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
(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!)
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.
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!
-- 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?
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:
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...
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,
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.
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.
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.
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.
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.
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.
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.
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.
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?
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.
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.
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.
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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