Slashdot Mirror
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."
The most notable point is the that there is no firm agreement to restructure (cut) the debt. I wonder how Tsirpas will sell this to his constituents who just voted a firm "NO" to a deal without restructuring.
Yes, there is no point in sending a debtor to prison. And there is no point in lending him any more money, now that he has proven to be a deadbeat.
Prove anything by multiplying Huge Number times Tiny Number
That brother-in-law that keeps borrowing money, then borrows some more; never paying it back. Why? because they can't generate enough revenue to cover their spending. Finally when they can't seem to manage their finances at all and throw a big party, they still want more. Fiat currency arguments aside, it's probably better to let Greece figure this out on their own, with their own currency because the rest of the EU would be throwing good money after bad. Unfortunately the rest of the EU won't let that happen just yet because Italy and Spain would probably be next; it would give the UK further argument to pull out and that would mean serious trouble for the Eurozone.
Harrison's Postulate - "For every action there is an equal and opposite criticism"
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.
Remarkable the extent to which economists agree with you and to which politicians disagree. Gee, I wonder who's right?
Most notably, in the last bailout plan, the IMF called for growth in the Greek GDP to top 4% within a few years, and that's what would allow them to pay back the debt. So, in a very short time, while constrained by harsh austerity measures and with no ability to use govt funds to stimulate any job growth, Greece was supposed to leap from the bottom of the EU to the top in terms of growth. Yeah, right, pure fantasy--devised to soothe the lenders that somehow, some way, their investments in Greek loans are not a lost cause and that they will soon profit from them, if only Greece will get its act together and mumble mumble mumble something.
The underpants gnomes had a better business plan ;-)
Indeed, whether Syriza would implement the reforms is the most important question. Varoufakis was very vocal about the need for the reforms, but he has been forced out (by the EU !). The left-left wing of Syriza is opposed. It's not clear what the majority would do, and like you I would have preferred to see some reforms passed in February and March while the negotiations were ongoing.
However, some of the reforms Germany is asking for (higher taxes, pension cuts) cause me to doubt their bona fides here. The main problem is taxes in Greece is non-payment and the informal economy. Raising taxes is likely to exacerbate this problem by increasing the motivation to evade the higher taxes. Lowering taxes and simplifying the tax system is far more likely to raise more revenue.
Similarly, the main problem with government pensions is early retirement. The solution should therefore be to raise the retirement age for those currently working, which in the long term resolve the problems without creating short-term pain. The German solution (cut pensions now) means asking current pensioners who have no prospect of other sources of income and cannot choose to go back to the jobs they retired from to help repay the national debt.