Greece becoming a failed state?

[holy king]

a thread to continue discussion about greece and the eurozone that went on in this other thread:

http://forums.civfanatics.com/showthread.php?t=460089&page=11

 

[Cutlass]

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

 

[Tahuti]

Actually, a Greek default wouldn't be entirely without precedent.

The problem with Greece however is, they can't just leave the Euro as Argentina could depeg its peso from the US $.

 

[holy king]

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

 

[Cutlass]

They aren't joining the dollar. They would have to resort to the drachma. No matter what happens, Greece isn't going to get everything it wants. And they are not prepared to make choices. To be fair, all of their choices are complete crap options. But they still need to do something.

 

[Leoreth]

Pegging to the dollar would just create the same problems that the Euro does, wouldn't it?

But even in case of leaving the Eurozone, defaulting and a return to the Drachma I wouldn't necessarily see Greece as a failed state. The economic repercussions would probably be severe, with all the social upheaval that implies, but in the long term it would also present many opportunity to get rid of what's troubling the state currently.

It all depends on the political parties. If they were able to maintain a functioning and active government during these years, Greece doesn't have a bad outlook. My faith in them isn't that large at the moment, though.

 

[Yoda Power]

As Cutlass pointed out "Failed State" is a bad term. Somalia is a good example of a failed state, Greece isn't.

I was quite sure that they wouldn't drop out of the Eurozone, but after the last few days I'm not so sure any more.

 

[Tahuti]

Pegging to the dollar would just create the same problems that the Euro does, wouldn't it?

Going back to the Drachma would create the same problems as well, as the new Drachma would likely turn completely worthless, while all of Greece's external debts are probably denominated in Euros and Dollars. So a Greece going back to the Drachma will be bankrupt too, but the with the additional problem of hyperinflation added to mix too.

Alas, while Greece's problems were partially structural, Greece hardly had any debt problems until investors irrationally lost faith to Greece because of the financial crisis.

 

[Cutlass]

What going to the Drachma would accomplish would be to allow Greece to crash and burn independently of the rest of the Eurozone. Which is probably the best outcome for everyone.

 

[Core Imposter]

They are gone. Billons of euros are fleeing the country, the banks are essentially busted some are even announced as being capital negative and its always worse than announced.

We are looking at full fledged panic right here and right now.

The wrinkle here at the moment is that there is no functioning government to say, okay, enough, we are out or to take steps necessary to leave. I've read there is no legal basis nor procedure for leaving.

This is not a crisis, it already was a crisis. This, absent some unknown action by some unknown actor, is a catastrophe.

 

[Tahuti]

What going to the Drachma would accomplish would be to allow Greece to crash and burn independently of the rest of the Eurozone. Which is probably the best outcome for everyone.

If that were true, Greece would have returned to the Drachma long ago, since most of Greece's external debts are probably denominated in Euros and still will have to be repaid in Euros, lest many European banks are bound to collapse. So going back to the Drachma will have same effects to the rest of Europe as an outright Greek default, plus that Greece will have a worthless currency too, unless the ECB prints money to help Greece pay all its debts in exchange for a Greek leave of the Eurozone (though the prospect of printing money will likely haunt the Germans, so that'll be a no go).

The problem is that once Greece burns, the rest of the Eurozone will too. You cannot isolate the fire once it starts, you'll have to prevent it. Though its maybe too late for that.

 

[Cheetah]

I've been expecting Greece to leave the Euro since about the autumn of 2011.

And most likely before the end of 2012 it seems.

As long as they don't descend into civil war - and why would they every do that?? - I don't see them becoming a failed state however. They might need some emergency relief for the first couple of months after leaving the Euro though.

 

[Cheetah]

The problem is that once Greece burns, the rest of the Eurozone will too. You cannot isolate the fire once it starts, you'll have to prevent it. Though its maybe too late for that.

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...

 

[Cutlass]

If that were true, Greece would have returned to the Drachma long ago, since most of Greece's external debts are probably denominated in Euros and still will have to be repaid in Euros, lest many European banks are bound to collapse. So going back to the Drachma will have same effects to the rest of Europe as an outright Greek default, plus that Greece will have a worthless currency too, unless the ECB prints money to help Greece pay all its debts in exchange for a Greek leave of the Eurozone (though the prospect of printing money will likely haunt the Germans, so that'll be a no go).

The problem is that once Greece burns, the rest of the Eurozone will too. You cannot isolate the fire once it starts, you'll have to prevent it. Though its maybe too late for that.

I didn't claim it would solve all their problems. Nothing will. And any partial solution will have other problems. But it is a partial solution that is in some respects probably better than the status quo.

 

[innonimatu]

Going back to the Drachma would create the same problems as well, as the new Drachma would likely turn completely worthless, while all of Greece's external debts are probably denominated in Euros and Dollars. So a Greece going back to the Drachma will be bankrupt too, but the with the additional problem of hyperinflation added to mix too.

Hyperinflation, in the extremely rare occasions it happens, is always a temporary situation over a small period of time. Going back to the drachma has a two big advantages to Greece: it will be able to inflate its internal debts away; and it will cut both incomes and living expenses in a roughly equal way, thus avoiding the worst of social trouble during the devaluation.

The reason they haven't done it years ago already is obvious: it's the issue of who gets the blame. It's the same reason Greece cannot count on any help from the rest of the EU: if the Euro must fail, and it must, politicians in the rest of the EU's countries are just fine with allowing Greece to fail first, blame them, and then say that "sadly it made it inevitable that in their country too the Euro be abandoned". The delay has been all about the people in each and every nation involved with the Euro project trying to shake off their share of the blame and put it all on some others.

The Euro was doomed from the start because of its technocratic nature. Economics is always political. But the Euro was planned for based solely on technical criteria. That the EU would inevitably change in the future, and that such change would require constant political changes coordinated across Europe to maintain the Euro viable, was never considered. It may have been hoped for by a few euro-federalists, but it wasn't in any treaty, or embodied in the tasks of any EU institution. And the federalists they should have known better: the politics of european nations would not accommodate that. Instead of political institutions created to ensure the survival of the euro, we had just a puny punitive clause about deficits applying equally to every country - as if every country was and would be equal! Which everyone promptly ignored - showing how unrealistic it was! And now have mutual "austerity" suicide pacts (because everyone knows they'll fail) cooked up according to internal political priorities. Internal politics are what matters, and that rules out any defense of the Euro. Europe hasn't evolved anything in this issue since the failure of the Latin Monetary Union... national factors were and are more important for national governments! Unsurprisingly.

 

[rollo1066]

I've seen arguments that Greece would be expelled from the Eurozone if they don't do what the other nations want them to do. However I've never seen an explaination of how this could be done or by what parliament, court or group of nations. What research I have done appears to state that the governing treaty has no provision to allow a member to be expelled.

I assume that if Greece leaves the Eurozone they would just do like Argentina and not pay foreign creditors. Could they be expelled if they tryed to do this and also keep the Euro?

What if they issued more Euros than they were suposed to do? The excess Euros wouldn't appear any different from authorized Euros, could Greek issued coins or paper money be held no good in other countries, if so how could this be done without also invalidating valid Euros?

One post implied that the other 16 members of the Eurozone could expell Greece by a unanimous action. However I can think of 5 that could easily decide to oppose expelling Greece (France, Italy, Spain, Portugal and Ireland). Does anyone know if any other countries which would be likely to vote no? Also the governing treaty doesn't have any provision which expressly allows this.

Common sense would imply that at some point a member could be expelled for bad behavior but no standard is set and no procedure exists. Greece may just decide to stay in the Euro and see what She can do without being expelled. I believe it would take more than refusing to accept austerity measures.

 

[kramerfan86]

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.

 

[anandus]

I've seen arguments that Greece would be expelled from the Eurozone if they don't do what the other nations want them to do. However I've never seen an explaination of how this could be done or by what parliament, court or group of nations.

The only way for Greece to leave the euro is the leave the EU.
And to quote an article on the BBC:

The option of leaving the EU was only added in Article 50 of the Lisbon Treaty in 2007.

So under its current obligations, for Greece to exit the euro or be thrown out, it would have to leave the EU.

Leaving is straightforward: it involves a member state notifying the European Council - that is, the leaders of EU countries - that it wants to go.

The Council then agrees the terms of the exit via a qualified majority.

And it's not so much that Greece will get 'expelled', but if the renegotitations fail, Greece won't get the new tranche of bailout funds, which will leave the Greek government completely broke. No money to pay salaries, pensions, suppliers, etc.
Then they are forced to leave the euro and EU and create their own money, be it drachmes or IOU's.

Afterwards talks can immediately start to re-introduce Greece into the EU in the long term, if they want (and to avoid confusion: The EU is *not* the euro).

 

[Leoreth]

I think that's a stupid system, again. Why do you have to automatically leave the EU to leave the Eurozone? It just doesn't make sense.

 

[Mise]

I think that's a stupid system, again. Why do you have to automatically leave the EU to leave the Eurozone? It just doesn't make sense.

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

EDIT: I suppose a better answer to the "why" is that European Monetary Union was never intended to be a "bolt-on" or "optional addon" to the EU; it was supposed to be the EU's defining feature. The UK and Denmark negotiated opt-outs -- note: opt-OUTs -- into the treaty that defined the EU, so that they had a choice of whether to adopt a common currency eventually, but monetary union was a core, fundamental feature of the EU. All other EU members are committed to adopting the single currency once the convergence criteria have been met; EMU was designed from the outset to be the sine qua non of EU membership.


EDIT2: May as well respond to this from the previous thread here:

Yeah, I get the sense that it's another crunch time for the Eurozone... My prediction is that the Eurozone will draw tighter together, so that Germany et al can have more direct control over Greece et al's budgets, in exchange for some sort of collectivisation of Greek debt.

Do you think the Greek public and/or a government led by Syriza will accept that? I have my doubts.

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.