Mark Gilbert, Bloomberg: Greece Is Running Out of Money, and Time
Greece, as everyone knows, is running out of money. That means it might not be able to pay its debts, including what it owes the International Monetary Fund, which should be a cause for serious anxiety in Europe. But there's a dangerous myth starting to gain traction that the nation could default on its obligations but still remain a member of the euro.
On Monday, the Financial Times said Greece is poised to default on 2.5 billion euros of payments owed to the IMF in May and June if it doesn't get additional bailout cash. The newspaper cited "people briefed on the radical leftist government's thinking." Germany is making contingency plans that would let Greece stay in the euro even if it defaults on its debts, the Die Zeit newspaper reported today, without citing its sources.
WNU Editor: When the Soviet Union collapse I saw the misery first hand on what a country's debt and failed monetary policy can do its population .... to put it bluntly .... it is/was not pretty .... and in my opinion, it is only now that Russia has recovered from that period of time (even with all the problems of sanctions and falling oil prices). Now in regards to Greece .... what they are facing is even worse than what Russia had to face when their economy/financial system imploded. Russia at least had resources to sell .... Greece .... well .... aside from a few exports and being a tourist attraction during the summer months .... not much that will generate hard currency. My prediction .... the Greeks are going to face even harder times .... and their default is going to have a European wide impact.
More News On Greece's Debt/Financial Crisis
EU Says Talks With Greece Over Bailout are Nowhere Near Resolution d-- WSJ
Greece's economic outlook worsens after downgrade -- Deutsche Welle
Greece at substantial risk of default, say experts -- The Guardian
Euro Armageddon? Greece prepares for debt default - set to trigger eurozone financial melt -- Express
Germans downbeat on chances of Greek deal next week -- Reuters
Greece in new downgrade by S&P for "unsustainable" commitments -- BBC
Update: The world is not in good shape either .... IMF spring meetings: time to realise world is on borrowed time (The Guardian).
14 comments:
The key phrase: " Germany is making contingency plans that would let Greece stay in the euro even if it defaults on its debts,".
The Euro zone economy is fast approaching a situation that has unavoidable consequences. They'll make a "herculean" effort to paper this over with some type of agreement that says Greece doesn't have to pay, but really isn't defaulting, a one time deal, etc etc. You can better believe the people in Spain, Portugal, Italy, and others are watching closely. The old European political and economic establishment is teetering.
WNU,
At the start of the Ukraine crisis, this is what I was thinking about when the West imposed their "sanctions" on Russia. Putin probably felt that Russia was in better shape than the West and if he could hold out, it would be the West not Russia that would first crack economically. The oil price collapse was an unforeseen difficulty for him, but it would hurt some of Europe more (Britain, Norway) and only buy time for the rest.
You could make a case that Putin was thinking in terms of: The West was inevitably going to disintegrate into economically and politically chaos in the near future and he wanted to be able to extend Russian influence and "stability" as far west as possible to deal with that possibility. I think this a weak argument with many problems, but still possible.
This is one thing Leftists do not understand or will not admit.
Groups of people are like parts of body. They have to support themselves or provide some thing tangible in exchange for support.
In the body if some part of it does not produce what it is suppose to produce, the body can in some case cover for it for a while. But metabolic over the log haul the system will collapse.
You cannot paper over things for the long haul.
If the GI tract stop working, energy can be released from fat cells supplying the whole body including the cells comprising the GI tract.
If a body has cancer where cells grow but provide nothing in return the body can last months or years. But sooner or later the body dies.
The Leftists in Greece can seize all the wealth and it will by there system time. People will refuse to die if ill treated so they will work some. But over time the system will grind to a halt in a generation, two at the most.
The Soviet Union lasted longer than 1 or 2 generations. Oil exports was one reason. Terror was another. The Great Patriotic war was a 3rd.
Greece is not going to get so lucky. The leaders of the Greek Left are feeding the beast. I their lifetime they will have to flee, face justice or be consumed.
"You could make a case that Putin was thinking in terms of: The West was inevitably going to disintegrate into economically and politically chaos in the near future and he wanted to be able to extend Russian influence and "stability" as far west as possible to deal with that possibility. I think this a weak argument with many problems, but still possible."
It is a decent argument
Who has the cleanest dirty shirt arguement.
Aizino,
"But over time the system will grind to a halt in a generation, two at the most."
For the Greeks I think less than a year. For Europe less than two.
James,
I do not think the Greek leaders will persecute people hard enough nor do they want to.
I expect lots of tax prosecutions. That is a mixed bag morally. People should pay their taxes, yet it is immoral to set them too high.
A family member was in Greece last year. It is hard for some people there. Still there were lots of Greeks eating out. People were hustling and making a living as cab drivers taking tourists around. On the islands there were under the counter transactions among small business owners not millionaires.
Taxes like all economics are psychological. It is just not about cheating. It is about there is a bell curve of what tax rate people are willing to bear.
When you get 30% to 50% tax avoidance, then there are selfish people among the taxpayers to be sure, but there are also many, many selfish empire building people in government.
I saw a a VP in a corporation empire build once. They started an expansion to treble the size of a distribution center. It became a white elephant literally. Only the framework was put up and the steel beams were literally painted white. It sat there for over a decade clearly visible from the interstate. I was told the numbers were not there as far as distribution volume and space needed, but the VP wanted more people and assets to look important and increase his profile and thus salary.
You have the same type of people in government.
James,
You are right. Greece is much smaller, the leaders are not as cruel in some aspects and the Greeks do not have the natural resources. It will crash sooner.
But might not a nationalization spree save their careers for 5 years or a decade? For the 1st 2 or 3 years nationalizations might make their base quite happy.
I mean after all Maduro has gone the nationalization route. He is way over his paygrade and yet he is still there.
The nationalized cement companies a la FDR. His people began nationalization of utility companies and his brain trust boys wanted railroads and housing construction too.
I understand while Maduro might not have the horse power that there are other behind him. Still they are losing. They can't be that smart.
They say if you want to distract the populace, then start a war.
Another method is to nationalize.
Greece cannot start a war, but they can nationalize, drag people to court and play the class warfare card and last longer than a year IMHO.
Aizino your observations that life goes on in Greece is accurate .... that is what I meant when I said that Greece has yet to experience what hard times is .... i.e. that is when they are not going to restaurants or calling cabs .... but basically selling their belongings on the street corner for a few dollars which is what was happening throughout Russia in the early 1990s.
The cab driver was taking tourists around.
I would posit that he was better off than a college graduate in Greece depending on their degree, GPA and willingness to relocate.
College, college college. That is all you hear. I live fairly well, and 2 of my neighbors are electricians.
College in some respects is a scam or least there is a lot of dead would in the staffing, hangers on and curricula.
College IMO should take 3 to 3.5 years to get though. Fluff increases college by a 1/3rd IMO.
I stand by my predictions. When it starts publicly it will happen very quickly.
I was not challenging, but asking questions.
I have not run any numbers.
Greece going bankrupt or a government falling does not bug me. Maybe it should but there is nothing I can do about it anyway.
What does the system grinding to a halt in Europe look like?
The euro gone?
(I did not think much of the European Union bureaucracy trying to pressure Ireland, The Netherlands pressing them over and over when they had voted it down once.
I like the ease of one currency in Europe, but there are too many slackers. Too many politicians are slackers.)
Something else?
"I was not challenging, but asking questions."
I know, it doesn't bother me, actually it's good since I have to think about it.
Basically from what I understand the Euro was a uni-currency designed to implement the cross border integration of economies and political systems. What it didn't (and probably couldn't) do is take into account ethno/political differences that have deep and long historical roots. So it devolved into a bunch welfare states supported economically by only Germany and Britain. Of course it gave politicians fantastic opportunities for graft which they promptly took as fast as they could. They soon reached the point of not enough money and needed more, but the whole thing was becoming politically untenable to the ones who had money, the Germans. Who then managed to impose economic/political terms on the PIGS, which of course became hugely resented and resulted in very left wing governments being elected by promising to tell the Germans to take a hike. So now it's default or mass disturbances. Plus here's the real kicker, there isn't enough money period, whether Greece stays or leaves it doesn't matter.
As for my prediction: political and economic systems that are doomed by their very fundamentals can seem to last a long time from playing little Dutch boy at the leaky dyke, but when they go they go fast. WNU, may be able to confirm that in his eyes the old USSR might have seemed in some trouble, but also seemed to be stable enough warts and all to last a long time. I bet he was shocked by how quickly it collapsed when it did.
Well time to take off my smarty pants hat.
All my relatives and in-laws, who live in non-Mediterranean European countries, work hard and live in shoe box apartments.
One particular couple live as a family of four in a two bedroom apartment. They are white collar. That image really sticks in my mind. I am not impressed by Europe. I am less impressed with Greece.
I do not know about the money issue. All I know is that money is not evil. It is natural. Take all the precious metal and paper currency away and money springs up naturally.
Money has to be based on useful work (not digging holes and filling them up). Sort of like (exactly) the concept of work in physics. It has to be based on product & services, on GNP.
The Fed actually helped created the depression in the 1920s. They created too little money. There physically no currency in some communities. People used scrip money.
Now there is too much money a person might argue. Except that it is in the hands of the bankers. I would not blame them totally or mostly as they have been read the riot act by the government, which sets reserve limits and keeps bracing for the worst from government. Same thing happened during FDR's time. The railed against the 'capital strike", but he was always proposing, passing new laws. He was prosecuting everyone and demonizing them in the press. If the U.S. produced ~25% of the world's goods then having it in decline will hurt Europe and Asia.
But the Europeans are pretty good at sabotaging themselves too.
There is too much money when you have 600 trillion in derivatives and there is not that much value in physical assets.
Still do not know what collapse loos like.
I have heard stories of gleaning a wheat field 2 or 3 times and of people being lined up waiting to glean it after the family left. Except that sounds positively lawful (& is) compared to OWS, black bloc and the others.
I agree James. I knew that the USSR was going to go through some changes .... probably into a federated system .... but I never thought it would break up as it did.
For my father and his generation .... it was an even bigger shock. I was with him in Red Square when they put down the hammer and sickle and put up the Russian flag .... I will never forget the look of complete shock on my father's face when that happened.
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