Greece on a collision course with creditors after vowing not to slash pensions

[gay_Aleks]

It's funny how for the last...hell, 5 years?, everyone has been parroting "Greece will die.". "Greece will die, this time!". "Oh, no, this is it, Greece's dead!".

At this point, Bulgaria will go out before Greece does!

 

[Zkribbler]

They can force a default and Greece will instantly become poor and they won't be able to afford their pensions.

If Greece defaults, it will instantly become rich. It is currently running a surplus but for the usurious interest rates it is forced to pay. Once it sheds those, it will finally be on the road to recovery.

If I were Greece, rather than an out right default, I'd do a little smoke and mirrors. I require that any debt payment be made, not in cash, but in new "recovery bonds." These bear an interest rate of 3% and cannot be redeemed until the government gives permission.

 

[Zkribbler]

From cited article:
...

REDY, your chart sets out pension vis-a-vis GDP, not per person. Greece is in a major depression, and so its GDP is in the toilet. Of course it will lead the list.

 

[Bootstoots]

Greece is not actually paying very high interest rates on the vast majority of its debt. Its creditors are mostly institutions (ECB, IMF, individual Eurozone governments, etc.), and the rates are on average something like 2.3%, IIRC. On bond markets, its rates are of course unaffordably high, because of its high default risk. That's the whole function of bailout loans - to replace the unaffordable bonds with low-interest debt that could in theory, with lots of generous assumptions, be paid off.

At a debt/GDP ratio of 180%, even 2.3% is a large chunk of change. The debt as it currently is will be an albatross around Greece's neck for decades. The austerity policies being imposed as conditions of the bailout loans are further shrinking the economy and making this ratio even worse. This wouldn't be as big of a deal if the loans were denominated in a local currency - it would just inflate and devalue relative to other currencies, and the problem would resolve itself more quickly. Being in the Euro causes it not to be able to do this, and its institutional creditors can't really write off the debt, so they're stuck in perpetual quasi-bankrupt limbo.

 

[Zkribbler]

Bloomberg says the Greek bond rate is currently 8.7%.

This puzzles me. Last time I saw it, I think it was around 16%, which is why my panties were in such a twist. I need to poke around more on the internet.

 

[Verbose]

Bloomberg says the Greek bond rate is currently 8.7%.

This puzzles me. Last time I saw it, I think it was around 16%, which is why my panties were in such a twist. I need to poke around more on the internet.

Apparently Greece returned to the bond market already in 2014.

Covered by the Economist:
http://www.economist.com/news/finan...ilestone-there-still-long-way-go-prodigal-son

But:

Indeed, Greece would be quite unable to access the markets but for the massive support it continues to receive from the rest of the euro area. Despite the default, public debt, at 175% of GDP this year, is much higher than before the first bail-out. That burden is made bearable only through concessions by the European lenders who now hold most of the debt. Their loans are at ultra-low interest rates. They have been extended to such an extent that the average maturity of Greek debt is extraordinarily high, at 17.5 years. European countries like Germany have in effect restructured their lending to Greece without having to admit this awkward fact to voters by formally forgiving some of it.

The 8,7% rate is also found fx here:
http://www.tradingeconomics.com/greece/indicators
But again, 8,7% is comparatively very high. Italy, not in good nick but way better than Greece, previoulsy had a 7% rate identified as quite unsustainable for it.

 

[Bootstoots]

Well yeah, new bonds carry very high interest rates. Its rates have been very volatile - apparently they spiked to something like 19% (10Y) during the peak of the crisis in July, and were as high as 48% just before the haircut in 2012, as you might expect.

http://www.tradingeconomics.com/greece/government-bond-yield

 

[Silurian]

I understand that in Greece due to the high unemployment many pensioners help to support their extended family. So to compare pensions you would also have to compare unemployment benefits.

A few graphs from the BBC

http://www.bbc.co.uk/news/world-europe-33507802

 

[FriendlyFire]

If Greece defaults, it will instantly become rich. It is currently running a surplus but for the usurious interest rates it is forced to pay. Once it sheds those, it will finally be on the road to recovery.

Germany thinks this is a great idea,
Greece should definitely default and exit the EZ.

I have no idea why Greece would decide to stay inside the EZ, when the alternative is so much better.

 

[MilesGregarius]

Look at the graph, they are spending way too much on their pensions, given their economic problems. Looks like a clear problem to me, but what other information do you think you need?

Other needed information:

• Average pension received
• Percent of pensions paid out below the poverty line
• Percent of population over 65
• Exact definition of "pension"

The Wall Street Journal, those bleeding hearts, acknowledges that the Greek pension system is not that generous. Greece pays a huge percentage of its GDP to its pensioners, but per pensioner, Greek pensions are on the stingy side, less than the eurozone average.

Greek pension payments average €883 per month (down from €1350 in 2009.) 45% receive pensions that are below the poverty line (€665.) It also has extremely high unemployment(26%) - particularly youth unemployment (50%) - so those pensions often have to support nominally working-age family as well.

Greece has a higher percentage of elderly (over 20%) than any Eurozone country except Italy (#2 on our list of "irresponsible" pensioners) and Germany (a gigantic economy that can "responsibly" absorb pension payouts.) As a smaller economy with a demographic slant toward the elderly, Greece will of necessity spend a greater percent of GDP on paying for social services than a large economy with a young workforce.

I also read some time back (can't find the reference) that "pension" in Greece has traditionally been a catchall phrase for most social benefits, including disability and unemployment schemes. This artificially inflated the apparent size of the Greek pension obligations significantly, whereas countries with more clearly delineated social benefits regimes can more readily isolate "pension" expenditures from associated issues.

Greece's pension burden is further compounded by inefficiencies and redundancies in social benefits administration. In 2008, when this mess began, Greece had 133 separately administered public pension funds. This has been greatly consolidated, but not totally overhauled.

Whether or not Greece is salvageable, in or out of the euro, is beyond my ken, but arguments over whether or not to cut pension payments have nothing to do "overly generous" pensions.

 

[Oerdin]

If Greece defaults, it will instantly become rich. It is currently running a surplus but for the usurious interest rates it is forced to pay. Once it sheds those, it will finally be on the road to recovery.

If I were Greece, rather than an out right default, I'd do a little smoke and mirrors. I require that any debt payment be made, not in cash, but in new "recovery bonds." These bear an interest rate of 3% and cannot be redeemed until the government gives permission.

Except, no, the ECB sets the debt terms and since no one else will touch Greece. Also, they ever so briefly had a primary surplus under the previous government but that was before Syriza took over and plunged the country back into recession. They are their own worst enemy but they never seem to figure that out.

 

[Evie]

Meanwhile, the rest of Europe never seem to figure out that Austerity has been at best failing to solve anything and at worse making the crisisis worse every step of the way. Because the Cult of Austerity Must Be Obeyed.

Meaning that not only Greece is Greece's worst enemy, but Europe is Greece's worst enemy too.

 

[luiz]

Meanwhile, the rest of Europe never seem to figure out that Austerity has been at best failing to solve anything and at worse making the crisisis worse every step of the way. Because the Cult of Austerity Must Be Obeyed.

Meaning that not only Greece is Greece's worst enemy, but Europe is Greece's worst enemy too.

Seems to have worked pretty well for Ireland, and at least moderately well for Portugal and Spain.

It's not about a "cult of austerity", it's about rationality and plain math. Greece was running a budget deficit of what, 20% of GDP? How is that sustainable? No matter who was in charge of the EU, ECB and IMF, very large doses of austerity were a mathematical necessity.

That's why Greece elected a far-left clown leader who promised to end austerity, but delivered even more austerity than what was on the table instead. Tsipras didn't do that because he thought it was funny to double-cross his voters in such an outrageous way, he did it because he found out there's no other choice. "Political will" and "democratic majorities" cannot overcome accounting identities.

 

[Yeekim]

It's not about a "cult of austerity", it's about rationality and plain math.

"Plain math" part could be circumvented by simply printing more money. In a sense, it might even work, as long as productivity is high enough to prevent hyperinflation.

The problem with that solution is that printing money also is essentially redistribution of wealth from creditors to debtors and in this particular case, from citizens of one country to citizens of another country...

 

[Evie]

You aren't going to do much to fix how big a share of your GDP your deficit is if you shrink your budget in a way that shrink your GDP nearly as much. Such as, oh, any way that create or worsen crippling unemployment, for example. That is also plain maths, except in Germany where it's apparently esoteric wizardry.

Spain and Portugal are running crippling youth unemployment rates (as is Greece) to this day, so to call them success story requires a special brand of delusional thinking.

Ireland? Ireland is still running a somewhat high rate, though much better than two years ago (down to 20% from 30%). However, some statistics seems to show that this is as much if not more due to high emigration of young Irish than due to actually rebuilding economies. As I haven't seen the actual studies these numbers (for each unemployed Irish youth that find a job, two off the list by emigrating) are based on, I can't confirm.

Worse, a lot of Ireland's apparent recovered prosperity is down to corporations that officially have their headquarters there for low taxes, but don't actually employ many people there nor purchase much goods or services. That doesn't actually help fix budget, economic or social issues in any meaningful way.

So yeah, "austerity worked" seems strikingly like a myth to me.

 

[luiz]

You aren't going to do much to fix how big a share of your GDP your deficit is if you shrink your budget in a way that shrink your GDP nearly as much. Such as, oh, any way that create or worsen crippling unemployment, for example. That is also plain maths, except in Germany where it's apparently esoteric wizardry.

Spain and Portugal are running crippling youth unemployment rates (as is Greece) to this day, so to call them success story requires a special brand of delusional thinking.

Ireland? Ireland is still running a somewhat high rate, though much better than two years ago (down to 20% from 30%). However, some statistics seems to show that this is as much if not more due to high emigration of young Irish than due to actually rebuilding economies. As I haven't seen the actual studies these numbers (for each unemployed Irish youth that find a job, two off the list by emigrating) are based on, I can't confirm.

Worse, a lot of Ireland's apparent recovered prosperity is down to corporations that officially have their headquarters there for low taxes, but don't actually employ many people there nor purchase much goods or services. That doesn't actually help fix budget, economic or social issues in any meaningful way.

So yeah, "austerity worked" seems strikingly like a myth to me.

Unemployment levels in Ireland are below pre-crises levels and the economy is expanding very fast, so definitely whatever they did worked in the sense that it normalized the employment situation and made the economy grow again.

Portugal and Spain have huge unemployment rates, yes, but they already did so before the crisis. Also, they didn't reform as vigorously as Ireland. Ireland brought a public deficit of over 30% of GDP in 2010 (and about 13% in 2011) to less than 2% in 2015.

 

[Silurian]

People who leave make room to employ others.

From Irish Times

The number of Irish people leaving Ireland remains high, despite improvements in the economy and a fall in unemployment.

Figures published by the Central Statistics Office on Wednesday show 35,300 Irish people emigrated in the 12 months to April 2015, a 13 per cent drop on the previous year when 40,700 Irish nationals left.

http://www.irishtimes.com/life-and-...alls-13-with-35-300-leaving-in-year-1.2329252

 

[Bootstoots]

Unemployment levels in Ireland are below pre-crises levels and the economy is expanding very fast, so definitely whatever they did worked in the sense that it normalized the employment situation and made the economy grow again.

Portugal and Spain have huge unemployment rates, yes, but they already did so before the crisis. Also, they didn't reform as vigorously as Ireland. Ireland brought a public deficit of over 30% of GDP in 2010 (and about 13% in 2011) to less than 2% in 2015.

But Ireland had an extremely low debt/GDP ratio before 2007: only 25% (link) compared to Germany's 64.9% (link). The government's spending behavior was quite conservative, but the Irish banking sector was extremely overleveraged, the Irish state foolishly stepped in to guarantee them almost unconditionally, and the debt exploded as private losses were transferred onto public hands. It would be expected to return to growth and conservative spending anyway after the banking crisis was over, and austerity definitely prolonged its crisis.

Greece is the polar opposite of Ireland, and although people often denounce austerity, I don't think anyone disputes that substantial reforms were and are necessary. It's a systemically corrupt and poorly-run country. But they need to be done with a view towards minimizing economic damage, and I'm not convinced that certain measures (e.g. the massive hike in VAT) were imposed with that in mind. Their debt is also far too high to believe that repayment is really possible, and while everyone knows this, the EU as a structure can't or won't do enough to make it sustainable. Either the interest rate needs to be dropped to effectively zero, or most of its debt to the ECB needs to be written off, or some combination of the two.

 

[Evie]

Nonetheless, you aren't actually improving the number of people who are employed when one person gets a job only because another left the country. Nor are you improving the number of taxpayers ; and you're actually worsening the number of paying customers in the economy (albeit customers who didn't purchase much, but still, people who actually spent their unemployment benefits on goods and services, thus putting money in the economy*).

The rapid expansion of the economy, as I pointed out, is due to multinationals that are barely taxed and so are headquartered there but barely employ anybody there. Sure, it shows on the GDP figures...but it doesn't actually contribute diddly squat to the actual Irish economy, since they are barely taxed, and barely actually employ anybody or purchase any goods or services locally.

Likewise the deficit-to-GDP ratio is only an illusion if that all comes down to outside multinationals that are effectively outside the local economy (but declare their profits locally).

*As opposed to spending it on buying foreign goods from foreign buyers, or investing in foreign business ventures, or generally getting the money out of the country, which is far more likely to happen with that money left in the hands of the wealthier elites.

 

[Flying Pig]

Nonetheless, you aren't actually improving the number of people who are employed when one person gets a job only because another left the country. Nor are you improving the number of taxpayers ; and you're actually worsening the number of paying customers in the economy (albeit customers who didn't purchase much, but still, people who actually spent their unemployment benefits on goods and services, thus putting money in the economy*).

Well, you might be - if you reduce a tariff that leads to jobs in (say) car manufacturing moving abroad, that's going to reduce the price of cars. Now everyone who buys a car has more disposable income afterwards, and that creates demand for more goods and services - that is, more jobs - to spend the money on.