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From its inception, Marshall conceived of the ERP as a means of furthering US foreign policy aims. The benign summary would be, fostering economic prosperity to obviate international tension. A more skeptical version goes, laying the foundations of American economic and political hegemony in Europe. The Soviet Union correctly perceived this latter reality, not least of all because even the vague pitch Marshall gave at Harvard in 1947 was already weakening the Eastern Bloc.

So the lesson is -- making a country "more stable" through economic foreign policy is not really separate from political influence. The Greeks seem to want the money/debt relief but not the European (read German) political influence. This is very, very different from the Western Allies' and West Germany's attitudes toward the US in the 1940s.

 Manchu wrote:
How much of this punishment do you chalk up to moral hazard and how much do you chalk up to satisfying frustrated German voters?

I think that the current requirements put on Greece are about preventing moral hazard, but the failure to form a final, coherent end game to all of this is about not wanting to tell the German voters that ultimately Greece isn’t going to pay the principle back.

Sining wrote:
It kind of is the point. The whole parent/child is important because as you said, the child will NEVER be able to repay the parent back for the cost of the car. Another adult however should be able to pay back another adult for wrecking a car.

Who ‘should’ be able to pay for something is irrelevant. Greece can’t repay the debt they’ve built up.

Again, you seem to think it's a punishment to be asked to repay your loans. I think that's really the crux of your argument. Don't repay debts. It's punishing.

The point really isn’t that hard to understand, and I’m really going to have to conclude that your constant failure to understand it can only be deliberate. So I’m going to try one more time, and if you don’t get it, then that’s it, you can continue not understanding it.

Greece will never repay the debt. The current levels of repayment are about as harsh as you can get without risking meltdown, but at the current level they’re barely covering interest (and when interest rates rise again they won’t be covering that). So arguing that the current repayments are about repaying the debt is total nonsense.

And so, once we accept Greece can’t repay the whole debt, it just becomes a question of how of the debt it should repay. A basic understanding of the scale of the European financial sector relative to Greece will tell you that a total debt write off will have minimal impact on Europe, and be a tremendous relief to Greece.

However, total debt write off will set a precedent that would likely make other countries in Europe build up massive debt in the expectation that it would be written off when it became unmanageable. This would be known as a moral hazard.

And so the question becomes one of how much Greece has to suffer under the debt to make it clear to other countries that building up unmanageable debt is a very bad thing, and not to be repeated.

My ego is fine. I think your ego however needs to go read about this.

So I take you’ve got no interest in going and learning about restructuring. On the one hand that’s fair enough, its something that most people won’t ever need to know about. But on the other hand, when you’ve got a very limited knowledge of finance and no interest in learning more, what in the hell are you doing throwing opinions about on international finance?

Here are the things I agree with you about. Greece will likely never pay back the debt in full. Germany is not going to just let the debt go because German voters won't like it.

However, the crux of the matter which you don't understand is that I don't consider it a punishment to force Greece to repay the debt. At the end of the day, Greece did borrow the money. They do have a debt. The fact that it'll likely be written off in the future doesn't mean that it should be written off sooner or that it's a punishment.

 treslibras wrote:
Interesting article on sueddeutsche.de , albeit a bit off-topic.

(I am pretty impressed by google translation, I basically just did some formatting for ease of reading):

It’s a good article, thanks for posting it. While I agree with the facts presented and think they are important issues, there’s two basic points that frame the overall article’s point that I think are quite dubious.

"Why Portugal, Spain and Ireland managed the turn and Greece did not"

Greece didn’t manage the turn for the simple fact that it’s debt, even after the write-offs, is still far greater than the others. Greece’s debt to GDP is as high as 175% by some estimates, while the rest aren’t much more than 100% - and Spain is about 75%. Fairly basically, Greece is in a deeper hole, and deeper holes are harder to get out of.

The real problem in Greece is the weakness of state institutions, says an insider who is familiar with the work of the Troika. This meant that the government has saved that the reforms that the re-emergence of the country should take, but was omitted. The renovators in Brussels, Frankfurt and New York had set out that SYRIZA would take back some austerity measures after a change of power, but that this would be evened out by the fact that the new government would act forcefully against corruption and nepotism. "That was a bitter disappointment" says the insider.

This is true, and important, but also very misleading. Greece has terrible institutions, and reform is important. But the exact same line was trotted out against every single nation of Europe, and of the US, during the GFC, as an argument against stimulus. It’s basically an extension of argument of the freshwater/saltwater split in economics.

The point, ultimately, is that institutional reform alone won’t solve the problem. Even if the finance and government sectors of Greece become a hyper-efficient tomorrow, the debt would still be crushing for a country with such a low economic base. But also, if the debt was written off entirely tomorrow, then Greece would still struggle and be likely to do the same all over again, because the institutions are so bad.

What’s needed, basically, is a combination of debt relief and institutional reform. Ideally the two things could be married, so debt relief is conditional on institutional reform. Which is pretty much the IMF’s reason for being, so…


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 Manchu wrote:
From its inception, Marshall conceived of the ERP as a means of furthering US foreign policy aims. The benign summary would be, fostering economic prosperity to obviate international tension. A more skeptical version goes, laying the foundations of American economic and political hegemony in Europe. The Soviet Union correctly perceived this latter reality, not least of all because even the vague pitch Marshall gave at Harvard in 1947 was already weakening the Eastern Bloc.

So the lesson is -- making a country "more stable" through economic foreign policy is not really separate from political influence. The Greeks seem to want the money/debt relief but not the European (read German) political influence. This is very, very different from the Western Allies' and West Germany's attitudes toward the US in the 1940s.

I agree entirely. I actually went back to my previous post on the Marshall Plan to copy and paste my bit about the Soviet's rejecting funds to prevent political and economic interference... only to realise I'd cut it from my previous answer for brevity

But yes, money brings with it political influence. Even when the political influence is about as benevolent as can be, like the Marshall Plan's commitment to peace through prosperity, it still comes loaded with assumptions about how a country ought to operate to be prosperous.

This might describe the Greek/German situation quite well, overall.


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Sining wrote:
Here are the things I agree with you about. Greece will likely never pay back the debt in full. Germany is not going to just let the debt go because German voters won't like it.

However, the crux of the matter which you don't understand is that I don't consider it a punishment to force Greece to repay the debt. At the end of the day, Greece did borrow the money. They do have a debt. The fact that it'll likely be written off in the future doesn't mean that it should be written off sooner or that it's a punishment.

You are really, really fixated on the word punishment. In this context, it merely means ‘the amount that Greece must repay to avoid the moral hazard’.

You can use another term if you want, or you can type out ‘the amount Greece has to repay to avoid the moral hazard’ every single time, if you want, the basic facts of the situation don’t change.

That's because you keep using the word punishment, which I don't feel fits the situation.

Yeah i wouldn't call it a punishment, but it is a serious situation with potentially dire consequences. Greece reminds me of the 5 stages of grief - they seem to have move past denial and are somewhere between anger and bargaining. The thing is, even if germany agreed (which i don't think they should) and paid them the reparations, it still wouldn't fix the problems it would just push them back a little bit further (again).

Sining wrote:
That's because you keep using the word punishment, which I don't feel fits the situation.

I know you don’t like it because you like the morality of repaying what you owe, and ‘punishment’ sounds negative, as if it was outside of what's normally expected. I get that, and from a personal moral point of view I actually agree.

But the issue here is that what Greece is repaying really has nothing to do with what they owe. That repayment is never going to happen, and what is being repaid, while an incredibly difficult burden on Greece, is pretty much a rounding error to the European financial sector. The only reason to require those payments, instead of cancelling them and letting Greece back in to some kind of stability, is to set an example, to reduce the chance of this happening in Greece or anywhere else ever again.

That’s a punishment. What other word should be used to describe that?

Karma really. Or really just cause and effect

 sebster wrote:

Sining wrote:
That's because you keep using the word punishment, which I don't feel fits the situation.

I know you don’t like it because you like the morality of repaying what you owe, and ‘punishment’ sounds negative, as if it was outside of what's normally expected. I get that, and from a personal moral point of view I actually agree.

But the issue here is that what Greece is repaying really has nothing to do with what they owe. That repayment is never going to happen, and what is being repaid, while an incredibly difficult burden on Greece, is pretty much a rounding error to the European financial sector. The only reason to require those payments, instead of cancelling them and letting Greece back in to some kind of stability, is to set an example, to reduce the chance of this happening in Greece or anywhere else ever again.

That’s a punishment. What other word should be used to describe that?

A loan? If i took out a personal loan and didn't repay it, it would be a rounding error to the australian financial sector. Nevertheless, there would be repercussions (for me) for not paying it. The expectation that i should repay or try to repay the loan, however, would not be considered a punishment.

Countries are not people. Analogies comparing personal debt to the debts of nations are usually way too simple and therefore result in overly simple conclusions.

The concepts remain the same though. The idea of loans is that they're to be repaid, and that repayment isn't considered a form of punishment. Otherwise it wouldn't be a loan, it would be a gift.

 Torga_DW wrote:
A loan? If i took out a personal loan and didn't repay it, it would be a rounding error to the australian financial sector. Nevertheless, there would be repercussions (for me) for not paying it. The expectation that i should repay or try to repay the loan, however, would not be considered a punishment.

You don’t like the word ‘punishment’ and you appear to be not alone in that regard. Personally I couldn’t give a feth what word is used, so long as it effectively differentiates the reality of how the Greek situation is being resolved and why. Simply calling it debt repayment completely ignores the situation of both Greece and Europe.

If anyone has a better term, by all means suggest it.


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 Torga_DW wrote:
The concepts remain the same though. The idea of loans is that they're to be repaid, and that repayment isn't considered a form of punishment. Otherwise it wouldn't be a loan, it would be a gift.

Sure, in ordinary circumstances that’s exactly how it works. But these aren’t ordinary circumstances. These are circumstances where the payment regime doesn’t just inconvenience Greece, the instability and economic hardship those payments create in Greece actually make things more awkward in the rest of Europe.

In and of itself, wiping this debt would allow everyone to move forward. But that can’t be done because it would set a precedent where Greece or other countries in Europe might think it was okay to let this happen again, in the belief that they’d be released from the debt.

Given those circumstances, it becomes clear the reason to require Greece to continue payments isn’t to get the money, but because Greece can’t just be allowed to walk away from their mess. The reason to require the payments that are causing economic disfunction and political instability is not because Europe really needs the money repaid, but as a punishment on Greece to decrease the chance of this happening again.

That's a fair point, there's a good deal of this that's largely being done to set an example. And, to be perfectly honest, that's not an entirely incorrect approach, the Greek state allowed too much corruption to flourish, some would argue lied its way into the Euro, and basically didn't spend its money wisely. It *should* be punished for that to ensure other nations do not fall into the same trap and prevent possible future entrants from acting in a similar manner.

Accountability is important.

The unfortunate part is that this means a lot of suffering on the part of the Greek people, many who absolutely do not deserve it, and political instability.

Which are also important factors to keep in mind.

 Vaktathi wrote:
That's a fair point, there's a good deal of this that's largely being done to set an example. And, to be perfectly honest, that's not an entirely incorrect approach, the Greek state allowed too much corruption to flourish, some would argue lied its way into the Euro, and basically didn't spend its money wisely. It *should* be punished for that to ensure other nations do not fall into the same trap and prevent possible future entrants from acting in a similar manner.

Accountability is important.

The unfortunate part is that this means a lot of suffering on the part of the Greek people, many who absolutely do not deserve it, and political instability.

Which are also important factors to keep in mind.

Why do you think that the Greeks are being made an example of?

- They have already been given a pardon for about 50% of their debt 3 years ago.
- They pay less interest in the debt that they do have than other countries that were in comparable situations, namely Spain, Portugal and Ireland.

Despite all of this, not only do they need another debt write off (that they will ultimately get, because they can't pay what they've borrowed anyway), they will also require even more "borrowed" money! And in all of these years, they have yet to implement the fiscal and anti-corruption policies that they desperately need to achieve any type of balanced public finances!

Europe isn't trying to punish Greece in any way, they are only trying to make sure that any more money that they sink into it isn't just burned away like the previous one was.

Personally, I think that they won't accomplish anything, especially with a government like this in place, and Greece will have to leave the EU / Euro.

Greece is in "sink or swim" mode

Nope, Greece is in "sink like a stone" mode.

Of course nobodies forgetting, that Greece's troubles are helping keep the value of the Euro down. And helping the German economy keep it's head above water.
Heaven forbid that the euro should rise and make European industry less competitive.

stones sink slower that Greece right now.

maybe a Neutron star (aka one of most dense know objects, one smaller in diameter than New York can weigh in at twice the weight of the Sun....)

If it's a race to the bottom, America's in with a chance.
http://web.nacm.org/CMI/PDF/CMIcurrent.pdf

Greece denies default accusations
http://www.bbc.co.uk/news/business-32297781

Greece has denied reports it is preparing to default on its loans if it cannot reach agreement on its bailout terms with international creditors.

A government spokesman said negotiations were proceeding swiftly towards a solution.

Greece negotiated a three-month extension to its €240bn (£176bn; $272bn) bailout at the end of February.

The Greek government is due to pay the International Monetary Fund (IMF) €203m on 1 May and €770m on 12 May.

But reports suggest the government is rapidly running out of money. It needs to find €2.4bn to pay civil service salaries and pensions this month.

he Greek government has also dismissed media reports that it was considering calling early elections if it failed to negotiate a settlement with its international creditors.

Last week, eurozone officials said Greece only had six working days left to come up with a revised list of reforms to seal a deal on its next rescue bailout.

Eurozone deputy finance ministers want an agreement on the €7.2bn loan in time for a Eurogroup meeting on 24 April.

Greek prime minister Alexis Tsipras has said that Athens will not be able to service its debt without financial help from the European Union


Greek government to withhold IMF payments according to the FT
Prime Minister Tsipras denies preparing for default according to Reuters
Government funds to run out by end of month
Default would likely lead to "Grexit" and return to drachma
EU may not withstand uncertainty surrounding break-up of monetary union
Concern could trigger derivatives crisis and ‘Lehman moment’
Like frogs in a pot of water that is very slowly coming to the boil

The Financial Times, citing unsourced "people briefed on the radical leftist government's thinking" has made the claim that the Tsipras government in Athens has "has decided to withhold E2.5 billion of payments due to the International Monetary Fund in May and June if no agreement is struck".

The Greek government was quick to deny the claim. "Greece ... is not preparing for any debt default and the same goes for its lenders. Negotiations are proceeding swiftly towards a mutually beneficial solution," read a statement from the Prime Minister’s office.

The Greek government is rapidly exhausting its funding to pay salaries and pensions with no funding from its lenders having been released since July. Another "end of the road" deadline looms - this time the Eurogroup meeting on April 24th.

This meeting may truly be the "end of the road" because it is expected that the Greek government will have finally depleted its reserves and will be wholly dependent on its creditors by the end of this month.

Negotiations have been going around in circles since the election of the anti-austerity Syriza government in January and appear no closer to resolution. It became apparent in late February that neither side was prepared to compromise - each having too much to lose from deviating from their central positions. There has been adequate time, since then, for preparations to be made for an orderly "Grexit".

Indeed, it may be that the two sides have agreed to disagree and are waiting for a politically expedient time for Greece to leave the euro. Media coverage of the crisis in both Germany and Greece is catalysing public opinion towards this end.

Yet, both sides have a lot to lose from a "Grexit" so it is no surprise that the brinkmanship will go down to the wire.

Despite protestations and denials, borrowing from the BRICS bank is still an option for Greece - opening the way for further influence from the East into Europe.

Indeed the ties between Greece and Russia have been strengthening in recent months.

While Europe may be preparing for a "Grexit" it is hard to imagine that it could withstand the uncertainty caused by such an event. Many banks are exposed to Greek debt and a default could trigger credit default swaps (CDS) and a derivatives crisis.

Derivatives have been described by Warren Buffet as ‘financial weapons of mass destruction’. A crisis in the derivatives market would badly impact the entire western financial system and could cause contagion.

In March we wrote with regards to the fact that Deutsche Bank had not passed the Fed's stress test, "Equally troubling, is the fact that Deutsche Bank, who have derivatives exposure of over a whopping €54 trillion – almost nine times the GDP of the entire Eurozone – has serious issues with risk management."

Were Deutsche Bank - with its "issues with risk management" - or any highly leveraged financial institutions to be caught in the middle of a default crisis it would cause a level of financial dislocation unseen in Europe in modern times.

While a ‘Grexit’ will likely be financially and monetarily positive for Greece itself in the long term, it would be devastating in the short term.

 sebster wrote:
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 Torga_DW wrote:
The concepts remain the same though. The idea of loans is that they're to be repaid, and that repayment isn't considered a form of punishment. Otherwise it wouldn't be a loan, it would be a gift.

Sure, in ordinary circumstances that’s exactly how it works. But these aren’t ordinary circumstances. These are circumstances where the payment regime doesn’t just inconvenience Greece, the instability and economic hardship those payments create in Greece actually make things more awkward in the rest of Europe.

In and of itself, wiping this debt would allow everyone to move forward. But that can’t be done because it would set a precedent where Greece or other countries in Europe might think it was okay to let this happen again, in the belief that they’d be released from the debt.

Given those circumstances, it becomes clear the reason to require Greece to continue payments isn’t to get the money, but because Greece can’t just be allowed to walk away from their mess. The reason to require the payments that are causing economic disfunction and political instability is not because Europe really needs the money repaid, but as a punishment on Greece to decrease the chance of this happening again.

I don't necessarily disagree with that, but there's a reason for the extraordinary circumstances. Germany and others have been trying to 'push' their values on greece for a reason - greece is economically unsustainable and shows no sign or interest in fixing the problem. Wiping the debt won't do anything - greece is still spending like a bpd in a casino, and wanting other countries (like germany) to continue bailing them out (although its less of a bailout and more of a very short-term continuance). Some good faith has to come into play from greece's side at some point - being in the EU doesn't mandate charity from the other countries. What happens if germany reads the writing on the wall, gets fed up with the situation and then decides they'll be the ones to leave the EU? The perspective seems to me that people are assuming greece deserves the benefit of the doubt, and deserves international charity, when all signs point to the problem being intentionally home brewed.

Out of curiousity, what's really stopping the average greek citizen to just move out of the country to just seek more jobs elsewhere? Other than the usual that is.

Greece is going to default and we will have a crisis. We've already seen commercial banks stop lending and before too long we should start seeing them de-leverage into an illiquid market.

By October this mess should be over and attention can turn towards the US and it's giant derivatives bomb. Then the real fun can begin. The next 4-5 years should be when the crisis finally comes to the states and it should be just as bad as what hit Europe.


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Sining wrote:
Out of curiousity, what's really stopping the average greek citizen to just move out of the country to just seek more jobs elsewhere? Other than the usual that is.

The average Greek is broke so there is that hurdle.

You are correct in assuming that people will flee a country when there is an outflow of capital. In Greece, that has certainly been the case since the crisis hit. Capital flows should reverse once there has been a default and real political change. Simply defaulting wont attract capital back into the country.

 Vaktathi wrote:
That's a fair point, there's a good deal of this that's largely being done to set an example. And, to be perfectly honest, that's not an entirely incorrect approach, the Greek state allowed too much corruption to flourish, some would argue lied its way into the Euro, and basically didn't spend its money wisely. It *should* be punished for that to ensure other nations do not fall into the same trap and prevent possible future entrants from acting in a similar manner.

Accountability is important.

The unfortunate part is that this means a lot of suffering on the part of the Greek people, many who absolutely do not deserve it, and political instability.

Which are also important factors to keep in mind.

Yep. And while Greece got themselves in to this mess, even if they hadn’t there would still be a need to enforce a tough payment scheme on them, just to set an example.

It sucks for the Greek people, and it isn’t great for the rest of Europe as one of its member nations struggles along as an economic mess, but it really does have to be that way.

 sebster wrote:

 Vaktathi wrote:
That's a fair point, there's a good deal of this that's largely being done to set an example. And, to be perfectly honest, that's not an entirely incorrect approach, the Greek state allowed too much corruption to flourish, some would argue lied its way into the Euro, and basically didn't spend its money wisely. It *should* be punished for that to ensure other nations do not fall into the same trap and prevent possible future entrants from acting in a similar manner.

Accountability is important.

The unfortunate part is that this means a lot of suffering on the part of the Greek people, many who absolutely do not deserve it, and political instability.

Which are also important factors to keep in mind.

Yep. And while Greece got themselves in to this mess, even if they hadn’t there would still be a need to enforce a tough payment scheme on them, just to set an example.

It sucks for the Greek people, and it isn’t great for the rest of Europe as one of its member nations struggles along as an economic mess, but it really does have to be that way.

What "tough payment scheme"?

Greece pays much less interest on its Troika loans than Portugal, Ireland, Spain or Italy did. How is a payment scheme though when its much more lenient than those of the other countries that were in similar circumstances?

PhantomViper wrote:
What "tough payment scheme"?

Greece pays much less interest on its Troika loans than Portugal, Ireland, Spain or Italy did. How is a payment scheme though when its much more lenient than those of the other countries that were in similar circumstances?

The harshness isn't in the interest repayment, but the primary surplus requirement (one of the conditions needed to lower the Greek interest repayments to the 2.6% shown in the figure). It's that primary surplus requirement that's causing the hardship in Greece.

I'd be okay with Greece not paying interest on their loans but I doubt they would manage even that.

It'd be interesting to see just how much the average european suffers as a result of the current situation in Greece though. The euro's at one of the lowest I've ever seen it, which can't help their imports but then again, most of my European customers are mostly turning to easten europe for their stuff.

 sebster wrote:

PhantomViper wrote:
What "tough payment scheme"?

Greece pays much less interest on its Troika loans than Portugal, Ireland, Spain or Italy did. How is a payment scheme though when its much more lenient than those of the other countries that were in similar circumstances?

The harshness isn't in the interest repayment, but the primary surplus requirement (one of the conditions needed to lower the Greek interest repayments to the 2.6% shown in the figure). It's that primary surplus requirement that's causing the hardship in Greece.

But lowering that primary surplus requirement means an even bigger growth of their debt and is nothing more than a band aid.

If there is one thing that this crisis has more than proved is that those types of Keynesian economic measures only cause even more hardship in the future. Throwing more money at the problem without any type of structural reforms won't solve anything and the Greeks have shown little or no interest in implementing those reforms.

PhantomViper wrote:

If there is one thing that this crisis has more than proved is that those types of Keynesian economic measures only cause even more hardship in the future. Throwing more money at the problem without any type of structural reforms won't solve anything and the Greeks have shown little or no interest in implementing those reforms.

You are assuming the "reforms" would have done anything to improve the situation. Greece was already past the point of no return once they hit the 70% Debt:GDP ratio and that was well before this crisis flared up. Most of the developed world is already beyond that point and that's why they are trying fudge their gdp and debt calculations to make the situation look more manageable and/or improving.

Look at that! dereksatkinson is back!

Any more insights on why this whole thing was caused by the failed banana plantations in Patagonia?

PhantomViper wrote:
Look at that! dereksatkinson is back!

Any more insights on why this whole thing was caused by the failed banana plantations in Patagonia?

Not sure where you are getting banana plantations from. I was talking about contagion in the Eurozone crushing your currency and it's gone straight down since then.

How is the Euro doing?

Maybe you should actually go back and look what I said and look at how your currency has performed.

Edit.. this is even more hilarious because you are living in Portugal and are directly paying for the bail out of one of your largest banks that had exposure to Cyrpus during the bail-in. The concept of counter party risk and contagion shouldn't be a foreign concept since you are directly feeling the pain. Oh well.. you will see what real contagion looks like soon enough.