Greek Debt Crisis

[rov1100]

http://www.bbc.co.uk/news/business-13798000

Would it be better for all concerned that Greece should be allowed to default? The alternative is to throw good money after bad and in the end they will still default. Investor countries would still lose their investments but this could be small fry compared with a prolonged bailout.

[Buenchico]

The worry is that many French banks have money loaned to Greece. If Greece defaults, those banks will either go bust or have to be bailed out by the French government. But those banks have got links to banks in the USA and (to a lesser extent) banks here in the UK. The risk is that banks will stop lending to each other, across the world, as happened after the US government allowed Lehman Brothers to go bust, creating a global economic crisis vastly greater than that of 2008 with a prolonged period (possibly of a decade or longer) of recession and financial uncertainty.

Chris

[emmie]

exactly the scenario that the French don't want.

[bazwillrun]

anything that hastens the destruction of the european empire/superstate/whatever you want to call it, is good for us.

the sooner we get out of this doomed (when not if) experiment of the power crazed politicians the better

[jake-the-peg]

If the Greeks default we'll be bailing out our banks - Again!!

Anybody who thinks that the Greeks defaulting wouldn't affect us is kidding themselves.

Firstly we already know that the banks are all trading risks with each other and they may come on TV and say we're not exposed to Greek debt but they're probably heavilly exposed to other banks who are.

If the Greeks default all those financial institutions will have to write off those debts which would probably precipitate another bail out of the banks because George Osbourne hasn't ringfenced them.

You may not like the Euro but if it fell apart the financial consequences for many European countries would be bad and we sell an awful lot of Goods and services over there so it would result in massive loss of market for British companies.

Any one would think to hear you talk that the Greeks could just go "Oh well we'll just go back to the Drachma" and nothing more would happen.

[New Judge]

Of course jake is perfectly correct to point out that the consequences of default by Greece would certainly be felt across Europe (including the UK), if not the world.

However, the Eurozone cannot go on as it is for much longer. Continually bailing out a bankrupt state does not suddenly make it solvent. There is no doubt that Greece (and possibly some or all of the other “PIIGS” nations) should never have been permitted to join the Euro. Greece in particular came nowhere close to meeting the entry requirements. But the vanity of the Federalist politicians brushed aside such petty matters as the potential solvency of a nation which operates its tax system along the lines of a church collecting plate and which runs a state pension scheme far more generous than that of the UK and has a huge percentage of its workers employed by the State.

Politicians who bleat that the current circumstances could not have been foreseen are being economical with the truth. There is widespread documentary evidence that many leading economists counselled against allowing some of the smaller economies to join the Euro and forecast what would happen if the circumstances we are now seeing prevailed.

The Euro was a project to satisfy political vanity and was certainly not borne out of economic desirability. Unless Germany assumes fiscal and political control of the failing states (which will not be tolerated) the Euro in its current form is a dead duck. The markets will eventually prevail but unfortunately not before the recalcitrant politicians do all they can to recover their vanity. They simply will not accept that their project was flawed and the situation must be resolved. Unfortunately by the time reality does eventually overcome them they will have done untold damage to the global economy.

Greece must be allowed to default in as controlled a fashion as possible. The Euro must be either abandoned or reformed so that such a situation is never allowed to recur. The sooner this happens the better. It will be far more preferable to death by a thousand cuts.

[buildersmate]

Brilliant analysis and answer by NJ. It is when rather than if (a controlled default occurs). My estimate is 10th October.

[jake-the-peg]

Sounds like he may have to credit the Telegraph for a lot of it to me BM.

There are of course a number of people deliberately trying to talk up the crisis for their own political agenda.

Nigel Lawson is a classic case at the moment. He of course was a strong proponent of the old Exchange rate mechanism that ended so badly with Black Wednesday - so that is an amusing spectacle.

I am somewhat surprised nobody is talking of Quantative Easing in the Euro Zone. This could help towards the Greek bail out and the Euro is pretty strong against the Pound and the dollar

[New Judge]

I don’t think the crisis needs talking up by me, Nigel Lawson, The Daily Telegraph or anybody else, jake. It just about as bad as it can get, it is costing businesses and individuals across Europe huge sums and the longer the problem is allowed to go on the more it will cost to solve. The project was absolute folly from the outset (certainly as far as the countries that were allowed membership was concerned). The problem is that the people who can solve it quickly are the very people who will not take the action needed because they are petrified of admitting they were wrong.

QE (aka “printing worthless money”) is the very thing that will not make matters any better. There is no point in printing more Euros to pay off Greece’s debts only to see them slide into more debt in a few months time. The relative strength of the Euro is one of the very reasons why member countries such as Greece cannot solve their problems. Unless the sums involved in QE are vast (which will lead to inflation which Germany will not tolerate) it is unlikely to alter that strength significantly. The problem needs to be tackled at root and that root lies in the fact that the economies of the member states are so diverse that monetary union will never properly work. Constantly providing funds to pay the debts of the bankrupt states will not cure the problem and eventually, even with the undemocratic processes that are operated across Europe, the electorates in donor nations will eventually find a way to call a halt if the money markets do not do so first.

There certainly is a political angle here. This problem did not materialise as an Act of God. It was caused by politicians who had federalist ambitions that overrode their common sense and it is being perpetuated by those same politicians desperate to protect their vanity. The only agenda most people have is to see an end to the lunacy that is monetary union of a bunch of such disparate states and a return to some stability and sanity.

[rov1100]

The German public must be getting p!ssed off with the whole thing. Over 75% think they should let Greece default. Why prolong the agony and cut our losses which can only get worse with any delay. With loans upon loans they are a basket case.

Maybe the end game will come if Germany exits the Euro and leave the rest to stew in their own juice. Who can blame them!

[New Judge]

Yes, rov, it is them I was particularly thinking of when I mentioned the donor nations.

Only politicians could think it fair and reasonable for the taxpayers of other nations to solve sovereign debt crises such as that currently affecting Greece – a crisis which they, the politicians, have been largely responsible for creating.

I have friends in Greece whom I have been visiting quite frequently for many years. Virtually nobody in Greece wanted the Euro to replace the Drachma. Most people in the tourist industry (upon which Greece relies heavily) could see that being unable to control, in particular, exchange rates, would cause problems. Their concerns were dismissed. Prices in Greece rocketed enormously following the introduction of the Euro and this hit their tourism quite hard. The current strength of the Euro perpetuates this problem and although Greece has (and has always had) problems with tax collection and public spending they were able to deal with these when they had the Drachma.

They are just a fed up with their plight as the German public must be for having to provide rescue funds. The problem needs proper political resolution urgently. It is not forthcoming and is unlikely to be so.