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LOL @ Greece

Discussion in 'The Economy' started by Chris C, 23rd Apr, 2010.

  1. Chris C

    Chris C Well-Known Member

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  2. Chris C

    Chris C Well-Known Member

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    What do ya know... less than 24 hours later:

    Greece Requests EU-IMF Rescue in Euro?s Biggest Test (Update2) - Bloomberg.com

    You gotta love the good show they put on for the last few weeks though... but last time I checked most investors can do simple math. Was always going to happen...

    The really scary thing is there is already talk that even with the bailout the market won't back Greece to avoid default:

    Greek Aid Plan May Offer Little Respite as Debt Woes to Mount - Bloomberg.com

    So if the market really doubts the potential for high debt countries to avoid default even if thye are offered concessions and support, then it makes me think that the market will be much swifter in punishing the other PIGS and the second time round bailouts won't be offered at the expense of the rest of the EU if the sinking ships can't be saved.

    ... on that point it looked like Portugal's CDS rates now indicate a 20% chance of default, which is A LOT higher than it was only a fortnight ago. I don't imagine it will be long now before Portugal starts capturing some headlines...
     
  3. Vagon

    Vagon Well-Known Member

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    Worst case I'd say Greece has run on its banks and then the govt throws out some guarantees and is forced to change its policy to start debt restructuring.

    Greece accounts for what 2-3% of Euro GDP? and Portugal even less, its nothing the IMF hasn't dealt with before. Meanwhile the press and downgrades raise reminder flags for other nations who thought the GFC wouldn't hit them and they tune back.
     
  4. Chris C

    Chris C Well-Known Member

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    Merkel Vows Faster Greek Aid as Spain Shows Contagion (Update1) - Bloomberg.com

    The Greek government can't guarantee anything - that's the whole point. They have a junk rating. It would be like an permanently unemployed person with no assets going guarantor on a mortgage application.

    That's the whole reason why countries like Germany and France as well as the IMF are needing to offer bailout packages to Greece - because the Greek government can't.

    Plus the Greek banks can probably obtain cheaper financing than the Greek government at this stage.

    Everyone keeps saying this and I don't understand why?

    The issue is not whether Greece is a big economy or not, it's what it represents, Greece's failure will represent the susceptibility of the EU and Euro to fail, and it will collapse their union as the contagion spreads as it already is.

    The IMF isn't a free money dispensing machine. There are always conditions - often very tough ones!

    Plus you can't solve a debt crisis with more debt, even if it is offered at cheaper rates from institutions like the IMF.

    The point is Greece needs to dig its way out of this hole, and it will be an extremely painful process for them without control over their monetary policy given they are part of the EU.

    It was always going to raise red flags, because if the EU can't save a tiny country like Greece, it definitely can't save, Greece, Portugal, Ireland, Italy and Spain all at the same time.
     
  5. Vagon

    Vagon Well-Known Member

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    Of course they can, they will be underwritten by the ECB and IMF.

    That's the point, you think Germany is just handing cash over? The govt is responsible for paying it off - i.e. is guarenteeing it. QED.

    Can you explain this? I'm not familiar with euro corporate law, but I assume the Greek banks are incorporated by the government.

    I mentioned it because I don't think contagion is likely. Portugal might go down as well, but Spain and Italy have strong fundamentals, not the same kind of debt levels as Greece. Most of Europe is pretty healthy, I liken it to Enron collapsing - its a small slice out but not enough to ruin the pie.

    Agreed, but as I said worst case.

    I'm not sure what your alternative is. Its not feasible to tell everyone to produce more without funding.

    Sure, but I don't think the last three will need saving. Time will tell, should be an interesting show.
     
  6. Tropo

    Tropo Well-Known Member

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  7. Chris C

    Chris C Well-Known Member

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    Yeah but support isn't unlimited, and the burden of responsibility will still rest on the Greek government.

    Whilst the ECB may be back by the printing press, they are unlikely to use with to great extent just to save Greece, I imagine they'd sooner kick them out. And the IMF also doesn't have unlimited funds to just just move around the world to cover up gaping financial holes - not to mention that all these underwrittings are very conditional and Greece has a long track record of falling short of the mark.

    And I think this is the key point at the end of the day, most of the time, trying to patch a financial holes with more of the same, just delays the problem - rarely solves it - and it's not the way capitalism is meant to operate.


    Do you think that the people of Greece are just going to accept the terms and conditions (not that they really have a choice at this point)?

    My understanding is that the cost of funding for corporation and government are often different (sovereign vs corporate bonds) and that most of the Greek banks weren't in as dire straights as the Greek government. Though with that said, I have no doubt that the Greek government issues are not helping yields on Greek corporate debt either.

    That said I haven't trawled the internet to find the yield difference, so I'm just speculating.


    I don't know if I'd call them "strong", you might say they are not "as weak".

    With that said Spain has a whole lot of it's own issues with it's property bubble bursting, and some saying that there is still more air to come out of it, plus their unemployment rate is already officially over 20% complicated further by their labour market inefficiencies.

    Both Spain and Italy also have real efficiency and competitiveness issues compared to countries like Germany, and this is what happens when people rest on their lorals and live on borrowed money, they become complacent and lose competitiveness.

    Whilst Italy isn't at the top of many people's lists of likely to default, they also have quite a few concerning issues and you'd probably wouldn't expect them to go through the Euro bond crisis unscathed, plus I hear they have a lot of corruption issues just like Greece, which will likely only come to light when the spotlight is turned on them.

    That said I do appreciate that both these countries are more organised than the likes of the Greeks and may be able to implement change more effectively, but that doesn't mean it will be enough.

    Once again I don't know if I'd use the word "most" I appreciate that there are definitely some very financially responsible economies within Europe that offset some of the one's that are headlining at the moment, but at the same time this doesn't necessarily mean a whole lot, because it will be extremely difficult to muster the political will of those countries that are efficient, effective and conservative to bailout or support the lazy and frivolous nations that are now gripped by debt problems.

    There are already rallies going on in countries like Germany to not bailout and support these countries that have dug their own graves, and rightly so.

    So whilst it's easy to look at Europe as a whole, it's also important to remember that countries like Germany had to begrudgingly give up their relatively strong German Mark and responsible monetary policy to form this currency union, and I imagine back then many feared this very situation of getting into bed with those that didn't have long histories of German like discipline.

    Yet that's exactly what you have to do.

    There are no free lunches in life, for someone to receive payment or welfare, someone else must produce or be taxed to provide it. So in the event that the economic sums are not adding up, you need to tell people they have one of two options, either work harder for no extra pay or benefit, or work at the same levels but receive less pay or benefits. It's that simple.

    Totally agree that it will be an interesting show with lots of side acts playing out.
     
  8. Billv

    Billv Getting there

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    Chris

    The Greeks are certainly not the only ones with large debt
    but despite their many requests for protection to their EU counterparts they were left very much on their own to fight an unwinable war with the speculators.

    The EU did not have the mechanisms to tackle attacks to financial systems of a member country and IMO the Germans too advantage of it.
    The Germans with their resistance to stand up and support their partners created much of this mess.

    I don't know if you can call it punishment for bad economic management by past Greek governments or pay back for the words some Greeks used towards the Germans.

    The following could be of interest.
    I found it in another forum