Saving Greece....

[recycled sixtie]

I did not know whether to put this in PARF or not so thought I would put it here. Why does Merkel insist on keeping Greece in the common market and related European economic ties? The Greek people seem to reject the austerity measures so why not let them be free and solve their own problems?Continual bailing out of any country can lead to a lack of fiscal responsibility. Any ideas?

[red-beard]

Originally Posted by recycled sixtie

I did not know whether to put this in PARF or not so thought I would put it here. Why does Merkel insist on keeping Greece in the common market and related European economic ties? The Greek people seem to reject the austerity measures so why not let them be free and solve their own problems?Continual bailing out of any country can lead to a lack of fiscal responsibility. Any ideas?

No disagreement here. But I believe the reason is that Greece will be the first Domino to fall. The rest in the PIIGS will then go and it will be the end of the Euro.

Austerity alone will not fix Greece. They need to look at the regulations, social policies and certain aspects of the Greek culture (not paying taxes, etc) which have driven most businesses out of Greece.

Spain has some similar problems, just not as much debt...

[jyl]

Big topic. Some points:
1. Eurozone powers (Germany, France, ECB) want to avoid letting the first domino fall. They are trying to protect euro and their own banking system. What is good for Greece is not their primary concern. Greeks are essentially being sacrificed to protect the euro/larger Eurozone countries.
2. Most of the "bailout" money is being used to pay Greece's external debt - I.e. turning right back around and flowing back to rest of Eurozone, in particular banks. Basically, this is a bailout by European govts to European banking system.
3. Thus if Greece does give up and leave Eurozone, Eurozone will make it as painful as possible, as a warning to the next domino (Spain).
4. Large changes are needed in Greece's laws, public sector, private sector. So far the changes have been aimed at the lower-end - public sector employees, benefits, etc. Additional big changes need to be aimed at higher-end (businesses, wealthy) - ineffective tax collection/rampant tax evasion is possibly Greece's single biggest problem. If Greece actually collected taxes per its tax code, the country would not have much of a deficit.

The ordinary Greeks protesting in the street have a good point, actually. Not that they shouldn't feel plenty of pain too.

[red-beard]

There was a cab driver interviewed. When he was asked who was worse, the bankers or the protesters? His answer was they were both criminals. The people are "in the middle" between the bankers and the anarchists.

BUT, until they look at themselves and understand they can't vote themselves everything they want, they will not be able to start to fix things. Until they take a stark look at what the real, under-lying problems are, and accept them, they will never fix things. It is virtually no different than a junkie. The longer you put off the crisis, the worse things will get. And most "interventions" do not work. You have to want to change.

[scottmandue]

I save my bacon grease in old cat food cans...

[imcarthur]

Originally Posted by red-beard

until they look at themselves and understand they can't vote themselves everything they want, they will not be able to start to fix things. Until they take a stark look at what the real, under-lying problems are, and accept them, they will never fix things.

Hmmm. Not to parf up the thread, but this could apply closer to home.

Ian

[red-beard]

Originally Posted by imcarthur

Hmmm. Not to parf up the thread, but this could apply closer to home.

Ian

Of course. But let's focus on the problems of others and point out their failings! It's easier and less controversial!

[Rick Lee]

Originally Posted by imcarthur

Hmmm. Not to parf up the thread, but this could apply closer to home.

Ian

I was going to say the exact same thing.

[911-32]

The short answer is that the political costs are too high for Merkel. Why? If Greece withdraws from the eurozone then her political advisers believe it would eventually be necessary to create a debt union or fiscal union to save Spain and Italy. Its a paradox: Germany would take a hard line with Greeece but may be forced to accept jointly issued eurobonds which German voters widely oppose.

There is also the fact that a Grexit would cost Germany a huge amount because Greece and Greek citizens owe German banks a lot and because German banks are owed a lot thru the TARGET2 settlement system. These numbers are politically unpalatable and are much larger than the cost of continuing drip feed bailout.

A lot has been written by economists and commentators explaining it better than I can if you search a bit.

[Dottore]

Originally Posted by jyl

Big topic. Some points:
1. Eurozone powers (Germany, France, ECB) want to avoid letting the first domino fall. They are trying to protect euro and their own banking system. What is good for Greece is not their primary concern. Greeks are essentially being sacrificed to protect the euro/larger Eurozone countries.
2. Most of the "bailout" money is being used to pay Greece's external debt - I.e. turning right back around and flowing back to rest of Eurozone, in particular banks. Basically, this is a bailout by European govts to European banking system.
3. Thus if Greece does give up and leave Eurozone, Eurozone will make it as painful as possible, as a warning to the next domino (Spain).
4. Large changes are needed in Greece's laws, public sector, private sector. So far the changes have been aimed at the lower-end - public sector employees, benefits, etc. Additional big changes need to be aimed at higher-end (businesses, wealthy) - ineffective tax collection/rampant tax evasion is possibly Greece's single biggest problem. If Greece actually collected taxes per its tax code, the country would not have much of a deficit.

The ordinary Greeks protesting in the street have a good point, actually. Not that they shouldn't feel plenty of pain too.

This. ^^^^^

Also of course there is really quite intense pressure on Germany (from within the EU) to keep the dream of a United Europe and currency union alive. If you took a referendum on the subject in Germany, most Germans would be in favour of cutting Greece loose. Merkel is walking a very fine line in trying to keep the focus on the big picture and not entirely losing her constituency. Very difficult issue in Germany...

[Rick Lee]

I was talking about this with a friend in Austria a few mos. ago who's not really into politics. She said, when the EU was mostly about open borders and a currency union she thought it was fine and, having been to Greece a few times, thought it would really help them out. But then she said when it got to regulating everything from light bulbs to child car seats, it got ridiculous and she's ready for it to all break up. I don't think they want the refugee flood either and EU citizens can pretty easily move around within the EU.

[jyl]

I agree Greece and Greeks need to undergo beaucoup pain to fix that country. But I think the media is missing a big part of the story. The easy media story is that Greece's problem is too many direct and indirect benefits and that cutting spending (austerity) is the sole solution. That is the story that Germany and other Eurozone powers want to tell. The under-told story is that Greece has a revenue collection problem which is at heart a high level corruption problem. In 2009, Greeks concealed EUR28BN of income which is about EUR11BN of tax revenue lost, which is IIRC larger than Greece's budget deficit was at that time. The primary tax evaders are the higher income and highest income Greeks (business owners, professional class). That happens to include much of the Greek parliament. I wonder why the Greek govt has not acted more forcefully to collect taxes?

Greece is a real time experiment. Can austerity alone fix that country? So far, not working. Actually it is simply plunging that country into an extremely deep recession, pretty close to a depression, and causing the budget deficit to explode.

The reason the country is doing that experiment is because, as I explained above, the Eurozone's primary goal is not actually to fix Greece.

[wdfifteen]

Originally Posted by jyl

I agree Greece and Greeks need to undergo beaucoup pain to fix that country. But I think the media is missing a big part of the story. The easy media story is that Greece's problem is too many direct and indirect benefits and that cutting spending (austerity) is the sole solution. That is the story that Germany and other Eurozone powers want to tell. The under-told story is that Greece has a revenue collection problem which is at heart a high level corruption problem. In 2009, Greeks concealed EUR28BN of income which is about EUR11BN of tax revenue lost, which is IIRC larger than Greece's budget deficit was at that time. The primary tax evaders are the higher income and highest income Greeks (business owners, professional class). That happens to include much of the Greek parliament. I wonder why the Greek govt has not acted more forcefully to collect taxes?

Not all the media is missing it. There was a report on this on NPR about a month ago. I said pretty much the same thing you said here, along with some examples. It sounded like corruption within the Greek government was a central part of the problem and that things aren't likely to change.

[HardDrive]

If you look though the back catalog of The Economist for the past year, there have been some excellent articles on the subject.

The euro: Tempted, Angela? | The Economist

[Dottore]

Originally Posted by jyl

I agree Greece and Greeks need to undergo beaucoup pain to fix that country. But I think the media is missing a big part of the story. The easy media story is that Greece's problem is too many direct and indirect benefits and that cutting spending (austerity) is the sole solution. That is the story that Germany and other Eurozone powers want to tell. The under-told story is that Greece has a revenue collection problem which is at heart a high level corruption problem. In 2009, Greeks concealed EUR28BN of income which is about EUR11BN of tax revenue lost, which is IIRC larger than Greece's budget deficit was at that time. The primary tax evaders are the higher income and highest income Greeks (business owners, professional class). That happens to include much of the Greek parliament. I wonder why the Greek govt has not acted more forcefully to collect taxes?

Greece is a real time experiment. Can austerity alone fix that country? So far, not working. Actually it is simply plunging that country into an extremely deep recession, pretty close to a depression, and causing the budget deficit to explode.

The reason the country is doing that experiment is because, as I explained above, the Eurozone's primary goal is not actually to fix Greece.

Yes, but. It has been clear from day one that austerity alone cannot fix the country. You just have to run the numbers. The population is too small for the external debt.

Yes, Greece is deeply and fundamentally corrupt. A few years ago I was tasked to explore setting up an office in Greece for the international law firm in which I was a partner. I spent a lot of time on the ground speaking with hundreds of lawyers, businessmen and politicians. It really takes a long while to understand the deep antipathy that Greeks have for authority and government (after many generations of corrupt government) — and the resulting almost anarchic spirit that rules the place. The corruption in high places is legion. In some respects the country really is an oligarchy.

Of course the Eurozone is more concerned about keeping the Eurozone intact, than it is about fixing Greece. The latter really cannot be done. Greece has to implode and start again. The only thing the EU can do try to manage the impact of that implosion. That is what EU policy towards Greece is all about.

I have a huge amount of sympathy for your average Greek. They have been royally f_cked by their politicians. They have a high-spirited and deeply anarchic streak that I have always admired. I wish them well.

I was on the phone just now with a wealthy Greek businessman who is a very close friend - and who was the best man at my wedding. When I asked how things were in Athens he laughed and replied "I'm having dinner with six Chinese businessmen tonight who want to give me large amounts of money. That's got to be a good sign right?"
I said, "No, no, no...when the Chinese want to give you large amounts of money its a bad sign."
He thought about this for a moment and said, "Well then God help us, because my only alternative is the Turks I had dinner with last night."

The only thing that is sure in Greece is that it is going to get a hell of a lot worse before it gets better.

[Danimal16]

Wow, this is one of the most informative threads in along time. I am very ill-informed on the specifics of the Euro crisis. You guys have shed great insights on the topic. Thanks for the education, really good stuff.

[coldstart]

Dumb question:

Why can't Greece sell an island or a chain of islands to Germany or the EU or a private party and pay off part of its debts?

Or they should be forced at least use real property as collateral to lower its interest rates so it doesn't require EU/IMF intervention?

Spain should do the same thing. I am sure that a billionaire somewhere would love to own a Greek or Spanish island.

A list of uninhabited Greek islands from Wiki:

Psyttalia
Leros Salaminos
Revythoussa
Moni Aiginas
Spetsopoula
Romvi
Platia
Psili
Agios Georgios
Patroklou
Fleves
Agios Georgios Salaminos
Ypsili Diaporion
Ypsili Argolidos
Agios Thomas Diaporion
Agios Ioannis Diaporion
Platia Aeginis
Laousses Islets
Kyra Aiginis
Trikeri Hydras
Alexandros Hydras
Stavronisi Hydras
Velopoula
Falkonera

A list of inhabited Spanish islands from Wiki:

Alegranza
Conejera
Formigues Islands
Lobos Island
Montaña Clara
Perejil Island
S'Espalmador
Isla de Tagomago
Es Vedrà

This is my out-of-the-box contribution. The answer is likely that it is illegal to sell sovereign property to other countries or individuals but I don't know the international laws with respect to the sale of sovereign soil.

[Dottore]

Well, first, not many islands are state owned. And you can't sell somthing you don't own.

Second, even if there were state owned islands to sell, giving up sovereignty is a very, very political issue, which would never fly with the public. A Greek politician who suggested this would be commiting political suicide. In fact some German politician suggested something along these lines, and the suggestion alone caused riots in Greece.

[Zeke]

Originally Posted by scottmandue

I save my bacon grease in old cat food cans...

I thought the title was Saving Grace.

Imagine my disappointment this was not about religion.

[recycled sixtie]

Originally Posted by Zeke

I thought the title was Saving Grace.

Imagine my disappointment this was not about religion.

If you want religion check my other post re religion on parf.