Greece becoming a failed state?

[Leoreth]

I think Maastricht would've made a lot more sense if it was set up like Schengen.

 

[Winner]

"Failed state" has different connotations to saying that there is a failure of the government's. Greece is not descending into anarchy,

I wouldn't be so sure about that. There are certainly pretty large, well-radicalized leftist groups willing to start non-stop riots if they get the chance. Which they soon might.

with the government unable to maintain order and at least some core of public services. Rather it is descending into bankruptcy, with the inability to pay for the services that they had previously provided without major changes. The Greek state, and the Greek government, remain. They just are largely ineffective.

We'll see about that. If the post-election limbo state continues for too long, who knows what will happen. Fortunately, the Eurozone should now be much better insulated from the fallout of the Greek collapse.

well, there's talk of them leaving the euro and joining the dollar.

Good, it's about time someone started questioning the viability of the dollarzone

Because it's in the Maastricht Treaty. They'd have to sign a new treaty to leave the Euro but not the EU. A lot of things about the Maastricht Treaty don't make sense, apparently

Really? AFAIK Maastricht treaty doesn't deal with leaving the Eurozone at all, though I may be wrong about that. Kicking someone out of the Eurozone would require some additional treaty change, so there is no reason to assume that leaving the Eurozone would mean leaving the EU.

 

[Ayn Rand]

Clearly the corrupt Greek elite never had the slightest intention of becoming a responsible member of the EU. From the get-go they have simply been taking money from Europe and wasting it on things they can't afford.

Greece is not failing - this is the plan as evolved from day 1 of the Euro.

 

[Mise]

Really? AFAIK Maastricht treaty doesn't deal with leaving the Eurozone at all, though I may be wrong about that. Kicking someone out of the Eurozone would require some additional treaty change, so there is no reason to assume that leaving the Eurozone would mean leaving the EU.

It doesn't deal with "leaving the Eurozone" at all, because to leave the Eurozone would mean leaving the EU. The Maastricht Treaty didn't set up the EU and then separately the Eurozone was set up; rather, Maastricht states from the start that membership in the European Union explicitly entails Monetary Union with other members. When a nation joins the EU, they aren't just agreeing to implement common laws on fishing or agreeing to elect members to a transnational parliament, they are also agreeing to join a Monetary Union. Every new member, and every existing member*, has agreed in treaties and signed into law a commitment to join the Euro, once the convergence criteria are met. What you have to realise, and what most people don't seem to realise, in the UK or anywhere else apparently, is that the EU and the Eurozone are one and the same thing. The Euro is not some additional optional addon that you can treat separately from the EU, it's a defining fact of the European Union.

So right now, the process for Greece exiting the Euro would mean leaving the EU (which any nation can do under Lisbon, but has obviously not been tested and could take a really long time). Under the current treaties, the only way that Greece can return to the Drachma (or adopt the Dollar or whatever else it wants) is to leave the EU, because there is nothing in Maastricht that separates the EU from the Eurozone. Maastrict explicitly makes the Euro and the EU the same thing; as I said, the Monetary Union is a sine qua non of membership in the EU. To remain in the EU, they would have to negotiate a new treaty, either defining how a country can abandon the Euro and remaining in the EU (which would amount to renegotiating the Maastricht treaty itself), or one that defines Greece's re-entry into the EU after it leaves.


(*-Note that everything I just said is irrelevant to the UK and Denmark, because both of those countries negotiated separate clauses in Maastricht that exempt them from the commitment to Monetary Union.)

 

[Winner]

It doesn't deal with "leaving the Eurozone" at all, because to leave the Eurozone would mean leaving the EU.

No, just no. It's *an* interpretation, and I see nothing substantial in your post to back it up.

The Maastricht Treaty didn't set up the EU and then separately the Eurozone was set up; rather, Maastricht states from the start that membership in the European Union explicitly entails Monetary Union with other members. When a nation joins the EU, they aren't just agreeing to implement common laws on fishing or agreeing to elect members to a transnational parliament, they are also agreeing to join a Monetary Union. Every new member, and every existing member*, has agreed in treaties and signed into law a commitment to join the Euro, once the convergence criteria are met. What you have to realise, and what most people don't seem to realise, in the UK or anywhere else apparently, is that the EU and the Eurozone are one and the same thing. The Euro is not some additional optional addon that you can treat separately from the EU, it's a defining fact of the European Union.

The new EU member states such as Czechia, Poland and others have joined the EU which indeed include the obligation to adopt the Euro, but haven't adopted it yet and there is no time limit until when they need to do so. So theoretically it could be deferred for decades if need be. I see no reason why it should be principally impossible, in case Greece cannot remain in the Eurozone, to be given the same status - it would still be committed to re-adopt Euro at some point in the future, but without any concrete timetable. For the time being, it would remain an EU member.

Again, treaties can be changed and/or amended with ad hoc conditions, it happens in the EU all the time.

So right now, the process for Greece exiting the Euro would mean leaving the EU (which any nation can do under Lisbon, but has obviously not been tested and could take a really long time). Under the current treaties, the only way that Greece can return to the Drachma (or adopt the Dollar or whatever else it wants) is to leave the EU, because there is nothing in Maastricht that separates the EU from the Eurozone. Maastrict explicitly makes the Euro and the EU the same thing; as I said, the Monetary Union is a sine qua non of membership in the EU. To remain in the EU, they would have to negotiate a new treaty, either defining how a country can abandon the Euro and remaining in the EU (which would amount to renegotiating the Maastricht treaty itself), or one that defines Greece's re-entry into the EU after it leaves.

(*-Note that everything I just said is irrelevant to the UK and Denmark, because both of those countries negotiated separate clauses in Maastricht that exempt them from the commitment to Monetary Union.)

You're entitled to your interpretation of the treaties, but I don't think your view is the prevailing one.

 

[Grimz101]

I think the promise that they won't have to endure anywhere near as much "austerity" as they would under the current plan would be enticing enough. The basic problem is that Greece is insolvent; the only way of solving that without inflicting a ridiculous amount of damage on all sides is collectivising debt in some way. I can't see any other solution that doesn't inflict unnecessary pain on everybody.

Euro bonds?

Clearly the corrupt Greek elite never had the slightest intention of becoming a responsible member of the EU. From the get-go they have simply been taking money from Europe and wasting it on things they can't afford.

Greece is not failing - this is the plan as evolved from day 1 of the Euro.

Taking money from Europe? How so.

 

[Mise]

No, just no. It's *an* interpretation, and I see nothing substantial in your post to back it up.



The new EU member states such as Czechia, Poland and others have joined the EU which indeed include the obligation to adopt the Euro, but haven't adopted it yet and there is no time limit until when they need to do so. So theoretically it could be deferred for decades if need be. I see no reason why it should be principally impossible, in case Greece cannot remain in the Eurozone, to be given the same status - it would still be committed to re-adopt Euro at some point in the future, but without any concrete timetable. For the time being, it would remain an EU member.

Again, treaties can be changed and/or amended with ad hoc conditions, it happens in the EU all the time.



You're entitled to your interpretation of the treaties, but I don't think your view is the prevailing one.

Yes, I suggested that the treaties could be changed, and how they could be changed, in my post. If Greece wants to stay in the EU but not in the Eurozone, as Denmark, UK, CZ etc do right now, it would require either a new treaty, or a renegotiation of Maastricht a la Lisbon, Nice, etc. Right now, without a new treaty or changes to the existing treaty, for Greece to leave the Eurozone it has to leave the EU. I don't see anything in your post that contradicts what I said, which makes me wonder if you have actually read it.

 

[Winner]

Yes, I suggested that the treaties could be changed, and how they could be changed, in my post. If Greece wants to stay in the EU but not in the Eurozone, as Denmark, UK, CZ etc do right now, it would require either a new treaty, or a renegotiation of Maastricht a la Lisbon, Nice, etc. Right now, without a new treaty or changes to the existing treaty, for Greece to leave the Eurozone it has to leave the EU. I don't see anything in your post that contradicts what I said, which makes me wonder if you have actually read it.

Well, you insisted that the fact Eurozone and EU are linked precludes the possibility of an EU member leaving just the Eurozone. I am saying that this is likely not going to happen and a way will be found to keep Greece in the EU even if it ceases to use the Euro. But I think you clarified what you meant.

 

[kramerfan86]

Honest question, after all the headaches and trouble its caused why would the EU rewrite the treaty to keep Greece in it? Seems at this point everyone would be sick of them and not bend over backwards to keep them in it.

 

[Mise]

Euro bonds?

Ehh, it doesn't have to be a jointly issued bond per se, but it does have to be something that says that the other EU member states would jointly underwrite Greek debt. They could phrase it as an insurance policy or something, if that made it more palatable to the public, but I doubt it would. In any case, due to the way that bank deposits work via Target2, the extra-ordinary actions by the ECB in buying government and bank debt, and the fact that German and French banks are massively exposed to Greek private and public debt through their own lending, Greek debt is collectivised to an enormous extent among EU members already. They might as well formalise it, with all the stability that would bring.

 

[Grimz101]

Honest question, after all the headaches and trouble its caused why would the EU rewrite the treaty to keep Greece in it? Seems at this point everyone would be sick of them and not bend over backwards to keep them in it.

If it gets to a stage in which the creditor nations are no longer willing to bail out Greece, I'd imagine they'd try to make the default as orderly as possible

Letting Greece leave the EU in a destructive and damaging way would first of all undermine the EU project for decades to come. Secondly exacerbate the situation of other peripheral nations. Third of all damaging a trade partner wouldn't help stop the absence of growth that currently hangs over Europe.

Ehh, it doesn't have to be a jointly issued bond per se, but it does have to bea something that says that the other EU member states would jointly underwrite Greek debt. They could phrase it as an insurance policy or something, if that made it more palatable to the public, but I doubt it would. In any case, due to the way that bank deposits work via Target2, the extra-ordinary actions by the ECB in buying government and bank debt, and the fact that German and French banks are massively exposed to Greek private and public debt through their own lending, Greek debt is collectivised to an enormous extent among EU members already. They might as well formalise it, with all the stability that would bring.

I've read some good papers exploring the idea of Euro bonds, there's numerous benefits. They could still adhere to the Maastricht treaty by only allowing collective debt up to 60% of GDP for each country, and anything in excess of that having no guarantee by the ECB to force some fiscal prudence over the long term. The culmination of <60% debt would rival the amount the fed issues, and with that guarantee by the ECB it could benefit from the exorbitant privilege like America.

 

[kronic]

I've read some good papers exploring the idea of Euro bonds, there's numerous benefits. They could still adhere to the Maastricht treaty by only allowing collective debt up to 60% of GDP for each country, and anything in excess of that having no guarantee by the ECB to force some fiscal prudence over the long term. The culmination of <60% debt would rival the amount the fed issues, and with that guarantee by the ECB it could benefit from the exorbitant privilege like America.

Correction: There's a lot to gain for Italy et al. but little for Germany et al.

 

[Grimz101]

Correction: There's a lot to gain for Italy et al. but little for Germany et al.

Is there?

Eurobonds: The blue bond concept and its implications ~ http://ideas.repec.org/p/bre/polcon/509.html

Spoiler :

Wouldn&#8217;t borrowing costs increase for stronger countries when borrowing in Blue Bonds? According to some reports in the German media, borrowing costs would increase by as much as EUR 17 billion per year with the introduction of &#8216;eurobonds&#8217;.

This calculation was based on the observation that the average (weighted by debt volumes) interest rate for euro area sovereign borrowing stands some 160 basis points above current German borrowing costs.

It turns out that this calculation would only make sense if our proposal had been to pool, without conditions, the entire debt stock of the euro area. However, we have proposed to pool only sovereign debt stocks below the 60 percent of GDP threshold &#8211; and with many stringent conditions. Since debt levels below that threshold are &#8211; under most circumstances &#8211; easily sustainable, default probability on the Blue Bonds would be very low. Furthermore, the Blue Bond would not only be a very safe but also an exceedingly liquid asset. Against this background, it would appear likely that borrowing costs in Blue Bonds will be attractive even when compared to the German Bund.

 

[Akka]

The powers that be in the EU moved too fast, and included too many countries with too different economies into the Eurozone.

All the stuff about sleeping in the bed one made...

Couldn't agree more.
The one positive thing in this fiasco is that MAYBE it'll make UE leaders think a bit more before overextending, and remember the concept of "consolidation".

 

[Leoreth]

I hope it finally allows us to have a "Europe of two velocities".

 

[Grimz101]

I hope it finally allows us to have a "Europe of two velocities".

A two speed Europe with a fast track integrated core and a slower outer ring with the likes of the UK and such? I feel as if that's the only way that Europe will integrate post Lisbon.
France will do anything to maintain influence across the world . Let's just hope the current crisis doesn't result in a lost decade for Europe, or at worse a break up of the Union. An United Europe would be a good counterweight to America and China.

 

[Leoreth]

Yeah, whatever the core is. The UK certainly could be part of it if it wanted to. Other countries would probably want to, without being ready.

The important aspect is that if everyone has to move forward at the same speed, we'll either stumble or not get anywhere at all.

 

[rollo1066]

They either need to do as they are told or leave. I really dont see how some of them are trying to go for a "we will keep the Euro but totally throw out the bailout needed to do so". With competent leadership the best plan would probably be to bail out and make their own currency, but Im not quite sure the Greek government is competent enough at this point to pull that off and not sink even worse.

Why should they do as they are told or leave? Who has the right or power to force them to do that? From what research I have done the answer is noone. They could stay and simply default on their debts like Argentina did or could try to pay them by minting lots of coins (only the European Central Bank can issue paper Euros). It would be kind of humerous to have trains or ships delivering billions of 1 Euro metal coins. How many coins can a modern mint produce in a day?

What research I have done seems to state the Treaty of Lisbon which created the Euro doesn't allow a member state to be expelled. Germany has tried to get the treaty changed to allow a member to be expelled but the other members won't (at least so far) agree to that.

A good argument for Greece leaving the Euro is that every sovereign nation should have control of its currency and the the Euro was probably not a good idea. I don't know how much such an exit would hurt Greece (it is already in bad shape) but certainly Argentina did much better after ending the link of their currency to the dollar.

 

[Oerdin]

The Greeks are in for even tougher times but, no, they won't be a failed state where there simply is no government. They're still not doing what they need to do to really recover (reducing costs so companies actually can competitively hire people for export industries), they're still not cutting the spending they need to cut to balance the budget, and they still aren't tackling the problem that 9 out of 10 Greeks are tax cheats.

They need to be booted out of the Euro, devalue the new drachma so it's actually cost effective to hire Greeks to export stuff, and they need to make it much easier & cheaper to hire and fire people. When that happens they'll start on the long road to recovery but until then they'll continue just languishing in the twilight zone between recession and recovery. Their problems are so bad they need shock treatment, get the pain over with, and get started on the new economic reality.

 

[Grimz101]

Yeah, whatever the core is. The UK certainly could be part of it if it wanted to. Other countries would probably want to, without being ready.

The important aspect is that if everyone has to move forward at the same speed, we'll either stumble or not get anywhere at all.

I can't ever see the UK being part of that inner core, there's too much anti EU rhetoric within my country.

Why should they do as they are told or leave? Who has the right or power to force them to do that? From what research I have done the answer is noone. They could stay and simply default on their debts like Argentina did or could try to pay them by minting lots of coins (only the European Central Bank can issue paper Euros). It would be kind of humerous to have trains or ships delivering billions of 1 Euro metal coins. How many coins can a modern mint produce in a day?

What research I have done seems to state the Treaty of Lisbon which created the Euro doesn't allow a member state to be expelled. Germany has tried to get the treaty changed to allow a member to be expelled but the other members won't (at least so far) agree to that.

A good argument for Greece leaving the Euro is that every sovereign nation should have control of its currency and the the Euro was probably not a good idea. I don't know how much such an exit would hurt Greece (it is already in bad shape) but certainly Argentina did much better after ending the link of their currency to the dollar.

Under the Maastricht treaty there was a ban on assuming the debts of other countries within the monetary union. Yet clearly Greece is receiving bail out money today.
If provisions were needed to be drawn up if there situation called it, then I'm sure a treaty could appear.

All of Greece's debt is denominated in Euros, a forced conversion of all domestic money into Drachma would be followed by a huge capital flight as everyone tries to get their money out of Greece I'd imagine, the drachma would depreciate in value, and the burden of the Euro denominated debt in Greece would rise to the point in which everything would be defaulted on if Greece doesn't start printing money. After that the usual hyperinflation will take course etc. This would probably be terrible for Greece in the short term, but good in the long term. For the rest of Europe? Greece effectively defaulting on all of it's debt would most likely false other peripherals into needing further bailouts, and banks across Europe could face collaspe due to their exposure to peripheral debt.

The Greeks are in for even tougher times but, no, they won't be a failed state where there simply is no government. They're still not doing what they need to do to really recover (reducing costs so companies actually can competitively hire people for export industries), they're still not cutting the spending they need to cut to balance the budget, and they still aren't tackling the problem that 9 out of 10 Greeks are tax cheats.

They need to be booted out of the Euro, devalue the new drachma so it's actually cost effective to hire Greeks to export stuff, and they need to make it much easier & cheaper to hire and fire people. When that happens they'll start on the long road to recovery but until then they'll continue just languishing in the twilight zone between recession and recovery. Their problems are so bad they need shock treatment, get the pain over with, and get started on the new economic reality.

This would probably be better for Greece then continuing with the status quo. However if the fallout from leaving the Euro Area is so strong on other countries, who will Greece export to?