ARmy Rumour SErvice

Originally Posted by Drlligaf

"3) The costs of disorderly default are probably higher than continuing to hand over funds to Greece.

For that reason, come what may, I can see more tranches of cash being handed over for fear of the alternative. Greece has every sign of becoming an economic black hole capable of sucking in limitless amounts of money."

Item 3 raises the question, just what are the costs of a disorderly default and how are they calculated? If Greece does become a financial black hole, then surely financial support ie bailouts will be no cheaper than a disorderly default or ejection from the Euro?

I suspect the costs of a purely Greek default are containable. However, questions will then start being asked about Portugal (again probably containable) and thence Spain (too big to fail). Its not so much a Greek default as the Pandora's box it might open. One default means others are possible.

Spain is rumoured to be thinking of a bank bailout - they are holding vast amounts of bad debt related to the failed building boom. Somehow I doubt Spain wants speculation about its Euro future at the same time as it attempts to set up a 'bad bank' to take on non-performing loans.

And you can add into the equation the mindset in Brussels - they'll big up the costs of failure just to to keep the Euro project alive.

What is basically happening is that the Eurozone is running out of easy options. And the ones that are left are becoming increasingly unpleasant.

Wordsmith

Originally Posted by Wordsmith

I think Alsaciens right about one thing. I don't see Greece exiting the euro anytime in the next few months even if the anti-austerity parties do cobble together a coalition - they'll still get bail out cash.

1) It'll mark the end of the Euro project in its present form as the markets look for the next dominoes to fall.

2) The Euro project is the flagship of 'Big Europe'. If the flagship product fails, I think questions will be asked about the whole EU direction.

3) The costs of disorderly default are probably higher than continuing to hand over funds to Greece.

For that reason, come what may, I can see more tranches of cash being handed over for fear of the alternative. Greece has every sign of becoming an economic black hole capable of sucking in limitless amounts of money.

Wordsmith

At the start of this thread I would have agreed but not now. Greece needs to devalue its currency and can not do that while staying in Euro. Had Greece defaulted two years ago and not taken massive amounts of bailout money then I could see default and staying in Euro working. As of now to much time has been wasted inflicting pain on Greek public in order to protect European banks.

Leaving Euro and letting inflation wipe out existing debt is the fastest route for economic recovery. Defaulting on bailout at least in the short term is also likely.

An intresting article in todays Daily Telegraph: German Chancellor Angela Merkel faces a fight for the eurozone's future - Telegraph

The writer is predicting that whatever happens: "on the current evidence there is no way that Greece can retain its euro membership. Athens has drifted into no man's land and there is no Heracles ready to come to the rescue. "

Originally Posted by FORMER_FYRDMAN

Not really, unsurprisingly, they just want to vote for having their cake and eating it. They're the first of the 'western' economies to really hit the buffers of unaffordable government spending and they have nowhere to go. Their prosperity has been built on the international equivalent of using daddy's credit card and, now that daddy's said no, they're stuck. They can't afford what they've got and, politically, they won't give it up voluntarily - it's the same across most of Europe, Greece is just further down the road than the rest.

The Germans have made it clear that it's austerity or no money. Unless they moderate that position, and there's no sign they will, Greece is into the endgame and will be forced to make a choice. After the last election, it seems the only question now is whether they value the Euro more than they hate austerity. What is clear is that none of the newly emerged anti-austerity parties can afford to weaken their position so I don't see much room for compromise with them - I suspect that those simply dismissing the results as a protest vote that will return to the fold next time may be whistling in the dark.

Hang on, modern Greece "really hit the buffers of unaffordable government spending" in 1826, it has since defaulted several times.

Usually it's been propped up reluctantly by a larger power because of sentiment and perceived strategic value and has had very limited sovereignty. Geographically its strategic value disappeared with the fall of the USSR and its been eclipsed by its old enemy Turkey. Now Greece's main importance is as an unwisely admitted part of the EU project that is absolutely key to Germany's current economic success and that a Greek default could undermine. Greeks having burnt bondholders so many times may understand the two sides to this relationship better than the average dumb Kraut in the street.

It's telling the German position has not stretched to commercially inconvenient things like withholding credit to buy more Leopard tanks, they even stuck their nose in to stop the Septics gifting Greece with M1As. The Greeks may be onto something in clinging to the EU, after all sledgehammer austerity may be pointlessly ballooning their debt but its smug Fritz in Frankfurt who'll likely end up being trapped into yet another haircut.

Originally Posted by alib

Hang on, modern Greece "really hit the buffers of unaffordable government spending" in 1826, it has since defaulted several times.

Usually it's been propped up reluctantly by a larger power because of sentiment and perceived strategic value and has had very limited sovereignty. Geographically its strategic value disappeared with the fall of the USSR and its been eclipsed by its old enemy Turkey. Now Greece's main importance is as an unwisely admitted part of the EU project that is absolutely key to Germany's current economic success and that a Greek default could undermine. Greeks having burnt bondholders so many times may understand the two sides to this relationship better than the average dumb Kraut in the street.

It's telling the German position has not stretched to commercially inconvenient things like withholding credit to buy more Leopard tanks, they even stuck their nose in to stop the Septics gifting Greece with M1As. The Greeks may be onto something in clinging to the EU, after all sledgehammer austerity may be pointlessly ballooning their debt but its smug Fritz in Frankfurt who'll likely end up being trapped into yet another haircut.

Yes, but I meant within the modern context of being a Euro member which resulted in an insane credit rating.

I wouldn't disagree that Germany is due for a haircut one way or another - the point is whether she will be willing to continue underpinning a Euro structure which inevitably makes such haircuts a regular occurrence. If there is little or no fiscal discipline, no matter how useful the Euro is, even Germany will conclude that she cannot fund Europe's institutionalised overspend indefinitely - which is what the current arrangement demands.

Sadly, we do not dispassionately assess data on the grounds of logic and reach optimum solutions. We view data through the clouds of our own preconceptions.

Additionally, there are political careers at stake. Presiding over the breakup of the euro would probably destroy those careers. When any of us has made a poor decision, sometimes we hang on beyond any sensible point in the hopes that something will turn up.

Finally, those involved in the decision making have invested a lot of their hopes in a project that they believed (or hoped) would be a good thing for Europe. They will not willingly switch their point of view and concede they may have made an error of epic proportions.

We debate the fate of the euro in this thread, but none of use has a direct stake in the outcome - although we will be hit by the fallout. Those that have are caught in a trap of their own making and will be looking for a way out. That does not mean they'll take logical decisions - merely the ones that serve their own interests. (As do we all from time to time).

Wordsmith

Well I think the EU and Greece just need a bit of time.

They surely, sooner or later, will come up with a new way of cooking the books so that everything looks fine and dandy.

"Well I think the EU and Greece just need a bit of time.

They surely, sooner or later, will come up with a new way of cooking the books so that everything looks fine and dandy."

You are a financial advisor to the Greek Government and I claim my SFr 10.00.
No Euros please.