Greece

[H2ODude]

I seem to be fascinated by this ongoing train wreck. I've never studied the macro economics of international finance and currencies so my real understanding of what's going on is fairly limited. However, it just seems incredible that with the country basically going bankrupt their political leadership (or is it the whole populace?) is basically saying they refuse to accept any reduction in public salaries or pensions. But give us the euros to keep up this unsustainable scenario.

Is it me or does the situation just seem absurd? Hope this doesn't break the rules on political topics; I'm just interested on other's take on how this should play out.

 

[nash031]

I find it interesting that Tsipras apparently lacks the intestinal fortitude to do what he was elected to do, instead putting the terms of the agreement up for a referendum. He pretty clearly doesn't want to accept the terms as he was elected on an anti-austerity platform and this latest bailout is more austerity. He also recognizes (now - I don't think he understood before the election) the importance of remaining in the Euro. So, he's opted for absconding all responsibility and leadership by putting it to a popular vote. That way he'll just say whatever happens was the will of the people and not his fault. It's interesting to see that most polls show that Greeks aren't in favor of more austerity, but they're overwhelmingly not in favor of leaving the Euro. They want to eat their cake, that's for sure.

 

[Lsbcal]

We had a tour scheduled for Greece but changed it to Italy after the election in December. Didn't want to deal with the uncertainty of it all.Just watching the news makes me cringe.

 

[MichaelB]

I think this is a real dilemma, no viable option is appealing to all parties. The people of Greece will suffer no matter which course is chosen.

 

[Chuckanut]

It's like the Illinois pension system. Everybody takes a haircut, or everybody loses their head. Just my opinion.

 

[samclem]

There's plenty of blame to go around, but Greek citizens will be the ones paying (for a long time) however it turns out.
When Greece had the drachma (and bonds denominated in it), it would decline in value as their government did things that weren't very prudent. The public paid a little at a time. Now they've been the recipient of euro largess (first because of crooked Greek bookkeeping and Euroboosters who didn't want to know what was going on, and later with loans). The loan-ers are now out of patience, and both sides have a lot of resentment toward the other.
Currency union without a common economy and (more fundamentally) a common culture with regard to economic issues is not a good idea.

Edited to add This just in, from the WSJ:

Eurozone finance ministers rejected a Greek request for a one-month extension to its bailout program, officials said, setting off a period of high uncertainty for the country.
The decision means Greece's bailout program will expire on Tuesday and the country will likely default on its 1.55 billion euro ($1.73 billion) payment due to the International Monetary Fund the same day.

Hmm, I don't know how this will impact the referendum. Ultimately, it might be a positive thing, if the referendum takes place after the Greek citizens have a firsthand view of their alternatives.

 

[Bestwifeever]

I too have little understanding about the situation and zero understanding of what the solution is. It's really amazing though how the US markets go up and down almost daily much in part on the optimism or pessimism of what's going on in Greece, at least according to the talking heads, if there's no other economic news. And how many months this has been going on. Poor Greece.

 

[Nemo2]

Currency union without a common economy and (more fundamentally) a common culture with regard to economic issues is not a good idea.

+1 (And, if I might add, without a (relatively) common culture period.)

 

[2017ish]

The referendum coming after anticipated default is going to make next week interesting.

Taking a step back, the immediate issue concerns a country with the same gross national product (PPP) as Missouri or Arkansas. If it weren't for the longer term ramifications within the EU, this would be a nonevent for nonGreeks without investments in the country or its debts. Those longer term ramifications, however....

 

[Htown Harry]

I scan the headlines and read a bit of an article from time-to-time, but I can't say I find the Greek news relevant to my investments or my life.

It's like calamities reported on the Celebrity Minute portion of a newscast: interesting in a gossipy way, but usually not that different than the type of things that happen in neighborhoods all over. The story gets run because of how many people know the protagonist.

For context, here's a list of middle-sized economies ordered by their GDP's, larger at the top. More than a few have their own troubles - economic or otherwise - but far less news coverage than Greece:

Thailand
Colombia
Iran, Islamic Rep.
South Africa
Denmark
Malaysia
Singapore
Israel
Chile
Hong Kong SAR, China
Philippines
Egypt, Arab Rep.
Finland
Greece
Pakistan
Ireland
Kazakhstan
Iraq
Portugal
Algeria
Czech Republic
Qatar
Peru
Romania
New Zealand
Ukraine

 

[Texas Proud]

I had to look it up.... it was Munger (Buffet guy)...

He said you should not go into partnership with your drunken shiftless BIL...


That is the main problem.... Greece has been playing games for years (maybe decades).... when they got into the Euro they saw a free lunch...

Now they want to complain when the bill comes due... and want to blame the lenders for being so stupid to lend them that much money...

So, I would say... OK, we were stupid... but we do not have to be stupid going forward and lend you another dime... or euro as the case may be.... (what is a part of a euro called?)....

But the Greeks want to continue with this farce and not have to pay the price... sure, they are having a collapse of their economy... but it is not due to 'others'.... it is due to them... as I read, it appears that it is very common to not pay taxes... so even if there is a tax... they do everything to avoid paying it...

But they also have a relative good pension system... I do not remember what country it is, but one of the other small EU countries pay about half s much as the Greeks in pensions.... but they are supposed to pony up money so the Greeks can keep paying what they pay....


They have already had their debt cut... and the terms given to them were sweetheart deals which also brought down the total amount they would have had to pay.... IOW, if the lenders did not extend the maturity and lower the rates... Greece would have defaulted a long time ago...


Tsipras does not want to be the one to blame if Greece gets kicked out of the EU... I think that he knows that they would be worse off than if they stayed in.... but he and their finance minister thought that the EU would blink... it looks like they guessed wrong... but now do not want to look like they caved to the 'big bad lenders'.... because if they do they will not be in power much longer.... so what do you do Call a referendum and then use 'the will of the people' as an excuse...

 

[Meadbh]

Well, if this isn't a political thread I don't know what is. I'm surprised it hasn't been closed already. Probably the only reason is that Greece is far away from most of the posters here.

 

[Htown Harry]

Well, if this isn't a political thread I don't know what is. I'm surprised it hasn't been closed already. Probably the only reason is that Greece is far away from most of the posters here.

Does anyone know how the current economic crisis might affect an expat retirement in Greece?

 

[MichaelB]

This does not have to be a political discussion, it can easily fit ER or FI, and hopefully it will stay friendly and respectful. We'll move it to the FIRE related Political Topics forum just to be safe.

 

[tulak]

Whats happening in Greece can provide a good buying opportunity for international/europe funds. I'm skeptical that they'll stay in the Eurozone and think everyone can benefit - long term - if they leave. But if/when it happens, then it's going to be messy.

Personally, I like what Iceland did. They defaulted on much of their debt, went through a short period of difficult times, and are coming out of that for the better. The idea that countries must pay all of their debt obligation regarding the cost doesn't work. Sometimes you have to take the short term hit for the long term benefit.

I remember reading Rick Ferri's blog post that he plans to internationalize his portfolio. IIRC, he mentioned that he is waiting for certain "triggers" to occur before he starts buying international. At the time, I couldn't help but think that Greece defaulting and leaving the Euro is probably one of the triggers.

It would be a great place to visit though. One of our future trips will involve many Greek islands over a long period of time.

 

[tulak]

I had to look it up.... it was Munger (Buffet guy)...

He said you should not go into partnership with your drunken shiftless BIL...

That is the main problem.... Greece has been playing games for years (maybe decades).... when they got into the Euro they saw a free lunch...

Kinda. I don't think the average Greek thought much about the personal benefit of being in the Euro. I suspect it was more an opportunity of chance, similar to US mortgages pre-2008. Prior to the Euro, it was expensive for Greeks to get credit because interest rates on all debt was higher and probably less liquidity in Greek debt. This is because buying Greek debt required an interest rate premium due to it being riskier. When Greece became part of the Euro, they were suddenly able to borrow at the same rates as other financially mature/stable Euro countries, such as Germany, and borrowing requirements weren't stringent enough (sound familiar?).

Tsipras does not want to be the one to blame if Greece gets kicked out of the EU... I think that he knows that they would be worse off than if they stayed in.... but he and their finance minister thought that the EU would blink... it looks like they guessed wrong... but now do not want to look like they caved to the 'big bad lenders'.... because if they do they will not be in power much longer.... so what do you do Call a referendum and then use 'the will of the people' as an excuse...

There's a difference between the EU and the Euro. They won't be kicked out of the EU. There are many countries in the EU that are not part of the Euro. What is being discussed is if they will be kicked out of the Euro.

 

[Meadbh]

Whatever happens, both the economic and political future of Europe will be affected. It's now a matter of damage control.

Stephen Collins: The Greek effect – how Greece has become part of Irish politics

 

[Ed_The_Gypsy]

It is difficult for me to imagine how the EU could have created this situation. It was an obvious development from day one. The late Nobel Prize-wining economist Milton Friedman observed that the Euro would not survive its first crisis.

There have been several pithy quotes on this situation on the web.

The late Margaret Thatcher once said, "Socialist governments always run out of other people's money."

I just read one observer characterize the Greek strategy as, "Play nice or we'll kill ourselves."

This will not be fun to watch. Some believe the outcome will bring both ultra-right AND ultra-parties to power in different states in Europe.

I agree that it may be best to wait a little before investing in Europe in companies or property.

 

[nash031]

Whats happening in Greece can provide a good buying opportunity for international/europe funds. ...

I remember reading Rick Ferri's blog post that he plans to internationalize his portfolio. IIRC, he mentioned that he is waiting for certain "triggers" to occur before he starts buying international. At the time, I couldn't help but think that Greece defaulting and leaving the Euro is probably one of the triggers.

Yep! I hope so as I've tilted my purchases toward international to raise the allocation of international stocks vs. US. Give me a discount, Greece!

 

[NW-Bound]

I find it interesting that Tsipras apparently lacks the intestinal fortitude to do what he was elected to do, instead putting the terms of the agreement up for a referendum. He pretty clearly doesn't want to accept the terms as he was elected on an anti-austerity platform and this latest bailout is more austerity...

Do we blame politicians for pandering to the populace, or do we blame the people for voting for a pol who promises the impossible things that they want?

In a democracy, people always get the government they deserve.

 

[Nemo2]

In a democracy, people always get the government they deserve.

In a democracy, the majority of voters always get the government they deserve.....the others, not so much.

 

[NW-Bound]

OK, tough luck.

I guess that if you keep finding yourself dissenting with the majority one election after another, you'd better prepare for an exit, i.e. renouncing your citizenship and moving elsewhere.

 

[nash031]

Do we blame politicians for pandering to the populace, or do we blame the people for voting for a pol who promises the impossible things that they want?

I don't disagree with this at all. My post was more specific to the pol himself and my opinion that he's abdicating his responsibility as a leader to save face by calling the referendum. The Greeks elected him to make the tough calls and now that he will not be able to follow through on his hollow, overly optimistic election promises, he refuses to do it.

 

[Closet_Gamer]

The referendum coming after anticipated default is going to make next week interesting.

Taking a step back, the immediate issue concerns a country with the same gross national product (PPP) as Missouri or Arkansas. If it weren't for the longer term ramifications within the EU, this would be a nonevent for nonGreeks without investments in the country or its debts. Those longer term ramifications, however....

Yes, it's pretty interesting that the total outstanding debt is just south of $400B euro...get a bunch of the big tech firms together and they could pay off the total debt for cash. We're really not talking about much money in the grand scheme...it's just that Greece is structurally broken and all the European banks are cross-wired together yet they're allowed to use default swaps to each other as proof of balance sheet integrity. Insanity. If Greece defaults, th reciprocal insurance is shown to be useless.

I think Greece should go back to the drachma and the ECB should extend immediate liquidity assistance to the banks. Essentially, the same tranche of money that would have been loaned to Greece can be used to bridge the banks.

 

[Lsbcal]

When something like this occurs I want to convince myself that the risk to me is very low. There could be contagion or some unforeseen correlated event that affects the average US investor. But I'm hoping not.

I have a fair amount in international stocks, specifically in the Vanguard FTSE All-World index (VEU or VFWIX). Here is a chart since the beginning of the year when the current Greece leaders took the reigns:

VFWIX is the large cap international index
VEURX is the Europe index
VPACS is the Asia index
VTSMX is the US total stock market index

Seems the Greek issues so far are not holding things back in the general Europe index of which Greece is less then 0.1%. Even less of an issue in the broader based VFWIX index.