Bollitics - Ireland, the Euro and the future of the EU

[JulieB]

Ireland is a side issue IMHO with the problems with the Euro... it's the southern economies of the Med like Greece, Portugal & Spain.

Let's take Greece who are in a right mess...

There is wide spread corruption, it is a national pastime for the middle classes not to pay taxes meantime everyone screws everyone.

Greek banks having dealt with them, make our lot look like angels! They are nothing short of a bunch of crooks!

Cyprus is a case in point... Even Russian's mobsters are shocked at how corrupt the Greeks are only when they try the same on these guys

as they have done to the Brits for decades many are simply disappearing in lumps of concrete or worse.

Stronger economies like Germany, France etc are not going to continually prop their Southern neighbours up ad infinitum, I think there

will have to be some form of break off from the central bank's Euro.

[peterms]

The bailout is not helping the Greeks - it's harming them, massively.

The beneficiaries are the banks and their owners (largely French and German banks, in this case) who don't wish to do what every other business in the world has to, which is write off bad debts. They would rather we paid for those debts instead, by transferring them from their balance sheets to become public debt.

It's a measure of the stunning lack of public debate on this, or even realisation of who actually benefits from a bailout, that a right wing tory has to ask why we should rescue the wealthy from their own folly:

it is true that European banks, especially French and German banks, are exposed. Et alors? If we absolutely must rescue these institutions, it would be cheaper to give them the money directly than to route it scenically through Athens. Why, though, should taxpayers continue to subsidise some very wealthy individuals?

It's not usually left to tories to argue against handouts for the rich, but there seem to be precious few people explaining that the idea we/the EU/the ECB/the IMF are bailing out "the Greeks" is a lie. The beneficiaries are international financiers, with no particular loyalty to any specific country.

[LondonLax]

The Greek people are screwed either way.

They are screwed if they agree to the demands required to receive funding and they will be screwed if they default and opt out of the Euro.

They have a huge structural deficit and need massive loans just to pay the government’s day to day outgoings on wages and pensions. No country is going to lend them money they need to cover that if all they have to pay it back is a worthless rapidly devaluing drachma. The cost of importing everything they need to run the country will skyrocket as well. They import 100% of their oil and gas as well as most construction materials and many food items, they will struggle to buy any of it with a worthless drachma.

They will need to go to the IMF for funding who will then impose the very same conditions on the loans as they are imposing now.

Meanwhile, the rest of Europe will have gone through another credit crunch thanks to banks having to write off massive chunks of debt and not being about to use it as collateral to loan with. Again it will be left to taxpayers to bail out failing banks to prevent bank runs, stock prices will crash again wiping out many peoples pensions. Really it is the worst case scenario.

The best case scenario is that they stay in the Euro and wind down the debt through a combination of getting their expenditure in order and an agreement from banks to roll over the debt to longer term payment whilst financial institutions use the time unwind their exposure to Greek debt.

[LondonLax]

Most comments I see championing the default and exiting the Euro option seem to come from people who are either angry with the banking sector and are eager to see them take a hit regardless of the consequence or they hate the whole idea of the Euro zone and are eager to see it collapse regardless of the consequence.

Neither group seem particularly unbiased in their anaylsis.

[snowychap]

I've seen everything now. Peter linking to and quoting Dan Hannan.

You've gotta feel dirty this time. ;-)

[peterms]

The terms being demanded are impossible to meet - everyone agrees that. Those who argue for bailout and austerity apparently hope to buy enough time that eventually growth resumes (not clear how; also the problem with wee Dave's masterplan). In the meantime the Greek economy will have been devastated, with everything sold off to financiers. Which is of course the financiers' aim. If default happens after a few rounds of bailout, when they've sucked all that lovely money into their coffers, well too bad - and in the meantime they will have taken a position on betting on default, and made yet more out of that.

It's like having a giant leech sucking your blood, but instead of crushing it, you move it from vein to vein to help it bleed you more thoroughly.

Greece will pay for imports with foreign currency, not drachmas. The tourist industry is booming, with for example 500k Russian visitors this year, a 50% increase from last year, and Expedia reporting bookings being made into November, the furthest future booking pattern ever seen.

Banks do need to write off bad debt, but taxpayers shouldn't bail them out. You have to remember that the loans which were made don't represent real goods, gold, or anything other than credit created out of nothing by entering figures in a computer. It's not like one real person lending real money to another. What does it matter that the vast profits the banks had hoped to make won't be realised? They've lost projected windfall profits, not real assets. On the other hand, if the debt is socialised, then we have to lose real assets in the form of jobs, higher taxation, national assets sold to carpetbaggers, to make the paper profits of the banks real. Well, **** that. Yes, the banks certainly should take the hit, as even our tory friend Mr Hannan has said.

What you describe as the best case for Greece is actually the worst by far, but the best of all possible worlds for parasite financiers.

I wonder why you seem to think you can sidestep the argument for default and against EMU by saying the people putting it forward don't like banks or monetary union, as though that is some form of argument, rather than pointing to someone's conclusions and calling it a motive, which is actually what you are doing?

[LondonLax]

I honestly cant see the scenario you are describing as being good for anyone. Not the Greek people (tourism and olives are about the only things the Greeks export and you cant run a country the size of Greece on that alone) and certainly not the rest of Europe, so I am trying to look for the underlying reasons why people would take up that position whilst they try to rationalize away the obvious negatives that will result.

[peterms]

I honestly cant see the scenario you are describing as being good for anyone. Not the Greek people (tourism and olives are about the only things the Greeks export and you cant run a country the size of Greece on that alone) and certainly not the rest of Europe, so I am trying to look for the underlying reasons why people would take up that position whilst they try to rationalize away the obvious negatives that will result.

I agree it wouldn't be good - it would be massively disruptive and would take several years to recover from.

However, the experience of other countries which have defaulted has been that they recover more quickly than analysts, economists, commentators and politicians were warning when they did it, and that the stories about no-one ever lending to them again turned out to be quite false.

Exports - see here, with petroleum products almost as high as all fruit and veg, and garments higher than both. Of course the people they export to are under the cosh, which doesn't help, but coming out of the euro would at least give some control of currency rates.

I don't think they have any very attractive options, but default seems least worst.

[Gringo]

Default is inevitable. It's all about the timing now.

[peterms]

Default is inevitable. It's all about the timing now.

Yes, but also about whether default follows another couple of rounds of "bailouts" (ie transfers more money into the pockets of Goldman Sucks and others at the expense of the Greek people), or happens quickly. The timing determines who profits and who loses most.

[LondonLax]

Doing what's best for the greek people is a bit of a red herring.

They are screwed either way, this Vanity Fair article goes through some of the detail of the mess they are in.

The actual question is whether you prefer the Eurozone taxpayers to be paying up the debt to the European banks or if you prefer the banks to take the hit directly. The question to way up is will a European bank crash be worse or better for the European people than the cost of the bailout.

[Gringo]

that's the same scare stories that were parlayed a few years back during the last lot of bank bailouts. Banks & Bankers screwed up; banks & bankers should pay.

The collusion of people like goldman sachs in the falsification of budgets for the greek entry into the euro directly implicates them.

Default is inevitable. It's all about the timing now.

Yes, but also about whether default follows another couple of rounds of "bailouts" ...

that's what I meant about timing.

the franco german pact seem desperate to hang on til 2013.

[Awol]

The collusion of people like goldman sachs in the falsification of budgets for the greek entry into the euro directly implicates them.

The EU institutions and member states knew exactly was going on but chose to ignore Greece's unsuitability for ideological reasons. They are just as culpable as the fraudsters who cooked the Greek books.

Default is inevitable. It's all about the timing now.

Yes, but also about whether default follows another couple of rounds of "bailouts" ...

that's what I meant about timing.

the franco german pact seem desperate to hang on til 2013.

As Gringo says default is inevtable. By 'hanging on' they are simply making sure the final collapse will be even more catastrophic.

There are only two realistic choices imo; dismantle the eurozone as it currently exists or agree full debt transfer union within the EU. If they go down the latter route without consulting European electorates then the EU exposes itself as being the embryonic dictatorship many believe it to be.

[LondonLax]

I don't see the argument that hanging makes things worse.

It gives the Greek government time to undertake some much needed restructuring and it gives banks time to recapitalise and lessen their exposure to Greek debt.

The more catastrophic scenario is a sudden default where everyone has had less time to prepare.

[Gringo]

It's not the hanging on that makes it worse, it's the fact that during that period you have the IMF forcing the greeks to flog the family silver to the IMF's mates (banks, corporates) and then default anyway - so you have less family silver left with which to rebuild. It's a nasty con job by the IMF and political elites.

How can they all lessen their exposure - they can only shuffle it around - like the plan to accept bondholders due for repayment in a fortnight to roll over their bonds for another 3 or 5 or 7 years.

Of course they can't force them - but they can coerce them - banks are used to buying the occassional dog off a dealer to keep him happy in order to keep the good profitable stuff flowing - so the RBS of this world will have their arms twisted in order to save the belgian banks.

The only strategy the EU and IMF have is to force them to privatise their water supply as pubishment for doing what the EU and IMF wanted (join the EURO) and let inflation take care of the debt. And we've seen how well that worked for Japan.

[villa89]

then the EU exposes itself as being the embryonic dictatorship many believe it to be.

I already thought it was an outright dictatorship masquerading as a democracy. They don't allow you to vote on anything they know will be rejected (The accession of member States like Romainia, Bulgaria for example [which has proved a disaster]) and anything they have to let you vote for, if you reject it they just get you to vote again until you give them what they want, eg. Lisbon treaty. What's the tyopical turnout in a european MEP election, 30%? That's means ~2/3s of the population don't even bother voting. Says it all.

[Awol]

I don't see the argument that hanging makes things worse.

It gives the Greek government time to undertake some much needed restructuring and it gives banks time to recapitalise and lessen their exposure to Greek debt.

A further bailout simply builds up the amount of debt that the Greeks cannot pay back and the only restructuring that will make a difference is that of their debt - i.e. a default by any other name. The bank that would really take a smack from this is the ECB and they cannot lessen their exposure by unloading the junk they have bought from Greece.

The more catastrophic scenario is a sudden default where everyone has had less time to prepare.

People are preparing anyway because those without politics in their eyes (the markets are pricing in default anyway) know that it is going to happen. Further bailouts are just increasing the final bill to the taxpayers of Europe.

[LondonLax]

It's not the hanging on that makes it worse, it's the fact that during that period you have the IMF forcing the greeks to flog the family silver to the IMF's mates (banks, corporates) and then default anyway - so you have less family silver left with which to rebuild. It's a nasty con job by the IMF and political elites.

The thing is, the Greek 'family silver' is not all that desirable. Most Greek government institutions are running at astronomical losses and are just another yoke around the governments neck.

The passage from the article posted above on the Greek railways is one example:

The national railroad has annual revenues of 100 million Euros against an annual wage bill of 400 million, plus 300 million Euros in other expenses. The average state railroad employee earns 65,000 Euros a year. Twenty years ago a successful businessman turned minister of finance named Stefanos Manos pointed out that it would be cheaper to put all Greece’s rail passengers into taxicabs: it’s still true. “We have a railroad company which is bankrupt beyond comprehension,” Manos put it to me. “And yet there isn’t a single private company in Greece with that kind of average pay.”

The government has no chance of getting back on track if it is carrying completely dysfunctional institutions like this, whether it is paying in Euros or Drachma, the numbers just don't add up

[peterms]

It's not the hanging on that makes it worse, it's the fact that during that period you have the IMF forcing the greeks to flog the family silver to the IMF's mates (banks, corporates) and then default anyway - so you have less family silver left with which to rebuild. It's a nasty con job by the IMF and political elites.

The thing is, the Greek 'family silver' is not all that desirable. Most Greek government institutions are running at astronomical losses and are just another yoke around the governments neck.

The family silver consist of real assets, whether that's land, islands, buildings, infrastructure and the rest. The "money" that was lent, the bonds, doesn't consist of real assets. The task of the financiers, the IMF and the others is to try to convert these paper debts into real assets, rather than write them off. They will do that by first getting the Greek state to accept more loans, and second making them pay for them with these real assets, in other words transferring wealth from the Greek people as a whole to Goldman Sachs and their colleagues.

I'm sure it's true that many of these institutions run at a loss, or aren't very efficient - if you define efficiency as making a profit as a firm would, rather than in terms of overall contribution to the economy as a government would. That doesn't put off the asset-strippers, it just means they would require certain conditions, like being able to sack people, cut wages, sell off land and other assets, increase charges and all the other "value-creating" repertoire of the "efficient" private sector. The wider social cost of these measures won't concern them, they will just be there to strip as much value as they can before selling the thing on or closing it down.

That's why it would be far, far better to keep the assets, default on the debt, leave the euro, issue their own currency and regain some control over fiscal policy.

The alternative would be like letting loan sharks strip your house while extending your loan, after which they gaze around your newly bare house and say "Now, about that money you owe...".

Default isn't an easy option, and they would have to do many other things as well, like tackle taxdodging and other forms of corruption. Whether there is the political will to do that, I have no idea. The crowds on the streets are apparently calling for action on taxdodging, but as usual, it's the rich and well-connected who are both the greatest source of lost tax, and also the ones in the best position to block action.

[Awol]

....The alternative would be like letting loan sharks strip your house while extending your loan, after which they gaze around your newly bare house and say "Now, about that money you owe...".

Seriously, that's a fantastic analogy.

The crowds on the streets are apparently calling for action on taxdodging, but as usual, it's the rich and well-connected who are both the greatest source of lost tax, and also the ones in the best position to block action.

I've read that tax dodging is endemic throughout Greek society and it's a point of principle that people pay as little as they can possibly get away with, but undoubtedly the "rich" take full advantage.

This from the Mail yesterday:

....One of the reasons they are so rich is that rather than paying millions in tax to the Greek state, as they rightfully should, many of these residents are living entirely tax-free... How so? Simple: they are allowed to state their own earnings for tax purposes, figures which are rarely challenged. And rich Greeks take full advantage. Astonishingly, only 5,000 people in a country of 12 million admit to earning more than £90,000 a year.

Kind of explains why they are so deep in the brown stuff (and from my perspective that is their concern), but if they don't want to reform then EU taxpayers shouldn't carry the can for it.