the repayment period of Greek debt (by debt rescheduling), but debt will not be written off (so no "haircut")
• The European Commission will try to mobilise €35bn - outside the ESM loan - to help Greece with growth and job creation.

http://www.bbc.com/news/world-europe-33504487

So conditions look a bit harsh, and one may think that Tsiparis was fighting a crusade for half a year just to return to the starting point, except maybe hit to his economy caused by uncerntanity on the market that he caused on his own.

The interest rate on Greeks 10 year bonds decreased from 19% to 13%, which is a way of expressing - instead of imminent doom, just really bad prospects.

Krugman and other quoted experts quoted on Guardian made a rant against the harsh conditions of this deal:
http://www.theguardian.com/business/2015/jul/13/athens-and-eurozone-agree-bailout-deal-for-greece

I'm quite curious if they dislike such deal so much maybe they could help financially a bit? If are unwilling, then maybe they should not be shocked, that German taxpayers are also reluctant to finance this project...

EDIT: This deal has to be voted in parliaments of Germany, the Netherlands, Estonia, Finland, Slovakia, Austria and Greece. It's not going to be easy...

 

[fermi]

I can't believe Germany's gullibility. Remember the cliche "fool me once, shame on you, fool me twice shame on me". Well, Greece already fooled Germany (and the rest of EU to a lesser degree) three times previously, and with this new round of bail-out Greece made it four! Fools or not, Germany keeps supporting Greece knowing full well that the money will never be repaid. Perhaps they will wake up some day, but until then Greece will keep treating them as fools. They first beg and make some minor concessions; then they take the money and run for a while, then they come back and ask for more in a couple of years. Mark your calenders for 2017.

 

[Czcibor]

I can't believe Germany's gullibility. Remember the cliche "fool me once, shame on you, fool me twice shame on me". Well, Greece already fooled Germany (and the rest of EU to a lesser degree) three times previously, and with this new round of bail-out Greece made it four! Fools or not, Germany keeps supporting Greece knowing full well that the money will never be repaid. Perhaps they will wake up some day, but until then Greece will keep treating them as fools. They first beg and make some minor concessions; then they take the money and run for a while, then they come back and ask for more in a couple of years. Mark your calenders for 2017.

I think that you may have overlooked one minor detail:

• "A new trust fund will be set up, managed by Greece, with €50bn of Greek assets. It is a mechanism for paying off part of the total ESM loan. Half of the €50bn will be used to fund recapitalisation of Greek banks, the other half will go towards reducing Greece's debt mountain - by privatising assets - and investing in Greece."

In other words - it seems that Angela effectively demands collateral first.

 

[Dotini]

A few niggles have emerged with the $95 billion Greece bailout deal #3.

The IMF says no, and Britain says no.

http://www.bbc.com/news/business-33531845
http://www.bbc.com/news/uk-politics-33528894

Essentially, the IMF says without debt relief, the deal is "highly unsustainable".
"the IMF has made it clear that it does not wish to participate in any further Greek bailout, unless Germany and the rest drop their vehement opposition to big write-offs of Greek debt."

And Britain says no to the immediate and urgent EFSM bridging loan on the grounds that it is not in the euro.
"Prime Minister David Cameron said in 2010 he had won a "clear and unanimous agreement" that the EFSM would not be used for further eurozone bailouts, after it was used to assist Ireland and Portugal."

Osborne said,
"But let me be very clear. Britain is not in the euro, so the idea that British taxpayers are going to be on the line for this Greek deal is a complete non-starter. The eurozone needs to foot its own bill."

Meanwhile, voting is to take place today in the Greek parliament amid strikes and a sustained bank shutdown.

 

[Czcibor]

Dotini:
Cool. Does this suggested by IMF debt relief involves writing off any of IMF loans? :D

(yeah, pleanty of people with good avice, just actually no-one wants to drown his money there...)

 

[bohm2]

I can't believe Germany's gullibility. Remember the cliche "fool me once, shame on you, fool me twice shame on me". Well, Greece already fooled Germany (and the rest of EU to a lesser degree) three times previously, and with this new round of bail-out Greece made it four! Fools or not, Germany keeps supporting Greece knowing full well that the money will never be repaid... Mark your calenders for 2017.

I don't think German/European financiers/bankers and politicians are fools. They know exactly what they're doing. Moreover, economists have been making the same prediction you are making since the first bailout. But to the best of my understanding this is the first time the IMF (one of the lenders) have acknowledged it in 2 different papers:

An update of IMF Staff's Preliminary public debt sustainability Analysis
http://www.imf.org/external/pubs/ft/scr/2015/cr15186.pdf?hootPostID=2cd94f17236d717acd9949448d794045

http://www.imf.org/external/pubs/ft/scr/2015/cr15165.pdf

I don't know much about economics particularly with respect to Europe but if it's anything like NA, the victim is usually the taxpayer (regardless of nationality) and the beneficiaries are the bankers/financial institutions. Maybe it's different in Europe but I doubt much of that money loaned out helped the Greek economy/average Greek citizen nor especially the European taxpayer. Maybe someone has some stats on this?

 

[fermi]

Thank you "bohm2" for the web links to these two interesting reports. Interesting in the sense that there is a good deal of data and analysis, but no clear-cut solution is proposed. I wonder why Greece is not considering selling some very large assets, like and island or two. I would not be surprised if the island of Rhodes alone fetched 200 Billion Euros, maybe even a little more with hard bargaining. What a relief that would create for Greece! Doing this kind of thing may be a good solution to Greece's problems, but admittedly it will be extremely unpopular, almost suicidal for any Cabinet in Greece, who would surely be voted out in the next elections. I bet a country like China would be quite interested. And don't count Germany out either; since they are going to foot the bill one way or another, they might as well get something out of it.

 

[Buckleymanor]

A few niggles have emerged with the $95 billion Greece bailout deal #3.

The IMF says no, and Britain says no.

http://www.bbc.com/news/business-33531845
http://www.bbc.com/news/uk-politics-33528894

Essentially, the IMF says without debt relief, the deal is "highly unsustainable".
"the IMF has made it clear that it does not wish to participate in any further Greek bailout, unless Germany and the rest drop their vehement opposition to big write-offs of Greek debt."

And Britain says no to the immediate and urgent EFSM bridging loan on the grounds that it is not in the euro.
"Prime Minister David Cameron said in 2010 he had won a "clear and unanimous agreement" that the EFSM would not be used for further eurozone bailouts, after it was used to assist Ireland and Portugal."

Osborne said,
"But let me be very clear. Britain is not in the euro, so the idea that British taxpayers are going to be on the line for this Greek deal is a complete non-starter. The eurozone needs to foot its own bill."

Meanwhile, voting is to take place today in the Greek parliament amid strikes and a sustained bank shutdown.

Britain does not have the euro as a currency but we are a member of the European Union and make considerable contributions in pounds sterling these will probably be converted to euro's so they can be distributed within Europe.So how can Mr, Osborne expect not to make some contribution towards the Greek deal without leaving the Union.
Just because Britain is not in the euro does this mean it cannot possibly contribute using pounds.
The Eurozone has never footed it's own bill since Britain joined the EU.

 

[Czcibor]

Britain does not have the euro as a currency but we are a member of the European Union and make considerable contributions in pounds sterling these will probably be converted to euro's so they can be distributed within Europe.So how can Mr, Osborne expect not to make some contribution towards the Greek deal without leaving the Union.
Just because Britain is not in the euro does this mean it cannot possibly contribute using pounds.
The Eurozone has never footed it's own bill since Britain joined the EU.

One more issue - Britain (read: the City) was one main of lender to Greece in the good old days (except from France and Germany). Whether the bailout really helped Greece, its an issue of debate. However, if there was no bail out, British overgrown financial sector would be one of a few very seriously hit...

Yes, but now its issue of some far away Eurozone...

 

[Buckleymanor]

One more issue - Britain (read: the City) was one main of lender to Greece in the good old days (except from France and Germany). Whether the bailout really helped Greece, its an issue of debate. However, if there was no bail out, British overgrown financial sector would be one of a few very seriously hit...

Yes, but now its issue of some far away Eurozone...

It's the double standards that are hard to digest having looked at the original article from the BBC. Quote.
Speaking as he arrived in Brussels, Mr Osborne said: "It's in the interests of economic stability across Europe that this Greek deal is now signed and sealed.

"But let me be very clear. Britain is not in the euro, so the idea that British taxpayers are going to be on the line for this Greek deal is a complete non-starter. The eurozone needs to foot its own bill."
Talk about having your cake and eating it!

 

[Czcibor]

It's the double standards that are hard to digest having looked at the original article from the BBC. Quote.
Speaking as he arrived in Brussels, Mr Osborne said: "It's in the interests of economic stability across Europe that this Greek deal is now signed and sealed.

"But let me be very clear. Britain is not in the euro, so the idea that British taxpayers are going to be on the line for this Greek deal is a complete non-starter. The eurozone needs to foot its own bill."
Talk about having your cake and eating it!

I think that there is agreement all over Europe (or even further, if we include IMF):
1) we highly demand some realistic program to be implemented
2) we highly demand that someone else pay for that, that's not our job, moreover we're clearly disappointed by our partners, that they haven't paid more yet

 

[mheslep]

Agreement all over Europe? No doubt many support self-contradictory plans, but not everyone is delusional.

 

[bohm2]

Interesting in the sense that there is a good deal of data and analysis, but no clear-cut solution is proposed.

A possible solution was clear from the get-go. But it was rejected by most of the lenders. The new program will just exacerbate the debt. The only option is a Grexit. And I'm pretty sure it will happen, in the near future. Irrespective of fault, Greece has served as an example to the rest of Europe for what happens when a country does not follow the orders and rules of EU’s unelected institutions. I'm just glad I live in Canada.

 

[Finny]

Lots of insightful posts. Generally, except for accusatory comments, very well done.

The problem started when the Greeks falsified their economics to enter the EU. The EU knew they were falsified and for political reasons accepted Greece, Spain and Portugal although those countries really didn't meet EU member ship critera...or should not have.

So the Greek misstatements continued, they borrowed way too much money and end up in a situation likened to a home owner, living above his/her means: Mortgage is too big, so use credit cards, begin paying off mortgage with credit card borrowing, maybe switch balances among multiple credits, then cash flow cannot sustain all the borrowing which masked the real issues.

As noted, the Greeks export very little to earn EURO's to pay off any loans. I read that although olive oil is a 'major export', much of it goes to Italy and is exported as Italian Olive which the Greeks import. I'm guessing that a lack of exports is one reason for high unemployment at home.

So the issue now is that there is no graceful solution, no single uniquely serious problem that if solved would fix things. And if the Greeks exit the EU, their drachma will plumit in value and they'll be able to import even less with such a weak currency at home.

When left wing politicians try to buy their fantasy world with other people's money, nobody wins except the politicians.

Edit: I could not get past the first idiotic paragraph of Krugman's article which was linked. That was so ridiculous he could not possibly recover.

 

[fermi]

Finny, you have several good comments, but I think you are making a mistake by putting Spain and Portugal at the same level of a problem for EU as Greece is. It is true that all three countries were not fully prepared to enter EU initially. It is also true that all three countries have financial difficulties. However there is a major difference that counts a lot: both Spain and Portugal are serious about getting back on their feet. They are putting infrastructure in place to be self-sufficient, and their progress is apparent. They do not come back for a new round of bail-out every 18 months or so. Even though they are unhappy about their position, they don't blame EU for their problems (at least not exclusively.) Portuguese and Spanish accept part of the blame themselves. Greeks are totally different. As far as they are concerned, they have done absolutely nothing wrong, and they are against any change and against all reforms. They believe this is EU's problem, not theirs, and they want EU to fix it. Unlike Spain and Portugal, Greece will be content to be supported by EU forever. That's what I call "entitlement mentality".