Greece: Dead Man Walking?

I’m mystified as to the cheerleading in some circles on Greece. It is not clear that its €45 billion EU-IMF band-aid will be deployed (among other things, it faces a legal challenge in Germany) and even if it is, it falls well short of Greece’s anticipated needs beyond one year. More important, a successful deal does not mean the rescue will prevent default. The austerity program for Greece (in terms of reduction of fiscal deficit) has no successful precedents, and street protests indicate that the populace is not on board. And Ed Harrison sees eerie parallels to the rescue of CreditAnstalt, which kicked off more bank runs, ultimately precipitating the second leg down of the Great Depression.

While stock markets are perking up in Asia, credit default swap spread for the other Club Med countries rose on Friday, signaling that investors are worried about the risk of contagion. And in the UK, several savvy investors told me they expect a 20% pound depreciation once the election is over. Europe is clearly on a deflationary path.

More like minded commentary, first from Wolfgang Munchau of the Financial Times:

This is going to be the most important week in the 11-year history of Europe’s monetary union. By the end of it we will know whether the Greek fiscal crisis can be contained or whether it will metastasise to other parts of the eurozone…..There are three things to watch out for. First, and most important, Greece will need to present a transition programme that explains how a large primary deficit can be turned into an equally large primary surplus without causing a slump in economic growth….

Second, the total loan package has to be substantially higher than the €45bn pledged so far….The EU’s contribution is for one year only, and I see little chance that the EU will be able to increase it either now or next year…..What we need to hear is a credible and watertight commitment that extends beyond €45bn….Third, we need to watch the situation in Germany. The government originally tried to tag the Greek loan legislation on to an existing piece of legislation, but this ran into opposition. There will now be a full legislative process. Some parliamentarians from Angela Merkel’s coalition have already cast doubt on whether they will support it…

There are many co-ordination problems and too many self-important people to be consulted, most of whom lack an understanding of what is going on and have a wrong sense of priorities. In such an environment, accidents happen. So far the EU’s policy process has been a net contributor to this crisis. We need to hear something that does not fall short of our lowest expectations. Otherwise Greece will be heading for default, and the crisis will spread to Portugal and beyond.

Ambrose Evans-Pritchard looks at contagion risk:

The EU-IMF “therapy” of deflation for Greece repeats the catastrophic errors of Chancellor Heinrich Bruning in the early 1930s and must lead to a depression,,,The Greek people must be sacrificed for the Project and to hold the EMU line, like the Spartans of Thermopylae who perished to gain time for the Alliance.

They are to squeeze fiscal policy by 6pc of GDP this year in a slump – a “death spiral”, warns George Soros. They are to do this without the IMF’s devaluation cure. If they do stabilise the debt – to hit 130pc of GDP this year after Eurostat’s revelations – they will be left paying 6pc to 8pc of GDP to foreign creditors for ever. Will Greeks comply meekly, or turn their Spartan blades on Europe?

No country in Western Europe has defaulted since the Second World War. More than €7 trillion has been lent to Club Med states, banks and homeowners in the belief that it cannot happen. EMU shut the warning signals, disguising risk. What investors overlooked is that currency risk mutates into default risk in a monetary union.

It makes default more likely, not less. The bond markets have suddenly twigged.

In barely two weeks, the City mood has shifted from ruling out a Greek default as absurd, to accepting that it could happen, to now fearing that restructuring is highly likely.

A country such as Portugal with total debt of 300pc of GDP, a current account deficit of 11.2pc, and a budget deficit of 9.4pc should not think it has the luxury to trim spending at a leisurely pace. Portugal has an ugly choice. If it tightens hard to soothe bond markets, it too risks depression. EMU’s Faustian Pact is closing in.

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  1. Independent Accountant

    Let Greece default. Why should German taxpayers bail it out? Why is anyone worried about “contagion”? Are we reliving 1965 and the “domino theory” in Southeast Asia? If Greece is bailed out, pressure on the Euro will increase and it will fall relative to the dollar and yen. Something has to give. Let it be Greece’s spending. Have the bailout proponents heard of “moral hazard”? Or do they think “moral hazard” only applies to corporations?

    1. K Ackermann

      You see no possibility of contagion in a Greek default?

      “Let them default” is such an easy thing to say when you don’t really want to think about anything. Ultimately, it may be what happens, but to just toss it off like that is conteptuous, not thoughtful. We can get that from Faux News.

    2. charles

      A view from Europe: obviously you have a point-which will not be made clear before May 10 th, but you should be reminded that the Bank of England recently estimated the cost of the post-Lehman meltdown at 200 trillion $. Where it seems trillions are irrelevant measures in the United States,the
      whole of Europe cannot even currently afford the 250 billions euros, 150 billion for Greece, 100 for Portugal, estimated by Simon Johnson ? Yes, I know, externalities…

  2. renting_looks_better_than_ever

    The wages of fraud are default – and yet, everyone is so surprised when it happens. Greece never met the conditions to join th eurozone, but like Kohl gifting the East Germans with a completely unrealistic exchange rate for Ostmarks, the politics in the short term triumphed – in the short term.

    Global economic collapse involves more than a region or two – this is still just a preview for the upcoming feature performance.

    1. IF

      The exchange rate that Kohl set, which was about 5 to 10 times higher than the market rate, managed to bankrupt most of East German companies in the summer of 1990. After that it was slow rebuilding. I hope this is not what is going to happen to Greece. Let them default and devalue.

  3. Francois T

    Say there is default followed by “contagion”.
    What are the most likely consequences for the NAFTA zone?

    1. vlade

      It depends on how many CDSes on Greece were written by US banks/hedgies, and how many of them are long EUR assets.

      1. Jimbo

        Question. If Greece unilaterally extends the maturity of the bonds, at the same interest rate, does that constitute a “credit event” triggering payment on the CDS?

  4. frequent

    If this rescue package is only the first of many and Greece is only the first country to need help, I don’t see the IMF/EU having the resources/will to bail out country after country (or better: investor after investor).

    So if a country goes into default…

    Investors who earn a higher return for taking into account a higher risk of sovereign default are hit.

    If such an investor was “system-relevant” (not again) and in danger of going bankrupt due to Greece defaulting, the respective government can always choose to bail out this investor or use this second opportunity to implement necessary financial reforms and handle the “too big to fail” issue.

    So let Greece default, save investors deemed necessary in the respective countries and use IMF/EU-funds to get Greece back on track after defaulting. I’d rather have taxpayer money spent on taking some air out of the balloon and helping a European member state get its economy back on track than further inflating the balloon. Everybody’s talking about a rescue package for Greece where it should be called a rescue package for greek investors.

    1. carol

      “Everybody’s talking about a rescue package for Greece where it should be called a rescue package for greek investors.”

      If you mean ‘investors in Greek debt’ (instead of greek investors), I fully agree.

      With an extensive untaxed economy (estimated at 30-40% of GDP) and a lot of tax evasions (the Greek finance minister had expressed his astonishment about doctors, lawyers etc. claiming only 15k euro yearly income), the private savings a quite high. The Greeks do not invest their savings in government bonds, hence foreign banks hold the most.

      These banks were NOT forced to buy those bonds. These ‘savvy businessmen’, ‘worthy’ of their millions in ‘bonuses’, invested in those bonds as they liked the additional 1 or 2 basis points. They utterly mispriced the risk.

      Why should taxpayers, AGAIN, bail-out those banksters?

  5. a

    “In barely two weeks, the City mood has shifted from ruling out a Greek default as absurd…”

    The City “mood” three months ago was that Greece will default. It hasn’t shifted at all.

  6. Swedish Lex

    This comment from Münchau is on the spot:

    “I have often wondered during the crisis what it would take for Europe’s political leaders to get ahead of the situation. There are many co-ordination problems and too many self-important people to be consulted, most of whom lack an understanding of what is going on and have a wrong sense of priorities. In such an environment, accidents happen. So far the EU’s policy process has been a net contributor to this crisis. We need to hear something that does not fall short of our lowest expectations. Otherwise Greece will be heading for default, and the crisis will spread to Portugal and beyond.”

    European leaders are behind the curve and hiding wherever they can, which leads to this on-going headless, non-coordinated and poor crisis management that we are being witnesses to.

    In addition, there is, as far as I can judge, big silence on behalf of European academics, think tanks, etc. who are not spelling out clearly what it would take for the EU to go from fudgy and ad hoc crisis management to designing a ne Treaty framework that includes a common fiscal policy and new EU Institutional powers to implement such policies. We at least need a blue print for what it would take for the euro to survive. If the required changes go too far beyond what is politically possible, then we can at least make a conscious choice to begin dismantling the euro zone.

    There is a disappointing lack of both political and intellectual leadership. So, better get used to it.

    I wonder whether the people at BMW hq in Munich (CSU-land) have considered the implications of the new Italian Lira and the new French Franc dropping by 30-40% in relation to the new D Mark.

    1. Sid Finster

      Much of the EuroProblem has been a reliance on a series of statements and bluffs as a substitute for plausible action. Previous threats to punish the speculators looked impressive, except that they all lacked a clear or workable way to make them work.

      And with each weekend bailout package, the markets have been quicker and quicker to call the ECB out on those bluffs. The fact that the Greek government has subsequently imposed new conditions on their own bailout, that Europoliticians have nervously muttered the “European solidarity!” mantra while looking over their shoulders for any angry voters have not helped.

      The whole process is akin to responding to communist schoolyard bullies by threatening witches, dragons, and then thunderbolts from heaven, as opposed to “my big brother who is less than a block away.”

    2. a

      There’s no chance – nada – that the EU any time soon will have “a common fiscal policy”. Perhaps you are confusing the EU and the Euroland? In any case there is only a small chance that the Euroland, as currently constituted, will have “a common fiscal policy,” if that means something more than the current stability pact, a little better perhaps than the chance that there will be one world government and peace and love instituted universally, but that’s about all that can be said.

      “We at least need a blue print for what it would take for the euro to survive.” The euro would survive if no euroland goverment ran any deficits, certainly, but that’s politically impossible.

      1. Swedish Lex

        So many observers said for so many years that the EU would never achieve a common currency. They were proven wrong.

        It right now seems more likely than not that the euro will bo down the tubes unless pretty drastic steps are taken.

        It is however a still a bit early to completely write off the euro. We could be surprised, again.

        1. a

          “So many observers said for so many years that the EU would never achieve a common currency. They were proven wrong.”

          No they weren’t, the EU *doesn’t* have a common currency. Euroland does.

          Those who are unable to make this basic distinction – EU vs Euroland -, are probably less than competent when it comes to questions about the euro.

          1. Swedish Lex

            From Article 1 of the consolidated versions of the Treaty on the European Union and the Treaty on the functioning of the European Union:

            “By this Treaty, the HIGH CONTRACTING PARTIES establish among themselves a EUROPEAN UNION, hereinafter called “the Union” on which the Member States confer competences to attain objectives they have in common.”

            From article 3.4. of the same Treaty: “The Union shall establish an economic and monetary union whose currency is the euro.”

            The EU has a common currency. “Euroland”, on the other hand, does not exist any more less than the Land of Oz.

          2. a

            I guess the English is a little too subtle. “The Union shall establish an economic and monetary union whose currency is the euro” does not state that the second union is the same as the first (in fact, it obviously isn’t, since the union doing the establishing already exists while the union being established does not). The European Union has created a second union. This second union is commonly called Euroland.

    3. Thomasina Jefferson

      More and more people are starting to realise what the EU really is and that it is only interested in people as consumers and as workers.
      There is nothing more to it. That may explain the lack of enthusiasm of most Europeans when asked about the EU.
      Personally, I like the open borders and the friendship between people of different countries, but you don’t need the EU for that.

    4. R.E.

      “I wonder whether the people at BMW hq in Munich (CSU-land) have considered the implications of the new Italian Lira and the new French Franc dropping by 30-40% in relation to the new D Mark.”

      I wonder whether you have really considered the implications of the Euro minus Germany dropping 30-40% in relation to a new D Mark?
      A scenario which could very well be brought about by the German constitutional court, should unconditional bailouts become the norm. Given that Germany´s debt is currently denominated in Euros, this would result in a reduction of gvnt. debt, in new D Marks, by precisely those 30-40%. Considering the fact that the current government in Germany is rather pro business, a gvnt. debt reduction by 30-40% would provide ample breathing room for corporate tax reductions, thereby counteracting any potential loss of competitiveness due to exchange rate movements. A fact of which most people in German company HQs are definetely aware.

      1. Swedish Lex

        “Given that Germany´s debt is currently denominated in Euros, this would result in a reduction of gvnt. debt, in new D Marks, by precisely those 30-40%.”

        It is early here and I have not had my coffee yet. Please walk me through how a rising new D-mark would ease Germany’s foreign debt (formerly in euro, now in new D-mark)by as much as the country’s currency would appreciate.

  7. Allen C

    When someone, a corporation, or a country has excess debt, a default of some sort must occur along with a change in spending. It seems that a critical mass has bought into a notion that there is some magic solution that can prevent this.

  8. Allen C

    Is anyone finding it curious how Spain and Italy are supposed to kick in billions to bail out Greece?

    1. Sid Finster

      Maybe I am just paranoid but I wonder how Ireland is supposed to cough up any kind of extra geedus, not to mention how that is going to go over with the Irish electorate.

      The Irish have already knuckled under to commies and taken spending cuts, but now they have to save Greece as well?

      1. doggett

        “Maybe I am just paranoid”

        Not just paranoid, to judge by this;

        “The Irish have already knuckled under to commies” (?!?)

  9. attempter

    It sure is strange the way almost everyone keeps acting as if the entire bubble doesn’t have to deflate one way or another, sooner or later, and the more patches and duct tape you keep slapping on it in order to keep pumping more air into it, the worse the eventual burst will be.

    That was true in 08 and it’s true today. Every new step of the Bailout is not only another crime but a more desperate denial of reality.

    The “EU” as a concept is just as absurd as “Wall Street”, and both are rooted in and expand from the same plague. The elites of these “societies” refuse to do honest work and refuse to live within their means. These also became true of the temporary potemkin “middle class” which is now being liquidated in all these places. That was the “growth” bubble which can no longer be sustained.

    So just as the Wall Street banks went bankrupt but have been temporarily zombified, so the EU entities are going the same route.

    How long can exponential debt growth be propped up? It’s only being done at all with inertia and lies. These can’t hold up long.

    Taleb said they shouldn’t have bailed out Wall Street. That the right action would’ve been to let the bubble deflate, let reality resume its course, and undergo whatever “blood, sweat, and tears” was necessary. (Of course the non-rich are now undergoing that anyway.)

    I don’t know if he’s saying the same thing today, but he should be, since it’s still the same situation. Nothing has changed, nothing has “recovered”. The day of reckoning has merely been postponed. One of these days the Bailout will fail once and for all, and the whole thing will come undone. Better to just choose the moment. But of course the kleptocrats never will. Their power depends upon the postponement. Globalized power in itself is a zombie as well.

  10. Bas

    Yves you are again howling with the wolves on the eurozone – i.e. with faux-economist Munchau and compulsive eurobasher Pritchard-Evans. Face it. These people are not simply no experts, they are columnists, with an agenda.

    The agenda is quite simply to relentlessly bash the eurozone, enhancing europhobic fears, and to deflect attention of investors from the fiscal mess the UK and US are in themselves.

    Truth is, these tactics only work in the short-to-medium term. The public will get desensitized, as they cannot fail to observe that the eurozone will manufacture itself out of the mess left by years of predatory anglosaxon financial practices.

    For example, the eurozone will profit most from the emerging middle classes within BRICS, because of its broad and deep manufacturing base. Idiots like Ambrose will only accelerate the process by talking down the (overvalued) euro.

    In the end, and probably before the anglosaxon public realize they are being misled, investors will be arbitraged out of a lot of profits if they keep believing in this culturally-informed bearishness propagated by Britain’s smallest minds.

    So, apart from the disgraceful spectacle of anglojournalism, informed Europeans shouldn’t care too much about this incessant eurobashing. However – and again – I would have expected something better of you.

    1. john haskell

      you are so right. The nations of Continental Europe need to liberate themselves once and for all from the tyranny of English speaking financial markets.

      I propose that they make up a new currency for their exclusive use. Since the nations using it will be all European, the currency will be called the “Euro” and its central bank will be located in Frankfurt, far from any English speaking contamination.

      And anyone will be admitted into this sanctuary so long as they don’t speak English. In fact, the harder your language is for English speakers to learn, the more anxious we will be to let you join (e.g. “it’s all Greek to me.”)

      Under my proposal the nations using this “Euro” will be much stronger than if they still used obsolete national currencies such as the “franc” or the “drachma.” And the nations in this grouping will all give an oral promise to back each other up in crises so that everyone knows they can’t default, and can therefore borrow 300% of GDP at low interest rates.

      This will not only create a superbloc of superborrowers, it will also create a currency union which can at long last beat the US Dollar in head to head competition. This “Euro” of which I speak will become the preferred currency for central bank reserves worldwide.

      1. Bas

        Sounds like a plan John… Though I take issue with that “oral promise” of a bailout. Let’s just write that down, so the markets know they can count on us taxpayers when their shit hits our fan, instead of having to wheedle or panic us into socializing their losses…

        Also, the non-anglophone criterium makes no sense as it begs the eternal question that has confounded you island dwellers for centuries: What to do with the Irish…

  11. purple

    Greece had no business being in the original Euro to begin with. It was Germany and France who insisted they join in. Why ? Geopolitics involving Turkey and encircling the Balkans to block Turkish influence in the southern flank. The Ottoman empire controlled all those lands at one time.

    1. a

      It’s more the slippery slope. Italy cheated its way in. When Greece just doubled the same type of cheating, no one could really complain.

    2. carol

      purple: “…. to block Turkish influence in the southern flank.”

      A few years ago, negotiations have started, and are still ongoing, regarding Turkish entry INTO the EU.

      Why would European countries have accepted a clearly not-ready Greece in order to block Turkish influence, if a few years later they officially start the process for Turkey to JOIN the EU?

  12. Vinny

    Even if the EU/IMF loans manage to divert an immediate default of Greece, the question of how will this country manage to pay back those loans remains. As I said repeatedly here, Greece is not a European nation in any regard except geography. It remains an undeveloped (read as “backward”), resource-poor, industry and infrastructure lacking, and corrupt nation, inhabited by 10 million people with a Middle Eastern mentality. This country produces nothing except olives and tourism, both of which are not going anywhere at the moment.

    The EU and the IMF need to visit other places besides Athens, such as the villages or islands like Crete in order to see that there really is nothing to bail out here.

    People idealize Greece. I see it for what it is. And I think it should be allowed to default. After that it should be gently removed from the Eurozone.

    Finally, The Eurozone needs to become a partnership of equals, not a politically-motivated propaganda tool for promoting EU’s expansionist goaks.


  13. Sticky Feet

    Greece is going to have to figure out how to squeeze somewhere, but one place it cannot do much is its $12 billion annual oil tab, which is a nearly 4% of GDP hit to its current account, and more likely to rise than decrease anytime soon. Greece actually needs to build in a buffer for oil price increases in whatever plan shakes out. Paying interest at current available rates just doen’t make sense – the math don’t work!

  14. Bas

    Vinny, I know it is “bon ton” among your people to talk about “EU’s expansionist goals”, “propaganda tools” and more of that crazy b*shit, a lot of it Randist, that Americans love to splatter all over Europe’s face. It’s pathetic and hateful but hey, it’s your Karma right?

    But what I find truly offensive and disquieting in Vinny’s ramblings as well as the more refined europhobic ranters quoted by Yves, is the fact that even when they talk not of institutions but of people – such as Greeks – there is nothing but contempt and indifference, informed by massive stupidity.

    I will not attempt to correct this. Anglosaxon capitalism is a dehumanizing experience, and this cannot fail to produce monsters like Vinny, and Ambrose. But calling Greeks “10 million people with a Middle Eastern mentality” is plain old racism, whichever way you take it.

    1. Vinny


      What are you talking about, my friend? I live in Greece. I know the place, and I look at reality as it is.

      What is really offensive is to hear and read about this European pseudo-solidarity BS supposedly promoted by the EU project, when in fact this is yet another Western European colonial project. They expect us to snap in line, but it’s not going to happen. All EU financial blackmail will not work.

      As I said here so many times before, Greece and its people do not need the EU, nor do any of the nations east of Vienna. It benefits them none.

      I’m not arguing with you that Anglosaxon capitalism is dehumanizing, because I agree. But so is German capitalism, if not worse. But to call Greece anything else other than a Middle Eastern nation means you have never been here, and you don’t know the Greek mentality.

      My point is: Greeks want to live like Greeks have lived for thousands of years. The German (or Anglosaxon) way of life is not compatible with this part of the world. Please do sell your Volkswagons elsewhere — we prefer Hondas for their superior quality of workamanship…lol


      1. aet

        Bas is in the right on this one. US and Brit banks were at the heart of this phony-baloney “downturn”.

        War has brought the US and Brit economies to their knees.

        1. Vinny


          I agree with that too. Trust me, I’m no pro-American although I lived in the US for many years, and the Brits, I can’t stand.

          I just love the Greek lifestyle, and I’d hate to see Germany blackmail us into giving it up, like Spain has done (I hear that Spanish siesta is a thing of the past, unfortunately).


          1. Hubert


            would you agree that it is the most unintentional imperialism possible ? I agree that it theoretically (Greeks paying their debts) should work out this way but practically never will (Greeks staying Greeks). I just would contest that anybody here in Germany has ever thought this through. There were just some stupid state banks making some short term spread bets on sovereign risk knowing that they would not have to foot the bill – moral hazard all the way. No neo-imperialism at all from Berlin. They are (still) too harmless for that. The Anglo-Saxons? That is a different breed …..

      2. DownSouth


        Great comments.

        It’s always amazing how champions of German neo-imperialism fail to recognize that it is the mirror image of the very thing they despise—-Anglo-American neo-imperialism.

        Jonathan Haidt in The Happiness Hypothesis claims we all have an “internal lawyer” diligently at work, downplaying our own faults and exaggerating those of others.

        But it seems this internal lawyer works overtime with some.

        1. Vinny


          Indeed. Neuroscience has shown the “internal lawyer” to exist and to be part of most everybody’s psyche. Unless somebody is clinically depressed, that lawyer is hard at work putting ourselves in the best possible light, this often defying facts or actual events. It has no problem even altering our own memories of events in order to accomplish that. And it’s also true that it seems to be working harder in some people than in others (usually in narcissists :)


  15. Brick

    I am starting to think it makes little difference whether the bail out works or not, for me the key is whether the Greeks will accept the austerity package. I think it is becoming more likely that political turmoil will occur resulting in a withdrawal from the euro, which will be responded to by a cap on European support. It will then be up to the IMF to enforce austerity measures.
    As for contagion then I expect focus to move towards Portugal, but I have suspicion they may be able to get through a deficit budget which will appease the markets. Next up comes Spain, France, Japan and the UK. My crystal ball suggests things could get pretty bad for the UK until they use the emergency exit of joining the euro and start to really look at the budget. Japan will most likely pull through as its currency drops. Next up comes the US and this is where I think things become ugly with an intractable government meeting and intractable market. I would not want to be a wall street bank under those circumstances. At the speed with which markets are responding at the moment I see the contagion all happening within a two year time slot.
    As with many things these days, you never expect these things to play out as you would expect, not least because revelations about who has been the most economical with the truth will affect things.

    1. Ishmael

      The problem members of the EU have is they can not devalue to get out of the situation. So, the UK gets into trouble, joins the EU and has the inability to devalue. Huhhh! What am I missing here. Why do many people believe that when the UK gets into trouble it will run to the EU?

      They will print like it is going out of style and devalue their currency significantly. Personally, the Pound looks like one of the most over valued currency in the world.

      I have always thought the UK has a better chance of joining the United States than the EU.

  16. M.G. in Progress

    Few days ago, about the agreed aid plan for Greece, Mr Van Rompuy said “We hope that it will not have to be activated”. I noted that the fact that they hoped not to activate it, it might mean that it would be a mess should it be activated.

    Greece moved to activate the EU-IMF aid package on Friday 23rd 2010.

    I still contend that the loan plan was actually a naked gun put on the table to buy time but smelling the fear of default. It’s now clear that bondholders of Greek sovereign debt should take a haircut and let Greece orderly default stopping the money creation for nothing of European banks. Then other ways to issue EU sovereign debt must be found and bankers should learn that there are no ‘too safe to fail’ assets such as sovereign debt organised in Ponzi schemes where EU governments’ money is being reinvested into the scheme to repay previous investors, mainly banks who incidentally in the past were saved by those same governments.
    EU leaders have no idea what they are doing and markets will punish them. What do they expect in an EU where frauds and statistics lies are allowed? I also wonder why Germans have not learnt the lesson from sub-prime crisis and bad investments… Another Lehman is on the way…

  17. Bas

    M.G. in Progress, if I understand correctly, you are equating the rollover of government debt with a Ponzi scheme, which will somehow be thwarted by the issuance of eurozone bonds.

    Assuming this is hyperbole rather than hyperbull, I wonder how the eurozone can ever seriously issue debt without a tax base?

    An IMF-style fund will only work for crises and emergencies. A European agency for collective debt issuance can never be a structural way to finance deficits. It’s called sovereign debt for a reason. The EU is not a sovereign. End of discussion.

    This was of course the reason for the Stability Pact. The problem is, it depended on trust rather than enforcement. That made it vulnerable to machinations, for example, by economic competitors fearing a rival to dollar dominance. Thus GS could help US-ally Greece mask its deficit to other US-allies, and subsequently short the hell out of the country. (That was all ok, until it transpired they shorted the hell out of America, too). Conversely, for anglosceptic France the pact did bring some needed financial discipline.

    It’s time the eurozone learns Americans, in particular American banks, are not our friends. They are rivals, and should be viewed as such. This is the true meaning of the Greece debt crisis, and whichever way that turns out, it will strengthen the eurozone vis-a-vis its so-called partners, the US and UK.

    1. M.G. in Progress

      If the banks are not friend then just tax banks and financial transaction. That’s a good tax base at EU level to fund EU budget and issuance of EU bonds. That was what I have been suggesting for some time now. Of course we should also stop the money creation for nothing of EU banks, including German ones which continue to make bad investments and then they want to be saved…Isn’t Ponzi scheme?

  18. BS

    I have not seen any news regarding holders of credit default swaps or counterparties of these holders. Is it not likely that CDS exist with reference to Greek debt and that someone will make a killing and some entity may go down like AIG when the debts become due? Will it be European banks who will now be in AIG’s position? And how about the naked default swaps… how many gamblers are out there lying in wait to reap these huge gains? Could this threat be the reason why so many do not want Greece to go belly up?

  19. Vinny

    I have a short message for the German Parliament, and I think I speak for everybody in Greece:

    >> I am never going to give up my 3 hour siesta for your billions. <<

    That was my message. Thank you for your time, and have a nice day. :)


  20. gigi

    The EU aid package will enable investors in Greek bonds to dump their holdings on the taxpayer (EU and US). It is the same game as played by the banks in the US in several ways (direct injection of taxpayer money, Fed purchase of MBS, public/private partnership, transfer of debt to Fanny/Freddie/FHA via multiple schemes)

    Greece has consumed the debt. The consumption psychology does not match what is required to pay the mountain of debt. Greece WILL default. The governments are now being fooled into selecting the taxpayer as the loser in the name of financial stability. End results will be default by most governments since none of them have the capacity to pay the total debt they have already taken on.

  21. Ou Tis

    I really cannot understand all that everyday noise about Greece defaulting. Adding to my surprise, none refers to the fundamentals of the country, although they are writing as “experts”.

    Has anyone seen any of these anywhere, in ANY article??
    Or at least wondering about them not reaching the news?

    The country had about this level of external debt to gdp ratio since 1989, 20 years now, and none cared. By itself this only shows that at least it is sustainable. The private debt is minimal compared to the other Eu countries. We all now that this means much better taxing ability than most others, not taking into account the ability to convert tax evasion into tax declaration. Better taxing ability than Germany that is pondering about the situation.
    The country has had no gdp fall after 2007, instead there was a 4% increase. The inflation is the highest in the Eu and the real estate prices have fallen only 6-8%. These show the opposite of a declining economy. But still these fall off the news. Initially these of the UK. Then of all the others. I wonder why…
    Yes there is a quite large deficit. But why this is more important than that of countries that have less taxing ability ?

    Then the contagion theory.. from a country being only 2.8% of the total Eu gdp. If it is totally wiped out, by lets say a nuclear device, there will be only this decrease in the whole!! Much better if there is only a marginal percentage fall, as it is the worse scenario, in the case of default.
    Of course we all know a little guy can fall down if he is targeted and bullied for his every gesture. If he hesitates for a moment to look around. If a few riots of a few hundred people in a multi million city turn out on the news as fierce riots. If he is not your family but a poor neighbor. Yeah, let the bastard default on our rumors.

    Yeah, it is the hard times when we can see what each one hides. It will take aeons until lions cease to entertain the populus.

  22. za

    Portugal CDS spreads at 310bp today.

    What’s the plan even if Greece is somehow rescued? Is there the political will to do it half a dozen more times?

    1. Vinny

      Sorry buddy, the winner takes it all. Once they bail us out, there will be nothing left for you… just kidding :)


  23. Tom Crowl

    Not being an economist I can allow my ignorance to free my amateur intellectual speculations from the need to conform to any particular economic ‘philosophy’.


    It seems to me the whole discipline is seriously off-track.

    It tries to be some kind of ‘science’ about the metabolism of societies… you know, about what makes them run (or not run).

    But it misses so much because it doesn’t have a complete picture of what makes a civilization work.

    That’s because it focuses on a ‘technology’ rather than the subject itself: money, finance and credit creation.

    These are certainly important things. And I wouldn’t want to suggest that we don’t need money, finance and credit creation.

    BUT THEY ARE BROKEN TECHNOLOGIES! In fact, they are likely not perfectable technologies regardless… since they operate within a complex-chaotic system (a civilization).

    Economic analysis is coming to more and more resemble the analysis of planetary motion before Galileo. The kept drawing more and more little circles and epi-circles on their charts to maintain their pre-conception that the
    earth was the center of the universe.

    The earth is NOT at the center of the universe.
    And money is NOT at the center of economics.

    Civilizations are built by countless interacting decisions by individuals and groups: social energy.

    And there are more components to that than just money.

    The trouble with economists (and most politicians) is that when you only know how to swing a hammer, everything has to be a nail.

    The global monetary system is a lousy hammer trying to turn every issue in the world into a nail.

    On Social Energy, Enterprise & Expanding the Technology of Money

    P.S. Re Ayn Rand and previous post if interested:
    Ayn Rand & Alan Greenspan: The Altruism Fly in the Objectivist Ointment

    P.P.S. The technology of money must be addressed. Who owns your decisions? Who owns your social energy? Does anyone have a right to sign away your children’s freedom of decision… their social energy?

    1. craazyman

      You are correct sir. These are questions we are examining at the Institute for Contemporary Analysis through our seminar series “Trans-Financial Frameworks and Dynamic Equilibria in Macroeconomic Spirtual Spaces”. We don’t have a good grasp, as of yet, on just where we are going. But a few more beers and we will. Our premise, which we acquired by channelling, is that macroeconomics is incomplete in terms of its “variable space” — our phrase for the universe of concepts and mathematical entities that populates mainstream macroeconomic analysis. Our theory is that GNP is a function of Capital, Labor, Nature and Imagination. More formally GNP = C + L + N + I. These variables do not obey any formal probability functions, which render them difficult to analyze with traditional mathematics. We are investigating various non-stochastic wave form intersections as a foundational logical structure. At bottom, we believe this has something to do with Dionysus and Apollo. Although we’re not sure just what, or how. But if we can get a 10-bagger going, we’ll have more money to spend on this sort of thing.

      1. jdmckay

        “Trans-Financial Frameworks and Dynamic Equilibria in Macroeconomic Spirtual Spaces”

        lol. Nice touch w/the “Spirtual” tai-po. :)

      2. PDC

        This was intended to be a funny joke.
        Still, it seems to me that you have unconsciously put some good intuition into it. For example, including Imagination into GNP might have a more sound base than you think: after all, aren’t all values based on our projections, dreams and beliefs?

        1. craazyman

          Not entirely joking at all. That’s exactly right about Imagination.

          No offense at all Tom Crowl to your speculations. I’m in sympathy with them.

          1. MyLessThanPrimeBeef

            Craazyman, what happens to GDP when someone fakes a Picasso and sells it for $5 million?

            I know people think it’s a joke but when you have so many people usurping God’s authority, doing God’s work I suppose that’s what they mean, of creatio ex nihilo.

          2. craazyman

            Funny you should ask Prime (can’t respond to your post ’cause no reply button).

            In an act of extraordinary discipline, I am now forcing myself through — cover to cover — Mr. Frederick Mishkin’s 750 page macroeconomics textbook “Money, Banking and Financial Markets” 1995 edition.

            Mr. Mishkin defines GDP on page 27 and says that “purchases of goods that have been produced in the past, whether a Rembrandt painting or a house built 20 years ago, are not counted as part of GDP . . . because they are not goods and services produced during the course of the year.”

            So the fake Picasso would not presumably count toward GDP were it accepted as an original. However, GDP would have to be revised upward (ha ha ha) if it was later discovered that the painting was a fake, and was actually painted during the year in which it was sold. That’s pretty funny to think about. Not sure what Mr. Mishkin would say if the fake painting were made in year n-1 and sold under false pretences in year n or year n + 1, with the fraud discovered in year n +2.

            Such is the conceptual labyrinth of GDP.

            I am aware that it takes considerable skill to fake a Picasso, or any masterwork for that matter. It’s not like painting by numbers. So there should be some contribution to GDP, in my view, from the act of fakery and sale. It takes true talent (not just staring at your trading screen, screwing women and children into bankruptcy). But only under honest pretences. :)

          3. MyLessThanPrimeBeef

            Thank you, Craazyman. It’s interesting.

            Now, if someone dug up a diamond 50 years ago, that counted toward the GDP of that year. Somehow, due to war, he lost the uncut diamond somewhere. One day a mining company dug it up again, do we count it again if we don’t know whether this uncut diamond has been found before?

      3. Tom Crowl

        I have a funny feeling I’m being kidded!

        Not much into the ‘spirit’ stuff… but regarding biological altruism (especially its ties to proximity and natural human community size), decision systems and economics, I think the effects are real and relate to how decisions are made.

        This broader concept is actually what’s behind crazy ideas like citizen voting, legislatures and juries… and has been around a long time.

        It throws ‘ringers’ so to speak into what often develop into self-serving networks that, even when well-intentioned, are invariably biased.

        This is a fundamental problem in credit-creation mechanisms. Its also why guys like Jefferson thought we needed a revolution more or less every generation.

        Credit creation is going to evolve. While a global monetary system is essential. Its governance is problematic.

        And it should not be the only system in my foolish opinion.

        Thanks for the feedback though. But I’ll skip the seminars. Not much into channeling.

        1. K Ackermann

          As they said above, the crux of the problem is that it’s a dynamic system.

          We, for all purposes, still don’t have an exact solution to the 3-body problem, let alone 6-billion-with-free-will-problem.

          Ponder this: if you found some set of criteria that perfectly predicted the stock market next week, you could only admire the relationship to keep it intact. Think about what would happen if you acted on the information, or better yet, try to predict what your actions will do.

    2. aet


      Yes, things change when the goalposts are moved.

      We need a new style of “potlatch” society.

      Where the rich are judged not by what they have, but how much they freely give from what they have to poorer others.

    1. PDC

      Since EU and its smaller incarnation, euroland, are POLITICAL objects BEFORE being FINANCIAL objects, what will happen depends only on the political will of the main players on the european scene. Unfortunately, they aren’t exactly the “visionaries” they should be… But I agree, conventional “anglo-saxon” wisdom might prove wrong. We will see.

  24. Ou Tis

    today’s news had the usual route:
    Starting from BBC and FT, slightly milder on WSJ and NYT, to be repeated throughout the world, without having to support their views on numbers. Except for one number. How interesting…
    Dead man walking. Or anything that will add to the picture.

  25. Robespierre

    Will a default by Greece hurt several Europeans banks? Are these the same banks that last year gave its executives millions of dollars in bonuses instead of increasing reserves against default? Hum I’m not expert but I do see a pattern.

    1. Ou Tis

      i think not, not even Greek banks.
      First, Greece in only 2,8% of the gdp of Europe, as i stated above, not to state that all issues about Greece have been ballooned to the sky.
      Second, the only issue is a case of rise of the rates in the market. But we all know how strictly this is controlled. Even within Greece the rates are quite low!

    2. Ou Tis

      i think not, not even Greek banks.
      First, Greece in only 2,8% of the gdp of Europe, as i stated above, not to state that all issues about Greece have been ballooned to the sky.
      Second, the only issue is a case of rise of the rates in the euro market. But we all know how strictly this is controlled. Even within Greece the rates are quite low!

  26. Blurtman

    Perhaps if the Greeks began to hang investment bankers, or maybe integrating it into the Olympic sports – javelin toss at investment bankers – would make this more palatable.

  27. plschwartz

    IIRC the EU started after WWII as a means to bind together Germany and France. So that the age old cycle of wars in northern Europe would be broken.NATO was a military equivalent. And for that it has worked wonderfully for 75 years. We may forget that but the Europeans have not. The further step of the Euro made the binding that much stronger.
    The mission became enlarged to encompass states newly freed from dictatorship as Spain and Portugal.And more recently the Balkans.
    The recent NYT op-ed about the family-centered economy of Greece, as well as Vinnie’s comments did make me realize that the core Euroland does have a common Germanic background. Which Greece does not.Nor doees it seem to want to be.
    Cultures or at least those that survive have to be resistant to assimilation (the Borg stops here?)Greece has different values. Greece and Euroland should realize that Greece is EU but not Euro material.Or perhaps better put it is not Materialism material.
    Some way should be found to allow Greece to gracefully exit the Euro and devalue its currency to fit its real standard of living

    1. Tom Crowl

      You are so right!

      Centralized banking and credit as monopolies are disastrous for the cultural diversity which is not just “nice”…

      but essential for the kind of resilience necessary for long-term health of humanity.

      A mono-culture approach is disastrous in more than just agriculture.

      But this isn’t going to come as an easy realization to the bankers themselves (who truly believe themselves benevolent).

  28. Lyle

    Haven’t you heard that the EU now says everyone has a right to a foreign vacation. Interestingly Greece has a lot of good tourist locations as to Spain and Portugal. You bail the countrys out by sending Germans and French on paid vacations to these countries. After all the Germans do pay medical expenses to take the waters at a Bad (spa). Well it is not to hard to build spas there. (The preceeding was tounge in cheek)

  29. A. Gouveia

    “Some way should be found to allow Greece to gracefully exit the Euro and devalue its currency to fit its real standard of living”

    The point is, their currency will devalue. If they pay in dracmas the loans they hired in euros, they will default.

    Furthermore, the talk about the greeks not being materialist is BS: they want to live like germans, but work less. Which credit at very low rates made possible, for a time. If they devalue, they will have to pay much higher rates, and cannot maintain the new life style anyway.

    So the real choice for greeks is: you want to work less and be poor, or work more and be rich?

    (of course, it’s not really just working less: if there was less waste and corruption, the adjustment wouldn’t have to be so great. I’m Portuguese, and I still hope this crisis can serve to clean up the country a little).

    1. Ou Tis

      Probably you also are not aware of the numbers: You will not find anywhere any other than the central government debt.

      If by any chance you come to some you may read that:
      During the last decade Greeks are working much more than the average European, even Germans.

  30. bluffraise

    As tinkerbell’s fairy dust wears thin, and we look through the haze and see that pigs can fly to the slaughter- at least the bears are making money.

  31. scraping_by

    One traditional way to pay off debts is with capital goods. This is one way to think of the deindustrialization of the USA. My own, first hand, experience hasn’t been overpaid, lazy Americans. It’s been Asians with a lot of dollars paying whatever it takes. But that’s a digression.

    Greece, not having a monster industrial sector to flog, would be selling off its desirable coastal properties. Where the Greeks would live is anyone’s guess. Northern Africa?

    The only realistic alternative is for the Socialists to act like Socialists and tell the monied interests to piss off. But their first act was “austerity”, that is, take money from the real economy and give it to the speculators. Not a good sign.

    They can either give the money suckers their country or the fig. It’s a Greek decision, and none of ours.

  32. Warky

    All this talk is really meaningless. They are within the event horizon. Nothing can be done to save most of Europe from falling into the black hole. Doesn’t matter how much money is thrown down there. It’s all going down, mate.

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