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European Agreement Sets Up Third Greek Bailout
An anonymous reader writes: Euro zone leaders have reached a deal that will attempt to resolve Greece's financial crisis. The deal sets up negotiations for the country's third bailout, and will require the Greek government to give up significant autonomy in financial matters. Experts have estimated that Greece could require almost $100 billion to stabilize once again. While this will be a significant cost to taxpayers in other European countries, the economic repercussions of letting Greece default on its debts would be much greater. "The agreement will call for Greece to raise taxes in some cases, parepension benefits and take various other measures meant to reduce what critics see as too much bureaucracy and too many market protections that keep the Greek economy from operating efficiently. ... Despite the agreement, Greek banks are expected to remain closed this week. The banks are acutely short of cash and Greek depositors may soon find it difficult to withdraw even small sums from ATMs."
it should read : European Agreement Sets Up BANK bailout. the Banks are saved, not the greeks.
European leaders keep pretending that they are giving Greece new money, when they are merely shuffling old debts around.
The money that was loaned to Greece has been lost. The whole crisis is about everyone involved being unwilling to accept this reality and thinking that the money will somehow magically come back once the Greeks have been punished sufficiently.
It is the same theory behind debtor's prison. It should be abolished for the same reasons.
Finally! A year of moderation! Ready for 2019?
I think the point is that they couldn't vote to have other countries give them money.
Some important caveats:
I conclude Germany is destroying Greece to ensure that Spain and Italy toe the line from now on.
What do you mean? Of course it mattered. The Greeks were offered a deal and told it was the best deal they were going to get. They turned it down. Now they have accepted a worse deal. Democracy is politics, not magic, it doesn't magically fill accounts with funds and ATMs with Euros. It doesn't magically erase consequences of bad decisions and unpaid bills.
much of left-wing thought is a kind of playing with fire by people who don't even know that fire is hot - George Orwell
>> I wonder how Tsirpas will sell this to his constituents who just voted a firm "NO" to a deal without restructuring.
Same way Bush (W) sold a tax increase to those he told "no new taxes"
Same way Clinton sold the Defense of Marriage act to those who voted for him to continue the progress of civil rights.
Same way Bush (GW) sold illegal immigrant-friendly policies to those who voted for him to close the border.
Same way Obama sold the renewal of the Patriot Act to those who voted for him to kill the program.
In short, he's a politician. I'm sure he'll manage.
Two nations behaved bad in this affair: Greece, who spent 350B dollars it did not have, and Germany, who started again to behave like an arrogant bully, just like before WW1. And the deal simply allows them to continue to do so: The Greek got more money to spend, and Germany is even more arrogant. The deal is planned to last for 2 years (it's clear that Greece cannot pay). Afterwards, all this circus will start again. All long-term solutions have been carefully avoided, and especially reforming the EU to make it federal and more democratic. The status quo, which favors Germany, was carefully preserved. The only thing that advanced is resentment against the non-democratic European structures...
Well, do you think Greece was going to successfully vote for other countries to give them money? Because that was never gonna work.
The problem is Greece's current government came in on the claims they could renegotiate terms with little leverage because they said so. They they had a referendum to say how much they all agreed that other people should give them more money. Then they got told that their vote didn't really change anything.
What's happening now is those other people are pointing out that the vote by the Greeks was pretty much symbolic at best, delusional at worst. Because voting to have someone else give you money is pretty meaningless to that someone else.
Me, I think this is a problem with the whole concept of globalization and open markets in the first place ... you can't pretend that wages, skills, and goods are interchangeable on a global scale without accounting for the relative differences between countries. Which is why they had separate currencies with separate values in the first place.
You can't just slap a common currency on that many countries, leave them to manage their own money completely separately, and then somehow magically assume the price of goods will be uniform across those countries.
When this was happening a lot of people said it would never work.
Honestly, this is like "voting" that the bank, instead of foreclosing on your mortgage should reduce the mortgage, give you lower payments, and give you money to pay your bills.
This has nothing to do with democracy, and everything to do with the fact that once you're bankrupt, you can't pretend like voting it away changes anything. You're still bankrupt, and if your creditors don't want to give you more money, your temper tantrum doesn't mean a damned thing.
Pretending like Greece had the leverage to change the terms to suit them is the failure here.
This is like loaning money to someone who says they can't afford their bills, having them run out and buy a new TV, and then they want to borrow some more money because they can't pay their bills.
In this case, Germany has said it's not getting stuck holding the bag. And I don't really blame them, otherwise the EU becomes a way to move money from wealthy nations to poorer ones.
Lost at C:>. Found at C.
Silly Greeks you thought your vote mattered.
What? They got exactly what they voted for. The EU offered them a deal, and said that if they didn't take it, the eventual deal they would have to take would be a worse one. And they voted not to take the deal. They got exactly what they voted for, as promised: they still had to take a deal of some sort, and now they've got a worse one, just like they asked for.
And as if that weren't enough evidence that Democracy works in Greece, keep in mind that they are in the position they're in because the position they're in is exactly the one they've been voting for all these years to obtain: they wanted more stuff than they could be bothered to pay for, and wanted to continue to elect socialist politicians who would promise them it would all be OK, and they'd always be able to get other Europeans to go to work each day in order to buy them the lifestyle they wanted. Democracy in Greece has worked perfectly. The problem is that the voters in Greece are fools.
Don't disappoint your bird dog. Go to the range.
Problem is, the conditions will continue to even further strangulate Greek economy, so that an eventual back payment of Greece's debts will become even less probable.
But the conditions, and that's the one major reason Germany kept insisting on them, will ensure that western European capital will be able to totally and completely plunder what's left of Greek property, while at the same time Germany's hegemony within Europe will be further strengthened.
The 'agreement' that was reached today is a declaration of war to the Greek people, and it is the defeat and the end of the once so promising project called Syriza.
"Wir schaffen es, ohne Waffen-SS" – a satirical comment dating back to the sixties, meaning 'we'll manage it [to subdue the world] without the military', was never more applicable to Germany than today.
I wouldn't expect the Greek people to go along without struggle now, though. Somehow I think today's 'agreement' might not have been the last word.
(Disclaimer: I'm German, but not a tiny bit proud of it.)
"Annual income twenty pounds, annual expenditure nineteen [pounds] nineteen [shillings] and six [pence], result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery."
-- Charles Dickens, David Copperfield
Seriously, people, don't borrow money from scary international lenders who are just waiting for you to default so they can take control of your country. Don't borrow money from them! And if you do: pay it back! I can't stress that last point enough. It's really the key to the whole Greece problem.
Shutting down free speech with violence isn't fighting fascism. It IS fascism!
No -- the Greek government was thinking that they (Greece) needed to implement serious reforms, and that they have already achieved primary surplus. However, given the state of their economy the would never be able to pay back most of the debt. So what they needed was (1) forgiveness ("restructuring") for a big chunk of the debt (2) a bridge loan until the reforms kick in and the economy recovers enough. Some of the loans would be eventually paid, but much shouldn't be (and the lenders should have known better).
What the EU wants instead is (1) the pipe dream of Greece paying back everything and (2) higher taxes and lower pensions now to help this repayment. In other words, for the EU the goal of any reforms is not to get Greece back on its feet but to extract money from it to pay back the loans.
So, the question was not on whether reforms were needed before any further loans (which was universally agreed upon), but rather on the goals. What Greece capitulated was not on agreeing to the reforms, but on accepting that notion that they will try to pay back loans despite knowing full well that they will never be able to afford to.
First things first: We have to make sure that no banker ever loses so much as a Euro, no matter how bad the investment. That's primary in this deal.
You are welcome on my lawn.
The EU is out of touch if they think Greece can pay it back and that more austerity measures will grow Greece's economy. Notice how there's no claw-back from Goldman Sachs which helped hide Greece's debt and helped double it.
Its estimated that the economic turmoil of keeping the banks closed for two weeks has caused 25 billion in damage. Totally self inflicted. This is what you deserve when you have a clown appoint another clown as finance minister. There's a big difference between managing the economy in a game and realpolitik. Otherwise I would be finance minister for having finished sim city 2k. Also, it's far from a done deal. Will the Greek parliament pass the necessary reforms? And either way, will Greeks step up their national sport of dodging taxes? Throw in civil unrest and the expectations of the government getting the boot and a grexit is still the most likely scenario.
"Transparent" is a shit show that trades on every stereotype going. A man in drag is NOT a transsexual.
You're joking, but the Greeks have to give away a ton of assets for this deal. It's hard to see where they're going to get the sums necessary without looking at the antiquities.
This is clearly a bad deal and frankly it seems like most of the people at the table know it is a joke. Did you see the deadlines in the article? They're giving themselves basically until the end of the week to completely turn their economy around, for the mere promise that the rest of the EU will consider extending the repayment period of the debts. They aren't even considering debt forgiveness.
IMHO, the correct solution for Greece, painful as it would definitely be, is an exit from the Eurozone and a return to a national currency. The Eurozone has fundamental structural problems that are going to put Greece back in the hotseat in a few years even with this deal. Combined monetary policy with independent fiscal policy is not a sustainable model. It's like giving your irresponsible uncle your credit card on his promise that he will pay you back for everything he charges, even though he has defaulted on every loan he has ever had and is currently tens of thousands of euros in the hole and doesn't have a job.
It also doesn't allow your currency to fluctuate with your economy, which puts a stranglehold on your economy when you have a recession.
Sadly, a unified fiscal policy is politically impossible in the current EU. It would give up way too much sovereignty and be political suicide in most countries. You're talking about the EU itself collecting taxes and spending them on infrastructure. Foreign governments gaining oversight over national governments, an especially worrisome situation when the national government is breathtakingly corrupt. There is no chance you would get even a simple majority of countries to agree, much less the supermajority that would no doubt be required.
I read the internet for the articles.
True, Greece borrowed irresponsibly and spent it in wasteful ways. But the banks can not shirk their responsibility.
sed -e 's/Chuck Norris/Rajnikant/g' joke > fact
The most notable point is the European countries would not face such horrific economic crisis without a unified currency. Greece would be in crisis; the Kronor and Franc and DM and dollar and Pound and Piece would be strong; tourists would show up with pocket change, scraps to throw the Greeks, staying in lavish hotels and buying expensive trinkets and high-dollar food for cheap; the influx of money toward Greek tourism and Greek exports would help support and rebuild the Greek economy; the sudden access to cheap Greek imports would improve the wealth of neighbors (instead of weakening their economy) by the principle of comparative advantage (and its genesis principle, the unifying economic theory which I developed to explain how wealth works); and everyone--Greece and the other Euro neighbors--would experience much less pain (Greece by more rapid recovery thanks to the more dramatic shift in trade advantage; everyone else by sudden access to more import goods for the same outlay of money--a local increase in wealth).
Instead, Greece falters; its currency (Euro) becomes no weaker than any other currency (Euro); exports don't increase because the neighboring countries's currencies (Euro) don't have a higher value than the Greek currency (Euro); the Greek currency (Euro) becomes weaker; neighboring currencies (Euro) also become weaker, thanks to Greece's shitty economy; neighboring countries must raise taxes and outlay expenses to bail out Greece, with associated strain on their economy and no return on their investment (wealth destruction); and everyone's economy stumbles and struggles to get back up.
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It is in no small part because the other PIIGS states have gone some distance to implementing austerity measures that the Troika had no choice but to put the harshest conditions upon any agreement that allowed Greece to remain part of the Eurozone. If they had simply handed Greece more bailout money, or even gone the distance towards some debt relief, the other troubled EZ states would have had every right to demand the same considerations.
Beyond that, so controversial is any bailout, that any agreement that did not amount to an unconditional surrender would have lead to political crises in some EZ states. Finland's government, in particular, is facing a non-confidence vote if a deal with Greece doesn't contain strong elements of control. That's a big reason for the huge asset sale the deal requires.
The world's burning. Moped Jesus spotted on I50. Details at 11.
What this all demonstrates is that the Eurozone needs to become a full fiscal union. What is happening in Greece, with the effective seizure, or at least oversight, of the Greek government's fiscal powers, is what needs to happen.
Currencies like the US dollar work because, while there may be fifty states that use the USD, there is a single issuing central bank and a federal government that holds core constitutional fiscal powers. That's why you can have economies as diverse, small and large, as Rhode Island, Tennessee, California and New York in one federal state, because there is no "sharing" of fiscal sovereignty. The states are free to borrow money, but they have no control over central fiscal policy.
In other words, as so many have been saying since Maastricht was signed, for the Euro to actually work, the Eurozone needs to effectively become a single state, and EZ members need to surrender their fiscal powers to a central fiscal authority.
The world's burning. Moped Jesus spotted on I50. Details at 11.
It's Greece - they will get a new government instead and the agreements will be ignored. At worst it will be a hostile takeover. It wasn't long ago that Greece had a non-democratic government.
It's probably easier and cheaper to abandon the Euro for Greece.
If builders built buildings the way programmers wrote programs, then the first woodpecker would destroy civilization.
Unfortunately the primary surplus was a result (and the point) of the austerity measures, which Syriza promised to abdicate in the campaign for the 2014 election. People stopped paying taxes even before the election, and Greece hasn't had a surplus since then. As if things weren't bad enough, Syriza then undid some of the austerity measures and the budget deficit increased even more. This lead to capital flight and a collapse of the Greek economy, culminating in the hopefully temporary closure of the banks when the ECB had no choice but to expect a default and freeze the ELA credit line due to Tsipras dropping out of the second programme by walking away from the negotiations to hold a referendum.
A big part of the problem now is that Greeks have little trust that their government can bring the Greek economy up to speed again. A bank run is still the most likely thing to happen if the banks were to open again without capital controls. Tens of thousands of Greeks are reportedly paying tax arrears now, but not because they think that it's the honest thing to do: Some even pay more than they owe, because in Greece it's possible to maintain a positive balance on your tax account, and people think the money is safer there than in the accounts of the Greek banks. They expect a bail-in to recapitalize the banks.
You're applying reasoning which works for a country with its own currency. If a country has its own floating currency, then raising taxes and lowering pensions is not necessary to reform the economy. You can just leave those as-is and the value of your currency will decline relative to everyone else's, effectively giving all your citizens a pay cut and thus helping to reduce your expenses (measured via other currencies than your own - that's what matters when you owe money to creditors outside your country). That's what happened to Germany in the 1930s, Mexico in the 1970s when they lifted price controls on the Peso.
Greece is on the Euro though, so this is not an option. The fundamental problem is that Greek citizens are being paid too many Euros for the productivity they are generating (compared to other citizens in the Eurozone). Any long-term fix for this must involve increasing the Greek productivity-to-wages ratio to match the Eurozone norm. This is a mathematical fact - you cannot avoid it by holding an election or making political promises or complaining about fairness. Failure to correct this ratio means Greek debt will continue to increase regardless of whatever other measures you take. Even if you forgave all of Greece's debt, if you do not address this productivity-to-wages ratio imbalance between Greece and the other EU countries, Greece would just continue to accrue new debt.
That means there are three options:
(A) Boot Greece out of the Euro, forcing it to create and pay wages in its own currency. This currency can then decline in value vs the Euro until the average Greek's productivity-to-wages ratio (in Euros) matches citizens' in the Eurozone. However, neither the Eurozone nor Greece seems to want a Grexit, so you're left with the following two options:
(B) Reduce average Greek wages. That's what higher taxes and lower pensions effectively do.
(C) Increase avreage Greek productivity. That's what the privatization requirements and other reform measures in this package aim to do.
At least one of those three things needs to happen. If none of them happen, Greece will simply continue amassing more debt no matter what else you do. Any proposal which does not include at least one of these things happening is simply not a solution.
I should also add that it's disingenuous to claim Greece's problems stem from its creditors. When you borrow money, you are actually borrowing it from your future. Yes it is the creditors who gave you the money, but you pay it back to them in the future. The net effect is then that you are taking money from your future, and spending it today. The only thing the creditor gets out of it is some interest payments (which can be small or large depending on the lending terms). So aside from the interest the creditors earned, any suffering the Greeks experience today and until their debt is paid off, is the cost of them living it up during the 2000s. They did this to themselves.
Debt forgiveness means the creditors (some banks and citizens in the other Eurozone countries) suffer for the Greeks having lived it up during the 2000s. Sometimes this is necessary if the interest on the debt is so onerous that the debt is growing faster than the country can pay it off. But it is not an action to be taken lightly, especially with Spain, Portugal, and Italy waiting in the wings hopeful that Greece will set a precedent which allows them to shed their debt without paying it back.
I agree with practically everything you say except the last bit.
First, the Greek wages-to-productivity ratio must fall, by a combination of (1) Government-sector wage cuts (already started); (2) productivity increases in the government sector by (a) insisting that government workers actually do their job (b) firing redundant government workers and (c) privatization and (3) wage reduction and productivity increases in the private sector – made possible by freeing labour laws.
However, raising taxes makes the wages-to-productivity ratio worse, because it increases the cost of hiring the worker without a corresponding cost to productivity, or equivalently increases deadweight losses. Instead, wage cuts in the private sector should be achieved by freeing the labour market (which is currently among the most restricted in Europe). In fact, workers need to be compensated for the wage cuts by tax cuts.
As an aside, tax cuts would also increase compliance, which is the key problem with the Tax system (far more important than the rates).
Regarding the source of problems, clearly they all stem from the behaviour of Greece (both the country and its people) and not of the creditors. Greece cooked its books before joining the Eurozone, and the Greek voters had ample opportunity to vote for free-market, better-government and smaller-government reforms in the years since.
That said, the original creditors (eurozone banks) who lend to Greece until 2010 knew all this full well and decided to extend the credit anyway. The earned the interest rates they demanded, and should now have to eat the losses when, following the crisis and resulting economic contraction, Greece can't pay back. These banks may have had to suffer, but lending to sovereigns carries default risk (just like lending to private entities carries bankruptcy risk).
What you are ignoring, however, is that the people of Europe were not creditors before their governments decided to take on the debt in 2010 (giving the banks a 50% haircut). Since the governments of Europe voluntarily decided to make public what previously was debt to private entities, they shouldn't now be able to turn around and claim that the taxpayers of Europe will suffer unfairly if the debt isn't paid. If the taxpayers were concerned about non-payments and didn't want to go into the debt vulture hedge-fund business they could have left the bad loans with the banks who made them originally.
I personally thing that. beyond being against the EU treaties, the bailouts of Greece, Spain and Italy were also ill-conceived and morally wrong. But having gone into the sovereign loans business the EU can't complain about facing default risk.
They don't expect the austerity measures to grow the economy. They expect the austerity measures to provide a hard landing rather than an outright crash. The idea is to loan them money until they are roughly self sustaining and no one expected that to be anything other than painful but still less painful than having the budget cut overnight when they can't get anymore loans.