Greece

[Sunset]

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Originally Posted by explanade It's worked great for Germany. Look at their trade surplus.

Its an expensive way to get a trade surplus as Germany will lose Billions some where around 60 Billion so far.

Plus a lot of the real trade surplus effect for Germany comes from their hard work efforts, compare that to Greece where nobody works and simply lives on the dole.

Example the blind island - a small Greek island where a large % of the population claimed to be blind (get a gov't blind pension) and everyone was "in" on it, nobody ratted out the cheats.

I think the gov't lending $$ to Greece are stupid stupid stupid, as its just throwing the money away. I sure hope my tax dollars don't go to the IMF.

Stop all lending and stop oppressing the Greek people !!

[robnplunder]

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Originally Posted by explanade It's worked great for Germany. Look at their trade surplus.

Germans deserve their success. Greek in EU or not, Germans would have trade surplus most likely. Greeks lived above their mean with someone else's money. Joining EU benefited Greek more than the EU lenders.

[ERD50]

Quote:

Originally Posted by robnplunder Quote: Originally Posted by explanade It's worked great for Germany. Look at their trade surplus. Germans deserve their success. Greek in EU or not, Germans would have trade surplus most likely. Greeks lived above their mean with someone else's money. Joining EU benefited Greek more than the EU lenders.

[satire] No, the Germans do not deserve the success they have gained from hard work, productivity, supporting a (relatively) honest government, police force and tax system, sacrifice, and a more reasonable pension system.

To be fair, we must all lower ourselves to the least common denominator. [/satire]

https://en.wikipedia.org/wiki/Harrison_Bergeron

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In the year 2081, amendments to the Constitution dictate that all Americans are fully equal and not allowed to be smarter, better-looking, or more physically able than anyone else. The Handicapper General's agents enforce the equality laws, forcing citizens to wear "handicaps": masks for those who are too beautiful, radios inside the ears of intelligent people, and heavy weights for the strong or athletic.

-ERD50

[NW-Bound]

Don't worry about the Germans. It's true that they worked too hard, produced too much for internal consumption, had to export the surplus, then now do not get paid. But as is often said, they will make it up in volume. They will just have to keep it up.

[samclem]

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Originally Posted by Sunset I sure hope my tax dollars don't go to the IMF.

They do, in a way. From an (undated-grrrh!) CATO article from the late 1990's:

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U.S. payments to the IMF are said to be costless because they earn interest at the fund and can in theory be withdrawn if the United States so chooses. Of course, Washington has never chosen that route, a move that would allow us to test the quality of our “investments.” Instead, Washington and the IMF regularly demand and receive more cash from U.S. taxpayers to make high-risk loans at subsidized rates. In any event, it is untrue that the IMF does not cost U.S. taxpayers a dime. The interest the United States earns at the IMF is below the rate of U.S. Treasury bonds — in other words, it doesn’t cover the cost of borrowing. By funding the IMF, the United States is actually losing money because it borrows cash at one rate (bonds) and invests it at a lower rate (IMF). The Congressional Research Service has calculated that in this way the IMF has added at least $4.6 billion to the national debt. It will add more if the current funding requests are approved.

$4.6 billion in probably 1998, you can guess what the costs have escalated to today.

Quote:

Originally Posted by Sunset Stop all lending and stop oppressing the Greek people !!

There's no problem with lending, per se. The Greek government should be free to issue bonds on the real open market to fund their spending, and let private investors risk their own money (without any chance of a government backstop/bailout). That's a lot different from governments taking money from their people and deciding to loan it to the Greeks-at rates those private citizens wouldn't have accepted.
If Greece had been paying the real, risk-adjusted rate for all this borrowed money, they would have stopped digging this hole a >long< time ago, would have cleaned up their act, and would have been a lot healthier.

Back to the IMF: The US plays an outsize role in that organization, the US gets the most votes because the US has contributed the most money. The IMF is the voice of "moderation" among the "troika", and has been urging lenient terms for Greece and the provision of yet more money. They have recently released a report urging even more aid. So, just as the Greeks are finally coming to terms with their problems and getting some much needed "tough love" that may have shocked them into the actions needed to start the turn around, the IMF (with the strong backing of the US reps) is undermining the process. Why? Mr Tsipras's view of the world and how economics works is no doubt shared by some people. The addict is almost at rock bottom and just starting to feel the pain needed to prompt change, and the IMF "pusher" is just outside the door urging a dose of the stuff. Not helpful.

[explanade]

Germany is like another China, a mercantilist nation which wants to export goods as opposed to stimulating consumer spending domestically.

China pegged the Yuan to the dollar for trade reasons and Germany basically did the same thing, trading the Deutsche Mark for the Euro.

[robnplunder]

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Originally Posted by explanade Germany is like another China, a mercantilist nation which wants to export goods as opposed to stimulating consumer spending domestically. China pegged the Yuan to the dollar for trade reasons and Germany basically did the same thing, trading the Deutsche Mark for the Euro.

That's called capitalism and every aspiring nation try to do the same. Let me just name a few: USA, Japan, France, Italy, Mexico, Korea, .... Why picking on Germany? Japan, e.g, have been trying to lower the value of yen to increase export. I don't think your comment on Germany is fair. Whether you like it or not, humans are greedy and driven by profit. Some nations do better than others. Greeks, not so much.

[explanade]

German trade surpluses have come in for criticism from the EU.

Even the German Economics Ministry admitted there is a problem:

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That may be changing as the German government now seems to be more open-minded. For the first time, an internal paper from the economics ministry acknowledges that excessive and sustained trade imbalances are harmful for the stability of the eurozone, the Süddeutsche Zeitung reported on Wednesday. As a result, it is right for the Commission to put such imbalances under the microscope, the document said.

Brussels renews criticism of German trade surplus | EurActiv

Since the warning from the EC in 2014, the situation hasn't improved:

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Germany’s current account surplus is out of control. The European Commission’s Spring forecasts show that it will smash all previous records this year, reaching a modern-era high of 7.9pc of GDP. It will still be 7.7pc in 2016. Vague assurances that the surplus would fall over time have once again come to nothing. The country is now the biggest single violator of the eurozone stability rules. It would face punitive sanctions if EU treaty law was enforced. Brussels told Germany to do its “homework” a year ago, but recoiled from taking any action. We will see if Jean-Claude Juncker's commission does any better this time. If not, cynics might justifiably conclude that big countries play by their own rules in Europe, and that Germany can defy all rules.

Germany's record trade surplus is a bigger threat to euro than Greece - Telegraph

[ERD50]

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Originally Posted by explanade German trade surpluses have come in for criticism from the EU. Even the German Economics Ministry admitted there is a problem: Brussels renews criticism of German trade surplus | EurActiv Since the warning from the EC in 2014, the situation hasn't improved: Germany's record trade surplus is a bigger threat to euro than Greece - Telegraph

But what is this surplus attributed to, that could make it 'punishable'? Maybe I missed it, but it seems that they are just complaining about the surplus, but were fuzzy on the why?

I saw some references to low taxes/VAT, and that the Germans are not investing in their infrastructure, but even if that's true, isn't that Germany's business?

Now, if they have high import tarrifs, essentially restricting trade, I could see that as an issue. But I would assume (maybe incorrectly?) that one EU country can't place tariffs on another EU country? But if they are, that is a legitimate complaint, IMO.

Maybe that quote could be turned around? Like: "excessive and sustained trade imbalances due to lack of productivity of some member nations (yes, we are talking to you Greece), are harmful for the stability of the eurozone" ?

-ERD50

[samclem]

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Originally Posted by ERD50 But what is this surplus attributed to, that could make it 'punishable'? Maybe I missed it, but it seems that they are just complaining about the surplus, but were fuzzy on the why?

The "why" isn't too important to the managers in Brussels. The EU countries have targets and windows they are supposed to abide by regarding trade.

Which brings the real question to the fore: Should nations sign treaties/join organizations if they are against that nation's self interest? Self interest is a very broad subject, and a nation may be wiling to give up some economic "points" in order to buy more harmony and stability. But in the long run, when a country sees that its self-interest, overall and on balance, is harmed by being bound by the agreement, they will cheat on it or just abrogate/quit the agreement/alliance/organization. That's after factoring in the costs for doing that, too. They are under a fundamental >obligation< to do so, they owe it to their citizens.

[explanade]

No the EU is concerned about "imbalances" -- individual EU nations being outliers.

That can be indebtedness or in the case of Germany, trade surpluses. That article says all EU nations should be as competitive as Germany, just not have such a big trade surplus that is sustained year after year.

Germany also comes under criticism from outside the EU for not stimulating domestic demand enough. The median wages could be higher and there is a lot of infrastructure in need of repair.

Right now, Merkel's ruling coalition is trying to balance the budget within the next 5 years. They even have some fancy campaign about it. But the US and EU have been asking them to do some deficit spending to spur the whole EU economy.

Merkel Coalition Unveils Balanced Budget in Snub to U.S. - Bloomberg Business

Now she has a right to pursue national or political interests over the interest of the EU. However, Germany was one of the founding members of the EU. Maybe though, if Merkel was in power at the time, Germany wouldn't have been a big advocate of the EU.

[ERD50]

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Originally Posted by samclem The "why" isn't too important to the managers in Brussels. The EU countries have targets and windows they are supposed to abide by regarding trade. Which brings the real question to the fore: Should nations sign treaties/join organizations if they are against that nation's self interest? ... .

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Originally Posted by explanade No the EU is concerned about "imbalances" -- individual EU nations being outliers. ... Merkel Coalition Unveils Balanced Budget in Snub to U.S. - Bloomberg Business Now she has a right to pursue national or political interests over the interest of the EU. However, Germany was one of the founding members of the EU. Maybe though, if Merkel was in power at the time, Germany wouldn't have been a big advocate of the EU.

OK, but it sounds odd to criticize a government for a balanced budget!

It sounds like part of the issue is, if Germany agreed to this plan, they should stick to it, and the contract should have enforcement for it. A contract w/o some leverage for non-compliance is just a 'pretty please with a cherry on top' request. Otherwise, as samclem points out, they really should just blow it off if it isn't in their long term self interest.

I honestly think this is just affirming the original issues of the EU approach - can you really have a common currency across independent nations? Well, not w/o some real way to enforce a bunch of rules, including to some degree how a nation spends their money (or the money they don't have). So those nations really aren't so independent.

Either way, Greece is in trouble. And I suspect that attempts to keep them in the EU (or is it EZ?) have maybe stretched out the time they've had to kick the can down the road? They believed they had some cushion there?

-ERD50

[explanade]

Don't know, the German electorate doesn't like the idea of another bailout.

And Merkel has said there will be no debt relief.

But the IMF has said it won't participate unless there is some kind of debt relief.

Now supposedly the US Treasury Secretary has flown to Berlin to lobby for Greece debt relief.

I guess the Obama administration believes keeping Greece in the EZ is somehow better for the global economy.

[DEC-1982]

Debt relief does not have to be a haircut. You can make payments over 50 years instead of 35, and I think Merkel is leaning towards something like that.

[samclem]

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Originally Posted by DEC-1982 Debt relief does not have to be a haircut. You can make payments over 50 years instead of 35, and I think Merkel is leaning towards something like that.

If the interest rate is reduced, it's a cut. I'm not sure that it is significantly better, overall, if the next 3 generations of Greeks are paying for the party their grandparents had, rather than just the next 2 generations.

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Originally Posted by explanade But the IMF has said it won't participate unless there is some kind of debt relief.

That would great all around if they stop lending: a win for the IMF (and the other nations who could better benefit from these IMF loans), a win for the ECB and the EU (by reducing the influence of the IMF on this whole process) and ultimately, to Greece. Ultimately, having the IMF back out of this mess will also benefit US taxpayers and probably improve US/Greek relations (since we will diminish the degree that the US/IMF is "oppressing" them by holding their debt). The best thing the US can do is encourage US corporations to go in when the time is right and make their own investments there--without backing from US taxpayers. That's how Greek productivity and the quality of life there might improve in a long-term way.

[RAE]

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Originally Posted by DEC-1982 Debt relief does not have to be a haircut. You can make payments over 50 years instead of 35, and I think Merkel is leaning towards something like that.

True. But it's pretty clear to me that at least some of this Greek debt (maybe a lot of it) is never going to be paid off. The debt is way too large now. I think the Germans and others know that, but they can't give Greece that kind of relief, or every other country that is struggling to repay their loans will want the same deal. So, they can (and probably will) extend the payments out over 50+ years, but in reality there will have to be a haircut for somebody, at some point.

[NW-Bound]

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Originally Posted by DEC-1982 Debt relief does not have to be a haircut. You can make payments over 50 years instead of 35, and I think Merkel is leaning towards something like that.

Greece started to have large fiscal imbalance since 2004. So, in a bit more than 10 years, they managed to rack up enough debt that will take 50 years to repay. That's going to doom at least 2 future generations!

[samclem]

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Originally Posted by RAE True. But it's pretty clear to me that at least some of this Greek debt (maybe a lot of it) is never going to be paid off. The debt is way too large now. I think the Germans and others know that, but they can't give Greece that kind of relief, or every other country that is struggling to repay their loans will want the same deal. So, they can (and probably will) extend the payments out over 50+ years, but in reality there will have to be a haircut for somebody, at some point.

+1. For the reasons you mentioned, they can't take a write-down now. Also, given the way Tsipras and his government have conducted themselves (in their domestic policy and in these negotiations), nobody on the other side of the table is very interested in giving them any trophies to take home. But when a new government comes in and shows a true commitment to making Greece a 21st century developed country, and after they have had a few years of progress, I think they will likely get some concessions just so the growth rate can improve. There's no way the concessions should come right now.
But the US (through the IMF) may make concessions of their own based on assurances, smiles, and hopes. Which will do nothing more than delay the needed reforms.

[clifp]

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Originally Posted by ERD50 OK, but it sounds odd to criticize a government for a balanced budget! It sounds like part of the issue is, if Germany agreed to this plan, they should stick to it, and the contract should have enforcement for it. A contract w/o some leverage for non-compliance is just a 'pretty please with a cherry on top' request. Otherwise, as samclem points out, they really should just blow it off if it isn't in their long term self interest.

There are people who think that balanced budget is a bad thing, we need deficit spending to spur economic growth.

It is really fascinating to see the differences on the greek discussion on this board vs another board (It is about computer games, but includes plenty of game developers and game journalist.) There is a lot of sympathy for the Greeks and lot of hatred of the Germans.

I finally realized why this forum is inherently German, work hard, LYBM, don't borrow money, pay your debts. The other forum is inherently far more Greek

[MichaelB]

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Originally Posted by clifp I finally realized why this forum is inherently German, work hard, LYBM, don't borrow money, pay your debts. The other forum is inherently far more Greek

I would not make that assumption. In fact, it is not necessary to choose one or the other for blame, either Greece or the EU, they all are contributing to this mess. More importantly, if one party were to implement corrective actions (as discussed in this thread) and the other not do so, the problems would likely continue and the situation would get worse.

There are actually two different problems in Greece The first is public sector spending, which is excessive. The Greek government cannot fund its current level of spending and has not been able to do so since before it’s entry to the common currency.

A second problem is balance of trade. Greece consumes much more than it produces. The difference is imported and creates a negative balance of trade.

Both of these conditions result in debt, Greece joined the EMU in ’00, and since then the total debt it has accrued probably is half trade and half gov’t spending. That is, Greek banks lent similar amounts to the private sector and the public sector, they got their money from European banks happy to lend.

Before Greece became a member of the EMU interest rates to finance public and private spending were >20%. As an EU member they declined dramatically, falling to less than 5%. As rates fell borrowing increased, with EU banks lending to Greek banks, who then lent to all domestic borrowers. Greece, public and private sectors, were treated as low risk borrowers, which they never were. The money flows were open and transparent for all to see.

EU membership assumes the participating country has the mature governance and fiduciary structure needed to oversee this and take corrective action when needed. Greece had neither, and this is the result. If they hadn’t been EU members the currency would have declined and the interest rates would have risen log ago, forcing a change in behaviour. Instead, the money poured in, and much of it went right back out again, to the benefit of a few.

It is reasonable to expect the Greek government to balance its finances. It is also reasonable to expect help to get Greece out if its current depression, far more severe than anything faced in the US since the civil war. The reconciliation of profligate spending and foolhardy lending should acknowledge that some hardship can and should be avoided while the terms are worked out to settle the rest. Borrowers and lenders alike typically pay up, the idea is usually to maximize repayment and also to enable the borrower to recover.

The balance of trade issue is much more difficult to deal with. Perhaps impossible, actually. No member country has a currency that truly reflects the value of their economic production,. Some are wildly overvalued (Greece) while others seriously undervalued (Germany). This creates an imbalance which has no way of being resolved economically and is the critical challenge the EU faces today. It has nothing to do with living within one’s means, it’s a trade flow that is always out of balance. EU leaders don’t know how to talk about it because there is no easy way to deal with it, but it is always present. Treating it as debt between countries that must be repaid is not viable, the inability to reconcile this leads to greater economic imbalance. This is without doubt the EU's greatest challenge.