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

Nah, the opposite. The primary surplus has been established as having a massive negative impact on Greek GDP, relaxing it would allow GDP to recover by as much as 2% per 1% reduction in requirement, meaning the debt to gdp measure through rising GDP.

The story of Greece, of course, has been that despite the primary surplus requirement debt to gdp has grown considerably, because the efforts to repay debt have collapsed gdp faster than its reduced GDP.

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.

That’s the exact opposite of true. The GFC has been an extraordinary vindication of basic ISLM modelling, while in contrast the austerity movement has utterly collapsed. Austerity predicted that debt repayment would lead to private sector confidence and growth, and none of it happened anywhere. Nor was there the predicted spike in interest rates for government bonds where austerity was not practiced, as austerity had predicted.

And the two key papers that austerity was built around were both shown to be utterly vacuous. The first claimed a link between surpluses and growth but it was nothing more than a crude correlation. More sophisticated work found the causation was in reverse – countries with strong growth tended to surpluses, not the other way around. The second paper was even worse, claiming that 90% debt to GDP was the tipping point where growth collapsed, a review of the paper found the relationship only existed because of excel formula mistakes in the analysis – when corrected there was no relationship.


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dereksatkinson wrote:
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.

That’s junk economics that’s been utterly discredited (the original work only found the relationship due to basic excel mistakes, seriously). And you even got the number wrong, the claimed tipping point was 90%. Nor was it a point of no return, it was just a point where there was a claimed drop in future gdp growth. I mean, as a point of no return off the top of my head we’ve seen the UK, USA, Australia and New Zealand all went well past 100% debt to gdp after WWII, and then returned.

Greek bonds are getting killed and we are seeing yields at 27%. This has been quite a week.

http://www.zerohedge.com/news/2015-04-16/contagion-arrives-european-peripheral-bond-risk-soars

How serious for us is the Greek tragedy?

http://www.bbc.co.uk/news/business-32335756


There is something a bit too deja-vu-ish about this election campaign, especially the tragic Greek economic backdrop.

Just like five years ago, Greece is on the brink of default. But 2015 is very different from 2010 in one important respect: other eurozone countries and the IMF are signalling they won't be panicked into rushing through another bailout.

If hints from the German finance minister, Wolfgang Schaeuble, and more explicit remarks from EU officials are any guide, Greece will be left to flounder, which means that there is a high probability that - at some point between May and July - the Greek government will fail to make repayments on the billions that fall due for repayment to the IMF, and/or the European Central Bank and/or private-sector providers of short term debts.

For what it's worth, the IMF is owed €200m (£144m) on 1 May and €760m on 12 May, while the ECB is due €6.7bn in June and July.
Greek exit?

Now this does not necessarily mean Greece would leave the euro at the point that it misses a debt payment.

The government could follow the example of Cyprus and impose restrictions on the export of capital from the country, to conserve as much cash as possible in a banking system too close to collapse for comfort.

And it could create its own IOUs, a sort of parallel domestic currency interchangeable with euros, to pay its employees and trade creditors.

In these dire circumstances, it would not really be part of a proper monetary union, it wouldn't be a full member of the eurozone. But it would still have the euro as legal tender.

This would be a pretty ghastly scenario for the Greek people - who would struggle for a period to obtain the things they need from abroad. And it the economy is limping along now, it would contract sharply for a period, as businesses and banks went kaput.

But strikingly the German government is putting it about that financial contagion to the rest of the eurozone would be limited.

Which may be hopeful, wishful thinking or naive.
Stark signal

It is certainly true that the eurozone and IMF can afford the likely losses on Greece's debts.

But that is not really the point. A Greek default would signal in the starkest way that European Monetary Union is about national convenience, not a political project to integrate the governance and balance sheets of members.

As such a Greek departure risks creating an economic schism between the rich north of Germany, the Netherlands, Austria and Finland, and the poorer south and east - with France in an uneasy no-man's land.

Capital would gravitate to the north. Funding costs for businesses and households would be permanently lower there. And the rich north would get richer and richer relative to the stagnating south and volatile east.

If that were to foster resentment on either side of the Alpine divide, it would not be a benign outcome.

As for us, the Greek drama represents unwelcome instability as we choose our next leaders.

But for the avoidance of doubt, the short-term risks to our prosperity are much lower than they were five years ago - whereas the long term risks, of a Europe permanently failing to pull together to create the conditions for sustainable growth and prosperity, may be greater.

I am okay with becoming richer.

COME AT ME SOUTH.

Seriously though, there really isn't a good outcome here is there?

Here’s a couple of charts that show how much work Greece has done to repair its situation from the farcical place it had put itself in 6 years ago;



The Greek government has made massive cuts to government spending and raised taxes so that what was a deficit of 15% each year is now a surplus of 5%. At the same time (through both government action and natural economic factors) the average Greek income has been cut by about 30%, meaning Greek labour costs about 75% of the Euro average, greatly improving competitiveness.

The point of all this is that the hard work to return the Greek economy to a viable place has already happened. That doesn’t mean I’m saying everything is rosy, but basically if a reasonable deal can be struck on future debt repayments, then Greece can pretty much be left to slowly, eventually recover.

I’m not saying that will happen, of course. Basically I think that so far everyone the situation has muddled towards a towards a solution not so much out of a spirit of compromise, but because the alternative is to hit the ‘make Greece explode button’. When you aren’t willing to press that button, the only alternative is to make a good enough deal that means the other side won’t hit the ‘make Greece explode button’ either. I have no idea how long both sides will remain like that. There’s certainly enough media opinions out there that are almost cheering for a Greek collapse.

Not with those fools who are in government now.

Does that labour cost chart use unit labour costs? That's the one you need to look at. It's not clear. I'd also be curious about consumer and producer prices relative to eu19, which is another measure of competitiveness.

Another thing to look at is effective exchange rate of Greece deflated by those cost and price indexes. If that has gone down significantly then I'd be inclined to agree with you.

Still, with those crackpots in governing I have a feeling Greece is still I'm big trouble.

Its Monday and Greece is still a country. Sig Other was offer a position as a GS14 slot in Athens. Prompt "NO" was the reply

 Soladrin wrote:
Seriously though, there really isn't a good outcome here is there?

From whose perspective? For the average Greek, you want to default and move on.

From the perspective of the German (or European pensioner in general) a default is a threat to your retirement and the solvency of your banking system. The system is so fragile that even non-performing cross currency mortgages are starting to cause problems for their banks. The other shoe should drop this fall/winter.


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 Jihadin wrote:
Its Monday and Greece is still a country. Sig Other was offer a position as a GS14 slot in Athens. Prompt "NO" was the reply

Greece will likely still be a country after they exit too. That really isn't what people are worried about. The concern is how it will impact the rest of Europe (specifically the banking sector) when they finally decide to leave. A lot of institutions use CDS to hedge exposure but now they can't even reliably use those because the derivatives don't pay out when the institutions backing them are insolvent.