Greek debt crisis 'far from over'

[alp227]

Source: The Guardian

In the three years that Greece has been engulfed by the drama of its debt, crises have come and gone. But the next 12 months are likely to be more critical yet with politicians and pundits predicting that 2013 will ultimately define whether Athens remains in the eurozone. For once, Greeks are in accord with the German chancellor, Angela Merkel, who, adding to the prevailing pessimism, emphasised in her new year address that the worst crisis to ravage Europe since the second world war "is far from over".

Few doubt that the continent's most powerful leader had Greece – the country she recently confessed to thinking more about than ever before and not "without a certain inner involvement" – in mind. The uncertainty that has enveloped the nation since the debt drama erupted beneath the Acropolis has not been alleviated by the passage of time.

After five straight years of recession, the eurozone's weakest link moves into 2013 with an economy set to further contract, unemployment at a record 26%, one in three living on or below the poverty line, and the worst of austerity yet to come. In the runup to Christmas, even the Greek finance minister, Yannis Stournaras, felt fit to admit that despite being the recipient of €240bn in EU and IMF rescue funds – the biggest bailout in global history – Greece could still default on its massive pile of debt, a move that would result automatically in exit from the 17-nation bloc.

"We still face a possible risk of bankruptcy," he told the FT, adding that Athens's fate would undoubtedly be determined by the ability of the prime minister, Antonis Samaras's fragile coalition to survive the unrest that will inevitably erupt with enforcement of cuts worth €9.2bn in the new year alone.

Read more: http://www.guardian.co.uk/world/2013/jan/02/greek-crisis-far-from-over

[tama]

1. Greece has many islands

Just give all the banksters, politicians and economists a beautiful Greek island of their own. And keep them there from bothering other people and messing up.

[mbperrin]

2. Hmmm, let's see, austerity, more recession; more austerity, more recession;

even more austerity, even more recession.

You know what? Maybe austerity isn't the answer.

Perhaps it's time to remind lenders that lending carries an inherent risk of default.

So default, start anew, and tell the lenders to stick it in some convenient orifice. Iceland did, and they're doing fine.

[hughee99]

5. Iceland didn't default on their sovereign debt,

but it did allow it's banks to default on foreign debt (rather than bail them out). That, along with a substantial loan from the IMF, their relatively small economy, their ability to manipulate their own currency (they're not tied to the EURO since they're not in the EU) and some prudent policy changes enabled them to turn things around.

[mbperrin]

6. Bankers took a haircut. They need to take one here, too.

Lending involves risk, so let's quit socializing the losses while privatizing the profits.

I'm always thankful that I've had no use for bankers for anything since 1978. My life has been better for it.

[hughee99]

7. I agree, but I don't think letting the Greek banks default

fixes the problem there, the bailout from the IMF (or whatever agency handles it) will have to be much, much bigger, and as long as they're in the EU, they are tied to the EURO, and are constrained on what they can do with their currency and certain other internal and trade policies.

In Iceland, for example, EU beef was priced out of the market and people had to buy from local producers in local currency (Krona), so even at an inflated price, locally produced products were still far cheaper than their EU equivalent because you had to convert Krona to Euros. The government was able to manage inflation and deflation on a national scale so people could trade in locally produced products, which was a nice benefit to the local economy. When you're in the EU, you use the Euro, you can't really screw around with it, and you have free trade agreements to prevent you from closing off your economy to competition.

This was the simplified version, as it was explained to me, anyway. I'm sure it's really much more technical than this. If Greece wants to try what Iceland did, they're going to have to leave the EU. If they do, though, other countries may not have as much of an interest in keeping their economy afloat and if they default on their sovereign debt, they may not be able to get the type of loans that Iceland did, and in the amount Greece would require. Greece's economy is about 20 times bigger than Iceland's.

[mbperrin]

13. Oh, I agree they need to leave the EU. They won't need loans after, either.

See if this makes sense to you - Greece has never had a problem with people starving there, right? They have land, they have farmers, they have the know-how to grow and produce food as well as the resources.

You said it yourself - the local products were more reasonable than the imports (it can't be any other way unless politics makes it so).

So return to themselves - people go back to work making products internally for their own consumption, have money to spend because they're working, and with no interest piggybacked onto the currency, every bit of the currency buys real things in-country, rather than building taller bank buildings in Germany.

All the unemployment, all the shortages, all the inflation is imported into Greece from the EU. They need to run, not walk, to the exits. They have STUFF - they just need to start using it again.

And the bigger size of the country actually helps - more diversity already, more technology in place, more education, more everything to work with.

[Ken Burch]

8. Ireland basically no longer has a social welfare system, though.

Benefits are cut down to nothing...unions are weakened...it's pretty much Ayn Rand's wet dream in Eire these days...and the bankers won't stop until the same has been done unto Greece.

There should simply be a global repudiation of debt-especially since, in most cases, the debt rose not due to anything the countries involved did, but rather due to financial manipulation.

[Selatius]

9. Ireland or Iceland? nt

[hughee99]

10. Banksters want their money back...

and not just the money invested in the banks, but the government bonds. Austerity isn't going to fix Greece's problems, but neither is defaulting on sovereign debt, telling everyone with Greek bonds to go fuck themselves, and then asking someone to lend them A LOT of money while they "right the ship". As far as the private Greeks banks, go, I don't think the government should be bailing them out for bad speculative deals but rather let that good old capitalism the banksters love so much do it's thing. As far as how the debt got to where it was, I think each country made their own (smaller) mess, and the financial manipulation just amplified it greatly.

Mostly, I was discussing the Iceland model (as I understand it, anyway) and how it differs from the situation the Greeks are currently in.

[xtraxritical]

3. The federal government needs to sponser some big infrastructure projects

to stimulate middle class employment. You can't save your way out of a recession/depression.

[bossy22]

11. With what money?

Greece is suffering from a "capital flight"- in lay-mens terms that is essentially "money leaving the country". The Greek national government has no control over monetary policy- they cannot just "raise funds" like the U.S. or UK can do; they can't just ask their central bank to do massive monetary stimulus.

The only way the government could do that would be if it re-instituted the drachma as the official national currency.

[dipsydoodle]

4. Greece - you are the weakest link

please leave.

[bossy22]

12. I think the the Greeks are just prolonging the inevitable

They need to leave the Euro. It won't be pretty, but is the current situation any better? Atleast with a return to the drachma the pain and chaos would be quick and the economy could start growing again.

[Morganfleeman]

14. If the Samaras government doesn't fall by summer

Once Merkel gets elected there will be some form of public sector debt forgiveness i.e., EU/ECB writing off some of Greece's debt, either this year or by 2014. The EU knows the consequences of a Greek exit are catastrophic, so they will talk a tough game in front of the cameras, but in reality they know Greece cannot possibly pay its debts.

Leaving the Euro is not really a palatable option for Greece, as bad as austerity is, for many reasons.

[project2021]

15. Iceland is the way to go

In the 1950ies Greece and other countries like Spain accepted to cut the German war debt by 50%. The German position is therefor neither excusable no understandable. Iceland is the way to go as this song by sYNODIA points out.