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Old 05-16-2012, 09:30 PM   #21
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Update...

Greeks have been withdrawing their money from the banks, but I cannot call it a run yet. Accounts say that there are no long lines at ATMs. An official source said that 20 to 30% of personal accounts have been withdrawn (over how long a period? don't know). A reason given was that they need the money to live as many pensions and unemployment benefits as well as jobs have deteriorated. But here is a more dire comment: Has The Greek Bank Run Started? | ZeroHedge

I have been wondering 'What would happen if...'. Here is one account: Nightmare Scenarios if Greece Exits the Euro - Global - The Atlantic Wire

This appears to be the first effect:
Quote:
Interest rates skyrocket Michael Arghyrou, senior economics lecturer at Cardiff Business School, has bad news for Greeks in need of a loan. "Interest rates will have to double and all mortgages, business loans and other borrowing will become much more expensive," he says. "There will be no credit for Greek banks or the Greek state. That could mean a shortage of basic commodities, like oil or medicine or even foodstuffs." Of course, that's not even the worst of it. "The worst case scenario would be a social and economic breakdown, perhaps even leading to a totalitarian regime," he says.
Other effects (in what I think is the most probable order of probability)(from the article):
1) Unemployment surges [guaranteed]
2) Europe increases bailout fund [maybe for Greece; more likely for the next country]
3) Bank runs spread to other countries [uncertain; would require mass panic which does not seem likely]
4) Greek citizens migrate en masse. [uncertain. Greeks have always come to the US, for example, for work, but if they had nothing, would they go anywhere? Even to another Schengen country? And why would Greece close its borders to keep its people in? see article.]

Here is another view on 'the-day-after': What Happens If Greek Payments Stop: Goldman's Thought Experiment On "The Day After" | ZeroHedge

Great Britain is preparing a contingency plan: Britain Would Treat the Collapse of the Euro Like a Natural Disaster - Global - The Atlantic Wire

Of all the possibilities above, it seems to me that crippling interest rates in Greece and higher unemployment are the two most likely events. Very tough on Greece, but the European Union could still take steps to prevent the disaster from spreading. Something like a continental-wide WPA seems like a good idea. That seems unlikely since it would require a different mind-set and a lot more co-operation than they are used to.

Keep an eye out for a European junk-bond mutual fund to be established.

What do you think?
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Old 05-16-2012, 09:47 PM   #22
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Interesting discussion on NPR today about currency during Roman days. Their empire was larger than the EU and two types of currency existed within their realm: Roman and local. Those ancient Roman finance ministers were not fools...
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Old 05-17-2012, 08:18 AM   #23
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While I can't really speak to the situation in Spain, Portugal, Italy and France and the impact on the euro and rest of world, it seems to me the Greek tragedy in itself is much ado about nothing.
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Old 05-17-2012, 08:59 AM   #24
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Here's a juxtaposition with New Zealand 20 years ago:

Quote:
New Zealand became part of a global economy. With no restrictions on overseas money coming into the country the focus in the economy shifted from the productive sector to finance.[36] Finance capital outstripped industrial capital[32] and redundancies occurred in manufacturing industry; approximately 76,000 manufacturing jobs were lost between 1987 and 1992.[33] During wage bargaining in 1986 and 1987, employers started to bargain harder. Lock-outs were not uncommon; the most spectacular occurred at a pulp and paper mill owned by Fletcher Challenge and led to changes to work practices and a no-strike commitment from the union. Later settlements drew further concessions from unions, including below-inflation wage increases, a cut in real wages.[37] There was a structural change in the economy from industry to services, which, along with the arrival of trans-Tasman retail chains and an increasingly cosmopolitan hospitality industry, led to a new ‘café culture’ enjoyed by more affluent New Zealanders. Some argue that for the rest of the population, Rogernomics failed to deliver the higher standard of living promised by its advocates.[32]

Over 15 years, New Zealand's economy and social capital faced a steady decline: the youth suicide rate grew sharply into one of the highest in the developed world;[38] the proliferation of food banks increased dramatically;[39] marked increases in violent and other crime were observed;[40] the number of New Zealanders estimated to be living in poverty grew by at least 35% between 1989 and 1992;[41] and health care was especially hard-hit, leading to a significant deterioration in health standards among working and middle class people.[42] In addition, many of the promised economic benefits of the experiment never materialised.[43] Between 1985 and 1992, New Zealand's economy grew by 4.7% during the same period in which the average OECD nation grew by 28.2%.[44] From 1984–1993 inflation averaged 9% per year, New Zealand's credit rating dropped twice, and foreign debt quadrupled.[45] Between 1986 and 1993, the unemployment rate rose from 3.6% to 11%.[46]
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Old 05-17-2012, 09:25 AM   #25
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There are already runs on other European banks. Spain is being particuarly hard hit. I suspect there is a concern that the "guarantees" on bank deposits may go the way of Iceland. Also, the fear of leaving the euro is credible in any number of countries. If that happens, you can expect all bank deposits to magically get converted to the new currency when it happens. This currency will then immediately be devalued in the market place. Governments can try to enforce price controls but the ultimate control will be whether anyone is willing to sell anything at the controlled price. Anything imported would have to be allowed to increase in price.

My foreign funds are all down 25% from their highs last year. It doesn't look good.
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Old 05-17-2012, 09:29 AM   #26
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There are already runs on other European banks. Spain is being particuarly hard hit. I suspect there is a concern that the "guarantees" on bank deposits may go the way of Iceland. Also, the fear of leaving the euro is credible in any number of countries. If that happens, you can expect all bank deposits to magically get converted to the new currency when it happens. This currency will then immediately be devalued in the market place. Governments can try to enforce price controls but the ultimate control will be whether anyone is willing to sell anything at the controlled price. Anything imported would have to be allowed to increase in price.

My foreign funds are all down 25% from their highs last year. It doesn't look good.
What runs on other European banks? Can you link to any credible data or sources?
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Old 05-17-2012, 09:33 AM   #27
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What runs on other European banks? Can you link to any credible data or sources?
Here's whatever I found quickly:

Spain's Bankia: Depositors have nothing to fear - MarketWatch

As European Bank Run Threatens, Fitch Says Global Firms Need Another $566B - Forbes

Prison Planet.com » The Bank Runs In Greece Will Soon Be Followed By Bank Runs In Other European Nations

I've been seeing articles over the last few days. Governments seem to be consistently denying everything but then no one will officially say Greek is heading towards exiting the euro.
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Old 05-17-2012, 09:43 AM   #28
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None of the three report problems in Greece leading to runs on other European banks, which is what I understood your previous post to state.

- Bankia - is being taken over by the Spanish Gov't. News (unsubstantiated) of a run are about domestic solvency issues, not Greece. This is real estate bubble related.

- Fitch - says European Banks are undercapitaiized. Breaking news this is not.

- Prison Planet (what a name for financial news) Speculation about possible future runs. The end is near, etc.

Not saying there are no problems, just trying to distinguish between fact and speculation.


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Originally Posted by 2B View Post
Here's whatever I found quickly:

Spain's Bankia: Depositors have nothing to fear - MarketWatch

As European Bank Run Threatens, Fitch Says Global Firms Need Another $566B - Forbes

Prison Planet.com » The Bank Runs In Greece Will Soon Be Followed By Bank Runs In Other European Nations

I've been seeing articles over the last few days. Governments seem to be consistently denying everything but then no one will officially say Greek is heading towards exiting the euro.
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Old 05-17-2012, 10:10 AM   #29
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So my question is.. what happens to all the Greek debt?

Let's say I live in Greece and have credit cards and a mortgage with an international bank and both of them are in EUROs. I have to pay 1,000 EURO a month on this debt and I make 4,000 Euro a month, 25% of my monthly salary..

Now Greece drops from the EURO and I now make 4,000 Drakma a month... but due to the devaluation, 1 Euro equals 2 Drakma... So, now it costs me 50% of my monthly salary to pay my debts.

Or are people thinking that their debts will be converted also... I do not think that will be the case.
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Old 05-17-2012, 10:33 AM   #30
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What debt?

Oh, you meant personal debt.

If it is debt in euros, one is screwed.

New debt in local credit cards (for example) will be at very high interest rates.

Greek individuals and businesses will face very high interest rates--if they can qualify for credit at all.
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Old 05-17-2012, 11:06 AM   #31
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So my question is.. what happens to all the Greek debt?

Let's say I live in Greece and have credit cards and a mortgage with an international bank and both of them are in EUROs. I have to pay 1,000 EURO a month on this debt and I make 4,000 Euro a month, 25% of my monthly salary..

Now Greece drops from the EURO and I now make 4,000 Drakma a month... but due to the devaluation, 1 Euro equals 2 Drakma... So, now it costs me 50% of my monthly salary to pay my debts.

Or are people thinking that their debts will be converted also... I do not think that will be the case.
Almost no regular consumer in Greece has direct international personal debt, so that's not so much of an issue - debts to local banks presumably would be converted. The problem, if they were to default and leave the Euro, would be that nobody will lend the country any money.

The more immediate problem is how to stop people moving their "Greek Euros" to German banks, where they would become "German Euros". AFAIK there is no credible mechanism to stop free movement of currency within the Eurozone.
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Old 05-17-2012, 11:14 AM   #32
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The more immediate problem is how to stop people moving their "Greek Euros" to German banks, where they would become "German Euros". AFAIK there is no credible mechanism to stop free movement of currency within the Eurozone.
Right now. Want to bet on tomorrow?
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Old 05-17-2012, 11:22 AM   #33
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Oh, you meant personal debt.

If it is debt in euros, one is screwed.
What else could it be? any person in greece that has debt, it is more then likely in EUROs

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Almost no regular consumer in Greece has direct international personal debt, so that's not so much of an issue - debts to local banks presumably would be converted.
Really? what makes you say that? I do not think it will be converted, I think it will stay in EUROs. How many truly "local" banks are there? There have been no plans on how someone leaves the EU, I am not sure the consumer debt will be converted.
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Old 05-17-2012, 11:35 AM   #34
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What else could it be? any person in greece that has debt, it is more then likely in EUROs



Really? what makes you say that? I do not think it will be converted, I think it will stay in EUROs. How many truly "local" banks are there? There have been no plans on how someone leaves the EU, I am not sure the consumer debt will be converted.
The euro/swiss franc debt is a major problem in Hungary and Czech Republic. It probably is in some other eastern european countries as well but I've not seen this. The swiss franc debt is really crushing people. Generally, this is how people got mortgages. No one was willing to lend to them in local currency.

As for Greece, defaulting will make them outcasts for a number of years anyway. For personal debt, they could simply declare that all debts or converted to the new drachma. Banks/lenders could cry all they want but they'd have to take legal action against a Greek in Greece to get anything so they're screwed. They can get all the judgements they want in Brussels and they still have bumpkis.
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Old 05-18-2012, 08:39 AM   #35
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What runs on other European banks? Can you link to any credible data or sources?
Depends if you call this a credible source or not .... but our
national finance paper and Reuters are quoting stats saying that bank withdrawals are increasing heavily across Europe...

Rattled Greeks not alone in massive bank savings exodus | Economy | News | Financial Post
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Old 05-18-2012, 09:10 AM   #36
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Depends if you call this a credible source or not .... but our
national finance paper and Reuters are quoting stats saying that bank withdrawals are increasing heavily across Europe...

Rattled Greeks not alone in massive bank savings exodus | Economy | News | Financial Post
It does say that. The only non-Greek number it gives, though, is Bankia. As stated previously, this bank was nationalized last week due to losses in domestic real estate loans.

I'm not at all trying to minimize this or say it isn't so, but we routinely criticize the media around here for it's sloppy ways and rumor mongering, and what's to say this isn't another example?

Is this a contrarian sign or a harbinger of things to come?
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Old 05-18-2012, 10:33 AM   #37
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I heard an interview of a Cyprus bank official yesterday. If Greece leaves the Euro their banking system implodes.
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