The End of the Euro

[Terxpahseyton]

Yeah, not arguing, just clarifying.

Oh, just as you say, sir.

 

[Samson]

Errr, no, it's the Greek banks that are in trouble. Also, no private banks are being bailed out by the EU. That really isn't a EU responsibility.

My understanding, which could easily be wrong, is that at the start of this criss, let us say in 2008, that most Greek debt was held by "private banks", ie. banks that are not central banks. The multiple rounds of bailout etc. that Greece has recieved has moved a lot of this liability from these banks to "public banks", mostly the ECB and the IMF.

 

[Kyriakos]

My understanding, which could easily be wrong, is that at the start of this criss, let us say in 2008, that most Greek debt was held by "private banks", ie. banks that are not central banks. The multiple rounds of bailout etc. that Greece has recieved has moved a lot of this liability from these banks to "public banks", mostly the ECB and the IMF.

Yes. This was done for two reasons:

1) If Greece defaulted at 2009 then a few large german, french and other banks would evaporate and others would need huge amounts of funds to be kept afloat.

2) Not many in the public in those countries would care much if the banks needed to be bailed-out, or if they would they would be angry at their own governments for bailing them out. So the germans/french decided to just move the debt from private owned (german/french etc banks) to public owned (eurozone taxpayers), in order to now find a way to target the anger of their own citizens towards a foreign country (Greece).

Of course the plan was never to help, nor to solve the debt problem. Many countries in the eurozone make nice gains per month out of lending money to other euro countries at higher interest than they are being loaned that money. Germany, in particular, has won billions of euros in that way already, so has (to a smaller degree) Austria and the Netherlands. Even more importantly they gain by now being loaned money at near zero interest rate, as supposedly good payers. But they maintain this situation in the first place...

The entire thing is a nice crook scheme. Hopefully it won't go on for much longer.

 

[ori]

first off all greek banks would have evaporated as well as they by far held the largest share of Greek debt at the time - also the contention that other countries are making loads of money on these loans is mostly hokum even now and utterly unsustainable on the face of it if you factor in that these loans are very low interest now and if interest rates for the lenders rise even a bit in the next few decades any such surpluses will evaporate given the already very long times these loans are running. There is ample reason to criticize the way this whole mess has been dealt with - but arguing its a scheme that makes Germany or anyone else any money is nonsense.
(and I agree that it was partially used to socialize the losses that private banks in Greece and to a lesser extent in France Germany etc. incurred, it was just not the only reason and it would have been politically waaay easier to just straight out "rescue" the non-Greek banks anyways as was done at around the same for some of them in any case. After all pointing to a defaulting Greece as the source would have actually been a reasonable argument for a claim of a one off assistance to banks locally)

 

[Verbose]

My understanding, which could easily be wrong, is that at the start of this criss, let us say in 2008, that most Greek debt was held by "private banks", ie. banks that are not central banks. The multiple rounds of bailout etc. that Greece has recieved has moved a lot of this liability from these banks to "public banks", mostly the ECB and the IMF.

And the Eurozone governments had a decision to make, to either directly bail out their own commercial banking sectors, or allow them the time and space to move out of exposure to Greek debt, while taking over the role of providing the Greek government with more credit to keep operating.

The Eurozone was actually set up so as to make sure no governmet-to-government lending would take place, making one government indebted to another. All member states would cover their needs on the financial markets. It's just that when the Euro-crisis first rolled around on the heels of the Lehmann Brothers crash, it was decided it would be too dangerous to let things run their course as was otherwise set up — i.e. Greece defaults, leaves the Eurozone, the financial markets take a massive hit, and gets bailed out by the national government of their respective Eurozone member state.

 

[FriendlyFire]

Yes. This was done for two reasons:

1) If Greece defaulted at 2009 then a few large german, french and other banks would evaporate and others would need huge amounts of funds to be kept afloat.

1) Germany did NOT want to bailout Greece in 2009
2) Germany expose was about half that of French and Swiss.
3) In hindsight Germany was right not to bailout Greece, Greece would be better outside the EZ

France and Switzerland most exposed to Greece's debt crisis, say analysts
Friday 12 February 2010 06.48 AEDT

Germany owed far less than two largest creditors
Most Greek debt held by overseas institutions

France and Switzerland have $79bn (£50bn) each of exposure to Greece, according to American-sourced data from the Bank for International Settlements analysed by the Swiss bank UBS. Germany's exposure is $43bn.

Germany is thought to be reluctant to commit itself to bailing out Greece even though EU leaders said that they were committed to trying to help shore up the country's finances.

If the crisis spreads to the so-called "Pigs" – Portugal, Ireland, Italy, Greece and Spain – the UK is most exposed with $3.7bn of debt, according to the BIS data used by UBS, closely followed by France and Germany

if the country's rating is downgraded below BBB-, two notches below where it is now, as this would mean the bonds could no longer be used as collateral at the European Central Bank.

The ECB had relaxed the criteria for bonds that it would accept during the credit crisis but will go back to being more stringent about bond ratings by the end of 2010.

Jean-Claude Trichet, said last month that the bank would not change its collateral framework for any country. "No government, no state, can expect special treatment," Trichet said.

French bankers were trying to allay fears of the impact of a default by Greece on the French banking system earlier today. "It's not a particular issue at all for the French banks," Baudouin Prot, chief executive of BNP Paribas, said.

http://www.theguardian.com/business/2010/feb/11/greece-debt-france-switzerland

 

[Kyriakos]

first off all greek banks would have evaporated as well as they by far held the largest share of Greek debt at the time - also the contention that other countries are making loads of money on these loans is mostly hokum even now and utterly unsustainable on the face of it if you factor in that these loans are very low interest now and if interest rates for the lenders rise even a bit in the next few decades any such surpluses will evaporate given the already very long times these loans are running. There is ample reason to criticize the way this whole mess has been dealt with - but arguing its a scheme that makes Germany or anyone else any money is nonsense.
(and I agree that it was partially used to socialize the losses that private banks in Greece and to a lesser extent in France Germany etc. incurred, it was just not the only reason and it would have been politically waaay easier to just straight out "rescue" the non-Greek banks anyways as was done at around the same for some of them in any case. After all pointing to a defaulting Greece as the source would have actually been a reasonable argument for a claim of a one off assistance to banks locally)

What i posted, of course, is the view of the top-tier economists who write about this issue. Some of them have won the nobel prize in their field too.
Your view comes from what, some local politician crook? Surely there is no conflict of interest there

 

[Timsup2nothin]

first off all greek banks would have evaporated as well as they by far held the largest share of Greek debt at the time - also the contention that other countries are making loads of money on these loans is mostly hokum even now and utterly unsustainable on the face of it if you factor in that these loans are very low interest now and if interest rates for the lenders rise even a bit in the next few decades any such surpluses will evaporate given the already very long times these loans are running. There is ample reason to criticize the way this whole mess has been dealt with - but arguing its a scheme that makes Germany or anyone else any money is nonsense.
(and I agree that it was partially used to socialize the losses that private banks in Greece and to a lesser extent in France Germany etc. incurred, it was just not the only reason and it would have been politically waaay easier to just straight out "rescue" the non-Greek banks anyways as was done at around the same for some of them in any case. After all pointing to a defaulting Greece as the source would have actually been a reasonable argument for a claim of a one off assistance to banks locally)

It is totally within the capacity of a government to selectively default on only international debt.

 

[Agent327]

What i posted, of course, is the view of the top-tier economists who write about this issue. Some of them have won the nobel prize in their field too.
Your view comes from what, some local politician crook? Surely there is no conflict of interest there

Actually, your views on the matter are, as usual, highly simplistic. If there was a crook scheme, it was Greece's. But luckily that scheme was exposed. Oddly, Greeks have not been mad at their government, but at banks and governments involved in Greece's crook scheme. The debt, on the other hand, is entirely Greece's. The crisis was further enhanced by Greek bank clients panicking about their funds, resulting in Greek banks rationing their business, which was the only sane thing to do in the situation.

It's interesting to note that you don't even bother to mention names of these 'top tier economists' you claim to be quoting. If they are as simplistic as you present them to be, they are definitely top tier, and possibly not even economists.

 

[Verbose]

What i posted, of course, is the view of the top-tier economists who write about this issue. Some of them have won the nobel prize in their field too.
Your view comes from what, some local politician crook? Surely there is no conflict of interest there

Except that apparently didn't delve into the real reason why treating it as a banking crisis in 2009 was NOT done — which was that a very considerable risk was perceived that the Eurozone simply wouldn't be BIG enough to handle potential contagion effects spreading from the Greek situation — i.e. no one knew how big a mess was sticking in Span and Italy. So while Greece would be manageable enough, IF Spain and Italy started to slide with it, since Spain and Italy combined amounts to an economy the size of Germany, not even Germany would have the necessary bulk to prevent an unravelling.

National economists are famously crap at forecasting politics. The political risks involved in 2009 were huge — so were the economic ones as well, just next to impossible to gauge with any accuracy (which is inherent in things being risky). It's not a pretty tale by any means, but focusing myopically at the Greek predicament tends to obscure the wider ramification of why things were done like they were. As I believe Tsipras said in the EU parliament, this isn't just a Greek problem, after all.

For all those that would like to see narratives of foreceful action and resolution the "kicking the can down the road" approach adopted for Greece obviously is just rubbish. The problem is that, politically, buying time makes sense in a lot of situations.

What's needed to get some kind of liveable actual resolution to the Greek situation, is for large swathes of the rest of the Eurozone, beginning with Italy and Spain, to work out sufficiently well that everyone can take a crack at possibly helping Greece extricate itself from the hole it's in, without incurrung any significant risks from it.

The really worrying bit is the apparent lack of much in the form of a vision for how to get there. But just generally, politics is very much a matter of "getting fron can't, to can".

 

[Verbose]

It is totally within the capacity of a government to selectively default on only international debt.

Would make it difficult/impossible to stay on the Euro though.

 

[Timsup2nothin]

Would make it difficult/impossible to stay on the Euro though.

I would assume that if they institute some sort of mass default they would be going off the Euro.

 

[classical_hero]

Then it would mean that they are looked out of the global financial system since no one would trust the Greeks with their money.

 

[Timsup2nothin]

Then it would mean that they are looked out of the global financial system since no one would trust the Greeks with their money.

The global financial system has those who bleed in and those who suck out. If you are one of the bleeders in, which Greece is, being locked out might not be a terrible thing.

 

[sophie]

Enter political reality. The additional wealth will be distributed such that the newly chronically unemployed will join the already chronically unemployed in being begrudged the barest minimums of survival while the bulk goes into automating the car elevators in the ninth summer home of the 1% and other critical infrastructure improvements.

Eventually a tipping point must be reached. The only question is how many generations are going to have to live in abject disenfranchisement before the whole system collapses.

 

[Timsup2nothin]

Eventually a tipping point must be reached. The only question is how many generations are going to have to live in abject disenfranchisement before the whole system collapses.

Agreed. Another question is how much of a setback that collapse will be. If the system is really inefficient it can "collapse" forward. For example when the serfs rose up and demanded to be wage slaves instead the boost in productivity did make being a wage slave genuinely more comfortable than being a serf. But a heavily automated production system seems fragile, and one wonders if it will come through the uprising sufficiently intact for the transition to have positive effects for the masses.

 

[sophie]

Agreed. Another question is how much of a setback that collapse will be. If the system is really inefficient it can "collapse" forward. For example when the serfs rose up and demanded to be wage slaves instead the boost in productivity did make being a wage slave genuinely more comfortable than being a serf. But a heavily automated production system seems fragile, and one wonders if it will come through the uprising sufficiently intact for the transition to have positive effects for the masses.

That's what I worry about too. I can imagine a sort of luddite reaction to automation happening just as surely (with blame falling on the automation and not the allocation system) as some imagined socialist or communist utopia. Of course this is all assuming a) that global warming doesn't get us first, and b) the (very strong) likelihood that something completely different and wholly unpredictable happens.

 

[Terxpahseyton]

the progressive move toward including everyone by giving them an identity that explains their lack of success

That is a fantastic sentence

 

[Hygro]

haha thanks, took some time on that idea. when you drop the "t" on "the" it makes it tortured like the Inquisition.

 

[Terxpahseyton]

Dang, the irony. Corrected.