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Greece urged to give up Euro

cpwill

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As became obvious - what? a month ago? all of Greece's incentives now are to find a way to default. the problem with socialism (hat tip to the Iron Lady) is that eventually you really do run out of other people's money.


THE Greek government has been advised by British economists to leave the euro and default on its €300 billion (£255 billion) debt to save its economy.

The Centre for Economics and Business Research (CEBR), a London-based consultancy, has warned Greek ministers they will be unable to escape their debt trap without devaluing their own currency to boost exports. The only way this can happen is if Greece returns to its own currency.
...
Speaking from Athens yesterday, Doug McWilliams, chief executive of the CEBR, said: “Leaving the euro would mean the new currency will fall by a minimum of 15%. But as the national debt is valued in euros, this would raise the debt from its current level of 120% of GDP to 140% overnight.

“So part of the package of leaving the euro must be to convert the debt into the new domestic currency unilaterally.” Greece’s departure from the euro would prove disastrous for German and French banks, to which it owes billions of euros. McWilliams called the move “virtually inevitable” and said other members may follow...
 

FinnMacCool

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I have been following the situation in Greece for quite some time, and I have concluded that this government is bound for a big fall. You call it socialist, but either way it's an oppressive state. The KKE, the communist party of Greece, is hugely popular and draws large crowds. Anarchists, as well, are also drawing large crowds and there is much disorder. IN response to this, the police are becoming even more oppressive.
 

Kandahar

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I must agree with the CEBR. The probability that Greece can ever pay off its debt if it stays in the euro is zero. Greece needs to return to the drachma, and probably default on its debt as well. It's not an ideal solution, but it seems like the best available solution.

Portugal, Spain, and Italy should probably get out while the getting's good too, although I don't think a default would be necessary in their cases.
 

Lord Tammerlain

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Leaving the Euro would do anything for Greece as the majority of its debt is owed to foreigners, and they would expect that they would be paid back in the currency they loaned money to Greece in, mostly Euro's

So dropping the Euro and going to the Drachma would see Greeces foreign debt become far more expensive, interest rates on any new debt they need to issue (ie roll over) go up. They have two main choices that would do anything Default, and still suffer greatly as they would not get any loans for the next 10 years, and any foreign assets would be siezed. Or suck it up and pay back their debts slowly.


A new devalued currency is nothing more then just a series of wage cuts for all greeks. It does not do anything that wages cuts would do to improve greek competitiveness or make greek debt cheaper
 

NolaMan

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Leaving the Euro would do anything for Greece as the majority of its debt is owed to foreigners, and they would expect that they would be paid back in the currency they loaned money to Greece in, mostly Euro's

So dropping the Euro and going to the Drachma would see Greeces foreign debt become far more expensive, interest rates on any new debt they need to issue (ie roll over) go up. They have two main choices that would do anything Default, and still suffer greatly as they would not get any loans for the next 10 years, and any foreign assets would be siezed. Or suck it up and pay back their debts slowly.

A new devalued currency is nothing more then just a series of wage cuts for all greeks. It does not do anything that wages cuts would do to improve greek competitiveness or make greek debt cheaper

I think they would have to drop the Euro, and then defaulting on their debt. I don't see a way out for them otherwise. While it may be the best way our for Greece, the fallout this would bring about will ultimately hit us in the US.
 

Republic_Of_Public

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Greece pressured to give up the Euro?

But wait a minute. I'm confuuuuused! I thought the Euro was supposed to be the big communal currency designed to protect those in it from piffly little recessions! I thought, as the likes of Pete EU say, that Britain will be sucked in and blown out the other side due to its colossal pull and universal shielding from financial storms!


(And if anarchists and communists are milking the trouble on the streets then I'm not surprised the police have to work to keep order. I know who I'd rather have on top until the dust settles!)
 

FinnMacCool

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(And if anarchists and communists are milking the trouble on the streets then I'm not surprised the police have to work to keep order. I know who I'd rather have on top until the dust settles!)

The police have been doing more harm then good. In December of 08' the police shot and killed a anarchist for no apparent reason, which caused riots.
 

Kandahar

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So dropping the Euro and going to the Drachma would see Greeces foreign debt become far more expensive, interest rates on any new debt they need to issue (ie roll over) go up. They have two main choices that would do anything Default, and still suffer greatly as they would not get any loans for the next 10 years, and any foreign assets would be siezed. Or suck it up and pay back their debts slowly.

I don't think sucking it up and paying back their debts slowly will work. Greece's debt burden is simply too high for that. They'd be forced into "austerity measures" (read: high taxes and low spending) for decades, which would prevent them from growing their economy to escape their heavy debt load...and most of their payment on the debt would merely go toward interest.

I think they're going to need to default. Leaving the euro won't save them now, but at least it will prevent this from ever happening again. If they had the drachma, they could at least control their own monetary policy in the future.
 

Wiseone

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Greece pressured to give up the Euro?

But wait a minute. I'm confuuuuused! I thought the Euro was supposed to be the big communal currency designed to protect those in it from piffly little recessions! I thought, as the likes of Pete EU say, that Britain will be sucked in and blown out the other side due to its colossal pull and universal shielding from financial storms!

You realize that because this UK consultant firm isn't part of the Eurozone their opinion on the Eurozone doesn't redefine the opinion of the Eurozone on itself?
 

Infinite Chaos

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-- I thought, as the likes of Pete EU say, that Britain will be sucked in and blown out the other side due to its colossal pull and universal shielding from financial storms! --

It looks more and more each day that we did the right thing abandoning the ERM and trying to tie our economy to the Euro as a precursor to joining.

On a neutral note - the chances of the Euro succeeding would have been far greater if membership had been far more restricted - I'm thinking Germany, France and two or three others who wished to join and were economically and financially sound to begin with.

It's all been a bit headlong these last 20 years, the push to create the whole EC and structure encompassing as much of Europe as possible (in some parts pushed by the USA) has meant many decisions have been taken that will cause more nightmares in the future.
 

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And I wonder how much the think tank and its so called economists have shorted the Euro and French and German stocks...
 

Republic_Of_Public

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You realize that because this UK consultant firm isn't part of the Eurozone their opinion on the Eurozone doesn't redefine the opinion of the Eurozone on itself?

Yes, I'm quite sure the Eurozone bosses are capable of listening only to the advice of each other. It's the kind of mentality which led to Lisbon referendum results being ignored, repeatedly requested or wiped from the record by amending the document enough to legally avoid needing public permission.

It's as if the Eurozone bosses have no real control or responsibility over the consequences of their own plans, hence whines about shadowy outside forces nobbling some stocks!
 

Kandahar

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And I wonder how much the think tank and its so called economists have shorted the Euro and French and German stocks...

You're right, it's all a grand conspiracy against the euro. :roll:
 

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You're right, it's all a grand conspiracy against the euro. :roll:

Well considering most of the anti-Euro stuff comes from American and British economists who have always viewed the Euro as a threat to their supposed dominance of world financials, then yea one could think that. Not that I do think there is an organised conspiracy, but I also am very skeptical of think tanks like this and their analysis as we have seen time and time again that especially right wing think tanks love to pad the analysis to meet a pre determined result. Lord Tammerlain has a very very valid point on the issue but the analysis basically ignores this fact and pushes for default and dumping of the Euro.

Like it or not, leaving the Euro and defaulting will not change Greece. It will be more of the same, same old world anglo-saxon economic policies. And change in Greece is what is needed but the analysis totally ignores this fact in return for short term results. That is why I ask the very serious question.... wonder how much they have shorted the Euro and French and German stocks since they are pushing for a short term solution with no long term benefit.
 

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All this fiasco has done is make me so damn thankful for the first time of Ex-PM Brown. Who reigned in the crazy ass pro Europe Blair.

Yay, we don't have the Euro and we control our own currency! :kitty:

Now. Lets all hope and pray Germany tries to amend the treaty, that would give Britain the upper hand and we can re negotiate.
 

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As became obvious - what? a month ago? all of Greece's incentives now are to find a way to default. the problem with socialism (hat tip to the Iron Lady) is that eventually you really do run out of other people's money.


THE Greek government has been advised by British economists to leave the euro and default on its €300 billion (£255 billion) debt to save its economy.

The Centre for Economics and Business Research (CEBR), a London-based consultancy, has warned Greek ministers they will be unable to escape their debt trap without devaluing their own currency to boost exports. The only way this can happen is if Greece returns to its own currency.
...
Speaking from Athens yesterday, Doug McWilliams, chief executive of the CEBR, said: “Leaving the euro would mean the new currency will fall by a minimum of 15%. But as the national debt is valued in euros, this would raise the debt from its current level of 120% of GDP to 140% overnight.

“So part of the package of leaving the euro must be to convert the debt into the new domestic currency unilaterally.” Greece’s departure from the euro would prove disastrous for German and French banks, to which it owes billions of euros. McWilliams called the move “virtually inevitable” and said other members may follow...

IMO, the CEBR is offering Greece terrible advice. The simplistic remedy of devaluation will not cure all that ails Greece e.g., Greece will need to restructure its fiscal programs (tax and spending sides). If CEBR were to examine the literature on sovereign debt crises, CEBR would learn that states with excessive debt held by foreigners (and according to the IMF, 99% of Greece’s government debt is held by foreigners) can have the greatest difficulty in returning to the capital markets once they default due to risk aversion, among other factors. Moreover, CEBR’s preferred path of a default would send shock waves through parts of Europe’s banking system. In turn, there would be spillovers or even contagion through financial, trade, and exchange rate mechanisms. Adverse co-movements in currencies and securities prices would result.

Once external capital financing is cut off from Greece, as it would be under a sovereign debt default, Greece would need to undertake even greater sacrifice, as it would need to create a sustainable budget over a much shorter timeframe than currently expected given a lack of foreign capital financing. It could also need to practically eliminate its yawning current account deficits overnight as capital inflows abruptly cease. Under such scenarios, Greece’s sovereign debt default could give way to a currency crisis (after all, Greece would have withdrawn from the Euro), possible inflation crisis, and systemic banking crisis. The pain Greece would experience under a default would far exceed the sacrifices required under austerity.

Finally, Greece’s being barred from world capital markets would probably be quite long-lived. For starters, Greece would have revived what had been a sordid record of sovereign debt default earlier in its history. Second, given financial system fragility coming out of the global recession sparked by the collapse of the U.S. housing bubble and then fresh shock waves from a Greek default, risk aversion would be abnormally high.

In the end, if Greece cannot meet its debt obligations, the IMF’s alternative route of a preemptive debt restructuring would be a better path. CEBR’s idea is a non-starter, as it appears that CEBR is unfamiliar with the growing body of literature on sovereign debt default, particularly states that are at highest risk of multiple kinds of financial crises.
 
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Kandahar

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Well considering most of the anti-Euro stuff comes from American and British economists who have always viewed the Euro as a threat to their supposed dominance of world financials,

For the record, I was a supporter of the euro until about 2008. But in retrospect, I can see it was a huge mistake. Ceding their monetary policy to a central authority is a recipe for disaster, because the needs of each member state of the euro zone are not the same. Sometimes one country will be in a recession while another is booming (or they will be in different degrees of recessions). If the euro zone also coordinated its fiscal policy, this wouldn't be a problem. But a unified monetary policy and a fragmented fiscal policy simply will not work. Every time the euro zone faces an economic downturn, this kind of thing will happen. Maybe there won't be a default each time, but there will definitely be member states who are unable to recover from the recession quickly because the ECB took away their greatest recession-fighting tool.

PeteEU said:
then yea one could think that. Not that I do think there is an organised conspiracy, but I also am very skeptical of think tanks like this and their analysis as we have seen time and time again that especially right wing think tanks love to pad the analysis to meet a pre determined result. Lord Tammerlain has a very very valid point on the issue but the analysis basically ignores this fact and pushes for default and dumping of the Euro.

Greece doesn't really have any other options at this point. Their debt load is simply too high to ever pay back. They could resign themselves to decades of "austerity measures" (i.e. anemic growth rates), and they still won't make much progress on their debt.

PeteEU said:
Like it or not, leaving the Euro and defaulting will not change Greece. It will be more of the same, same old world anglo-saxon economic policies.

That's what this is about. Your nationalist paranoia makes you unwilling to consider any ideas that originated from Teh Evil Amurkins or Teh Evil Brits. Why don't you actually examine the policy on its merits instead of being so xenophobic?

PeteEU said:
And change in Greece is what is needed but the analysis totally ignores this fact in return for short term results. That is why I ask the very serious question.... wonder how much they have shorted the Euro and French and German stocks since they are pushing for a short term solution with no long term benefit.

A withdrawal from the euro and a debt default would have a long term benefit. A default will free Greece from the burden of an impossibly high debt load that will be with them for decades, and leaving the euro will ensure that Greece doesn't face this problem again. Hopefully they'll never find themselves in this spot again, but if they do they could at least devalue their currency.
 

Kandahar

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IMO, the CEBR is offering Greece terrible advice. The simplistic remedy of devaluation will not cure all that ails Greece e.g., Greece will need to restructure its fiscal programs (tax and spending sides). If CEBR were to examine the literature on sovereign debt crises, CEBR would learn that states with excessive debt held by foreigners (and according to the IMF, 99% of Greece’s government debt is held by foreigners) can have the greatest difficulty in returning to the capital markets once they default due to risk aversion, among other factors.

There isn't really any other kind. States who DON'T have excessive foreign-held debt can never be forced to default, because they always have the option of devaluing their currency. That makes the pool of nations who meet this criteria self-selecting. Nations who CHOOSE default over devaluation may have a different set of economic circumstances initially than nations who are FORCED into default because devaluing is not an option.

donsutherland1 said:
Moreover, CEBR’s preferred path of a default would send shock waves through parts of Europe’s banking system. In turn, there would be spillovers or even contagion through financial, trade, and exchange rate mechanisms. Adverse co-movements in currencies and securities prices would result.

Greece owes about $236 billion, which is nothing to sneeze at, but hardly a huge amount compared to the size of the euro zone's economy. If they needed to, the countries to whom that money was owed could suck it up and take the hit. Besides, adverse movements in currencies are already occurring, and will continue to occur if Greece DOESN'T default. Having a member state with an unpayable debt load will always affect the strength of the euro.

PeteEU said:
Once external capital financing is cut off from Greece, as it would be under a sovereign debt default, Greece would need to undertake even greater sacrifice, as it would need to create a sustainable budget over a much shorter timeframe than currently expected given a lack of foreign capital financing. It could also need to practically eliminate its yawning current account deficits overnight as capital inflows abruptly cease. Under such scenarios, Greece’s sovereign debt default could give way to a currency crisis (after all, Greece would have withdrawn from the Euro), possible inflation crisis, and systemic banking crisis. The pain Greece would experience under a default would far exceed the sacrifices required under austerity.

Finally, Greece’s being barred from world capital markets would probably be quite long-lived. For starters, Greece would have revived what had been a sordid record of sovereign debt default earlier in its history. Second, given financial system fragility coming out of the global recession sparked by the collapse of the U.S. housing bubble and then fresh shock waves from a Greek default, risk aversion would be abnormally high.

In the end, if Greece cannot meet its debt obligations, the IMF’s alternative route of a preemptive debt restructuring would be a better path. CEBR’s idea is a non-starter, as it appears that CEBR is unfamiliar with the growing body of literature on sovereign debt default, particularly states that are at highest risk of multiple kinds of financial crises.

I disagree that Greece's default problems would necessarily be long-lived. Yes, they will have to endure a nasty recession as they won't be able to borrow money for a few years...but they're going to do that anyway as a result of the "austerity measures" that the euro zone and/or IMF will inevitably require to keep them on life support. Furthermore, a sovereign debt default doesn't have to result in long-term problems. Russia bounced back from its default quite quickly.
 

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I disagree that Greece's default problems would necessarily be long-lived. Yes, they will have to endure a nasty recession as they won't be able to borrow money for a few years...but they're going to do that anyway as a result of the "austerity measures" that the euro zone and/or IMF will inevitably require to keep them on life support. Furthermore, a sovereign debt default doesn't have to result in long-term problems.

Greece defaulting would mean a cascade of problems across Europe and the industrialized world. Not because of the Greek default per say but because of the markets going into a panic mode and the speculators smelling blood and a quick buck. Even though countries are no where near defaulting now, and under normal market conditions would not need any help, places like Ireland, Spain, Portugal, Italy, Belgium and even the UK would come under massive pressure by the markets and could easily result in defaults there too.

No one but short term greedy speculators would benefit by this... and hundreds of millions of people will get hurt.

But the biggest problem would be the about 100 billion that French and German banks and financial institutions hold of Greek debt. That is one hell of a hit to take. And then there is the collateral damage.

The only way I would ever accept such a default was if there was a global ban on nakid short selling.

Russia bounced back from its default quite quickly.

Russia has oil and gas, so a steady stream of foreign currency. It also started at a much lower level than Greece, infrastructure wise.
 

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For the record, I was a supporter of the euro until about 2008. But in retrospect, I can see it was a huge mistake. Ceding their monetary policy to a central authority is a recipe for disaster, because the needs of each member state of the euro zone are not the same. Sometimes one country will be in a recession while another is booming (or they will be in different degrees of recessions). If the euro zone also coordinated its fiscal policy, this wouldn't be a problem. But a unified monetary policy and a fragmented fiscal policy simply will not work. Every time the euro zone faces an economic downturn, this kind of thing will happen. Maybe there won't be a default each time, but there will definitely be member states who are unable to recover from the recession quickly because the ECB took away their greatest recession-fighting tool.

And that is because you believe in outdated monetary policy theories. Devaluing is nothing but like pissing in your pants.. nice and warm at the start and very very cold soon after. One of the idea's behind the Euro was to prevent countries abusing the devaluing mechanism to gain an economic advantage over others. There are so many other methods to get out of a recession but they are not politically popular but they are far more long term effective than devaluing constantly.

Greece doesn't really have any other options at this point. Their debt load is simply too high to ever pay back. They could resign themselves to decades of "austerity measures" (i.e. anemic growth rates), and they still won't make much progress on their debt.

Give me a break. Says who? American and British economists? Countries have had just as high and higher debt loads and have paid it off. They need the austerity measures and the reforms of their society to fix the problem.. defaulting and devaluing would never ever force them to carry out these needed changes. You do know that the Greece government has already cut the deficit by over 50% in one year right?

That's what this is about. Your nationalist paranoia makes you unwilling to consider any ideas that originated from Teh Evil Amurkins or Teh Evil Brits. Why don't you actually examine the policy on its merits instead of being so xenophobic?

Has nothing to do with xenophobia or nationalism. The world has been lead by American and British economists the last many decades and this is a fact and these very same economists pushed us into the mess we are in now by promoting ideas of the free market being perfect and not needing any regulation... that was a great idea no? And yet we STILL listen to their failed ideas and policies and we STILL listen to them despite them totally ignoring certain countries that are in a similar crap hole as Greece.. yes Ireland, USA, and UK. There is almost NO discussion on the crap hole the worlds biggest economy is in with no end in sight. Why is that?

When they start promoting a balanced and non biased analysis of the economic situation of all countries then maybe we should start listening to them again, but as it stands now no way since much of the economic theory that has been pushed on people for the last 50+ years has been disproved with this economic crisis. They are still relying on economic growth of 3+% to dig themselves out of the hole and how realistic is that now days? We cant grow 3%+ forever for god sake.

A withdrawal from the euro and a debt default would have a long term benefit. A default will free Greece from the burden of an impossibly high debt load that will be with them for decades, and leaving the euro will ensure that Greece doesn't face this problem again. Hopefully they'll never find themselves in this spot again, but if they do they could at least devalue their currency.

As I have stated over and over again, devaluation is not the solution. Their debt load is not impossibly high. The US and UK will have a higher debt load with in a few years as they have not even remotely started to tackle their economic problems. Japan has had a 200+% debt load for decades, Italy 100+% debt load for decades, Belgium near 100% debt load for decades.. the US had 200+% debt load for decades after WW2 as did the UK.

And Greece will always face these problems as long as they do not deal with the core problems of their society and if they leave the Euro and default and devalue then there is no incentive to change. So in the long term, Greece will have no ability to loan money because first off no one trusts them, secondly they have defaulted and thirdly the reason they defaulted has not been addressed.
 

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There isn't really any other kind. States who DON'T have excessive foreign-held debt can never be forced to default, because they always have the option of devaluing their currency.

That’s not correct. Countries, even with their own currencies, can default on external debt and they can default on domestic debt. For example, Argentina has defaulted on both kinds of debt. Moreover, a state that has very high domestic debt could wind up defaulting on what seems to be low-to-moderate external debt, because it's the overall debt burden that constrains its finances.

Greece owes about $236 billion, which is nothing to sneeze at, but hardly a huge amount compared to the size of the euro zone's economy. If they needed to, the countries to whom that money was owed could suck it up and take the hit. Besides, adverse movements in currencies are already occurring, and will continue to occur if Greece DOESN'T default. Having a member state with an unpayable debt load will always affect the strength of the euro.

Preemptive debt restructuring under IMF auspices would impose a haircut on banks and other creditors who hold Greek debt. The advantage of such a move would be debt relief for Greece and relative predictability for the markets. To be effective, one would probably be talking about a 25% reduction in Greek debt. Default, on the other hand, would lead to much greater uncertainty. Exposed institutions would curtail lending and take other measures to conserve cash given the unknown magnitude of risk associated with Greece's default (Greek debt + derivative securities + impact of market responses). Those moves would have an adverse macroeconomic impact. Greece would also be cut off from international credit markets and suddenly be confronted with needing to achieve fiscal sustainability almost immediately given the absence of access to capital.

I disagree that Greece's default problems would necessarily be long-lived. Yes, they will have to endure a nasty recession as they won't be able to borrow money for a few years...but they're going to do that anyway as a result of the "austerity measures" that the euro zone and/or IMF will inevitably require to keep them on life support. Furthermore, a sovereign debt default doesn't have to result in long-term problems. Russia bounced back from its default quite quickly.

Russia bounced back for a single overriding reason: energy resources. As the oil and natural gas prices rose markedly, the value of Russia’s exports soared. That allowed Russia to reap substantial cashflow. Greece, on the other hand, lacks such a valuable commodity and its economy is not highly competitive. Greece does not have any near-term or medium-term cash windfall options.
 
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It is very difficult to believe Greece will give up Euro, and it will be happen nothing, except some banksters and hedgefonds worldwide earn big money after Euro crises.
 
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