Will Greece Default on it's debt?

I heard on the BBC how the Greek people are already seriously suffering from this. The good times are over and the retribution is vicious. I hate to see the EU imposing more measures on Greece when in the end, she will need to default anyway. It should be allowed to happen now and we all suffere the financial meltdown now instead of being the "ostrich putting its head in the sand" and "throwing good money after bad." The longer this futile effort continues, the worse will be the world financial blood bath when it does come.

brough
http://civilization-overview.com

 

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I voted "no, they won't default". They will be bailed out by the printing presses in the EC. It is a short term fix that will be accompainied by necessary changes in the Greek society. An increase in the retirement age, fewer lifetime benefits, less power in the hands of labor, and a trend toward self reliance, both on the part of the individual and on the part of the communities; people will conserve what they can and will help each other instead of depending on the government.

They got to where they are by voting themselves benefits that they, as a society, could not produce from the fair value of their efforts. They will fail to force the government to provide the benefits they have voted for themselves because no one will lend them any more money.

Default will be avoided but it will be a long drawn out series of going to the brink to send the message to the Greek people that they can't count on the existing level of government generosity.

This same scenario will play out again and again in various countries, Italy, Portugal, Spain, and not just in Europe, but in all countries that have followed Greece in voting themselve expensive benefits that their gross national product cannot support.

 

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They'll default:

...The higher its borrowing costs, the harder it is for the Greek economy to grow itself out of trouble.

Events began to spiral out of control when credit rating agencies downgraded Greek government debt to "junk" status, pushing the cost of borrowing so high that the country effectively had its international overdraft facility cancelled overnight. Fearing bankruptcy, Greece had to turn instead to the European Union and the International Monetary Fund (IMF) – the world's lender of last resort – for up to 120bn euros of replacement lending.

But political opposition in Germany and IMF orthodoxy in Washington demands that the rescue package comes with strings attached: a tough series of public sector cuts designed to reassure international investors that the government can become creditworthy again.

The snag is, this traditional market response is complicated by Greece's membership of the single-currency euro club. This means it cannot stimulate growth by devaluing its currency, and nor can it cut interest rates any further, which would help, because these are decided by the European Central Bank in Frankfurt. Instead, the public sector cuts are almost certain to deepen the Greek recession, reducing tax revenues and making it even harder to service the debts in future.

What many investors fear is that the only way out of this vicious circle is for Greece to walk away from its existing debts and try to go it alone – potentially triggering a wave of similar defaults in other indebted European countries, and jeopardising the euro itself. In the meantime, what many Greeks fear is that the IMF option is just going to prolong the agony – and drive the country to the brink of political as well as economic collapse.

http://www.guardian.co.uk/world/2010/may/06/greek-debt-crisis-economy

 

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I am in the minority opinion but the very point you make about the single-currency EU is why I think the printing presses will have to be inked up.

It is true that for Greece to pull out they will have to go to the depths of suffering but my view is that the European Community will determine what the "depths" will be and what cuts the public sector will have to endure.

The fix in Greece will be slow and painful and other EC countries will follow, maybe and hopefully to lessor degrees is they see the handwriting on the wall by looking at the turmoil and suffering in Greece.

Anarchy will be avoided ... I hope.

 

This already is anarchy, there isn't a better soil for anarchy than poverty and financial fraud (think goldman sachs). I think of Argentina and how they defaulted and pulled their currency away from the dollar and went through an adjustment period. It wasn't pretty, you pay a price for defaulting but their economy is growing and they are no longer being held hostage by the IMF and Merkel. Argentina of course isn't greece. Greece doesn't have the exports that Argentina does to fall back on but I think they were better off with the drachma and soon they may think so too.

“A lot of people were saying that Argentina would never recover, that the peso would never regain value, that this country was damned,” said Mr. Kerner, the analyst. “And it didn’t happen.”

What's worse than defaulting? Having to sell the Parthenon.

 

Maybe the lessons of the past will not be heeded.

What is your view on my statements about Greece voting themselves benefits that their economy couldn't support? I equate the suffering that will have to be endured to that kind of mis-governance.

 

Does it make any sense at all to try and bleed a stone? What's the point of paying your debts if you can't pay your rent? The standard thinking seems to be that if you further demoralize the population, deny them jobs and security they will somehow get around to stimulating the economy and I don't believe that to be true.

Basically there is going to be less money for all kinds of benefits, I think that they understand this what they don't want to do is to be completely fleeced because some politician decided to lie about its fiscal mismanagement by covering it up with the help of GS just so they can be part of a European Union that is now going to privatize everything and rob them blind.

Now ask yourself, would this make sense to you if you were a Greek citizen?


"The demands of the EU, European Central Bank (ECB), IMF troika and the political climate in the northern parts of the eurozone have sent a clear message to the Greek people and the government of George Papandreou: "Do as we say, regardless of the consequences for you – or even for us." The demands go well beyond those prescribed by conventional economics. They will deepen the depression and make full debt repayment even less likely than it now is. Therefore, the clear, strong nudge is for Greece to default as soon as practicable.
Given the future prospects of following the current path, Greeks should welcome this opportunity. The trick, of course, is for the Greek government to develop within a short period of time the capability to default to the maximum benefit of the people it supposedly represents.

Preparing for default involves the formation of a large number of expert teams to defend Greek interests with conviction. For the debt that is based on Greek law, Greece has the upper hand. Negotiations for other debt will be more difficult and protracted.Since Greek banks will become insolvent, they will have to be nationalised and preparations will need to be made for that. The insurance and pension funds will need to be bailed out, too. For both banks and funds to be bailed out, the country will need its own currency. Therefore, exit from the eurozone would follow.

Eurozone exit has been a taboo topic, especially in Greece. Whenever the taboo is broken, discussion is dominated by propaganda and scaremongering, often by employees of banks that stand to lose from such an eventuality.

First, for the countries of the eurozone it has become apparent that there are only two clear options: political integration or breakup. Anything else is politically or economically unsustainable. Since there is no appetite for political integration, exit from the eurozone can be expected later anyway, when it could be even less advantageous for Greece.

Second, there is little doubt among economists that the easiest mechanism for a country to gain competitiveness is to have its currency depreciate. Hence, Greece having its own currency is the easiest path to gaining international competitiveness. Cars and iPhones will become more expensive but food might actually become cheaper and employment will pick up within a few months after the introduction of the new drachma. By contrast, unemployment and deprivation with no end in sight are the predictable results of following the troika's policies."...

http://www.guardian.co.uk/commentisfree/2011/sep/26/greece-default-debt-exit-eurozone

There's more in the opinion piece. Think of it like this Greece has had an economy with a large public sector for a long time, they've also had a long tradition of tax dodgers most of whom were not the working class, yet still they didn't have the woes they have at the moment. Being accepted into the Euro the politicians went on a spending spree, funny how people don't seem to respect currency they think belongs to someone else. Let them go back to a new drachma and sink or sail on their own merits. Let's see what happens when they are no longer linked to this beast called the European Union.

 

I find the whole world dilemma interesting. I don't know the solutions except what history tells us. If default can be avoided it is in everyone's best interest. If not, then the special interests will share in the failure and no one will benefit. Just another failed government.

If the reason for failure teaches a lesson then maybe you are right, let it happen and let the people ready to move into and replace the current government bring what they will. It sounds like that is forced nationalization of wealth; to the people, right. I was just taking the angle that learning from the past lessons could be applied to the current situation in Greece without default. But like you say, suffering lies ahead.

What form of government will those who are ready to move in bring?

 

Hmmm...well I guess it all depends on your perspective. It would be in the interest of the US if Greece doesn't default (world markets etc). On the other hand, as a person who finds the European Union to be an undemocratic institution over-riding national sovereignty and self-interest, that was rammed down the throats of its citizens, I would dance a jig if it fell apart. You say history teaches, but there has never been this problem before because there was no euro before, in other words the lesson might just be that a European Union is a bad idea. How would you like it if they asked you (I'm assuming you're american) to pair up with both Mexico and Canada, pretend you don't have borders and other differences, get rid of the greenback (its losing its value anyway) and now what you can and cannot do in your country is dictated by some people you never heard of in some place called Iqaluit and all you know about it is that they have nice chocolate and lace?

The government they would have is the government they have always had except this time they will probably have a lot of strict corruption regulation for all of those crack-pot politicians and tax dodgers. I don't equate failed economies with failed government, they are two different entities. If you have a democratic government and your economy fails you don't automatically say that democracy failed. If a default doesn't happen Merkel and Sarkozy would be happy and the bankers will be pleased but the people on the ground will suffer. So I'm on the side of the people and think the EU, Sarkozy and Merkel, the IMF and bankers in general can all go and stick it.

 

You make a good point; it is a matter of perspective. The European Union was supposed to take advantages of all countries sharing in a common goal, bringing themselves together. If it doesn't work because the individual countries prefer sovereignty then it was a bad idea to start with.

 

",,,Greece believes its budget deficit as a percentage of GDP will be 8.5%, which is above the 7.8% target established by the EU/ECB/IMF “troika”.

Although Greece has implemented austerity measures in order to secure bailout funding from the Troika, the weak economy has meant lower revenues for the country. According to Greece’s documents, the Greek economy is expected to shrink by 5.5% in 2011.

Recall that the IMF’s Christine Lagarde has said publically that Greece must meet its targets in order to receive aid. The next tranche of aid - €8 billion – is needed by mid-October in order to avoid an abrupt default on Greece’s sovereign debt. ..." From: http://www.stateofthemarkets.com/re.../1/0/21ed6d09d79706fea400c22d290ecce8e3e0f599

Billy T comment: probably good to get it over with - default, like Argentina did, give the bond investors a 50% or so hair cut and delayed pay back of even that.

 

Why does Germany have to pay for Greece's debt? For what? Just because of the currency Euro?
Stupid!

 

That's what Merkel is choosing to do but my guess is that they are going to kick her sorry ass out of government and exit the euro, and I'm not the only one, better minds than myself are predicting the same scenario.

 

I don't know the IMF can come up with and endless supply of funds, but let us say it can. Greece is finding that interest rates on what it owes are so high that it cannot come up with enough tax revenue to pay the interest and pay what is owed on bonds coming due. The more the government has to lay off people from government jobs, the more unemployed. People buy less so less is is produced. Prices fall and the revenue the government gets from the shrinking economy also declines. That means it becomes even harder to pay on its government loans.

So, investors assume it will default with the result that the value of the bonds falls even further and the government must pay even higher interest rates to sell new bonds.

The IMF would just be throwing good money after bad.

 

Not a "kick down the road" -just a "tap" one month into the future:

"Reuters reports that according to Greece’s Finance Minister, the country has enough money to make it through mid-November without defaulting on sovereign debt. It is likely for this reason that the previously agreed upon October 13 deadline for a decision on the next tranche of bailout funds has been cancelled. ..."

From: http://www.stateofthemarkets.com/re.../1/0/16fa31fa6c4df58fe4073e44102b88edf1d010cd

 

Alessio Rastani said it as plain as day

According to this trader it dosen't really matter that there is a bail out plan as Goldman Sachs, not governments, rule the world...
It's the first time I've heard a trader put it as it is on a major tv channel.

http://www.bbc.co.uk/news/business-15078419

 

"... The ECB will spend 40 billion euros ($53 billion) on covered bonds starting next month and will offer banks two additional unlimited loans of 12 and 13-month durations, Trichet said at a press conference in Berlin today after policy makers left the benchmark interest rate at 1.5 percent. He also said the ECB will continue to lend banks as much money as they need in its regular refinancing operations at least until July 2012. ..."

From: http://www.bloomberg.com/news/2011-10-06/trichet-says-ecb-to-buy-covered-bonds.html

I think stocks in EU & US must be up on this news, but have not looked today.

 

It is the first time that I have heard it stated so matter-of-fact, yet it comes as no surprise to me.

For every transaction, some will gain and some will lose by it.

'Rescue packages' and 'Stimulus packages' are an attempt to prop up a system that may have outlived it's usefulness.

The problem being, that we have not got an alternate system waiting on deck.

Fiat currency, with it's ability to inflate and deflate overnight in response to a rumor is inherently unstable, IMO.

My personal experience was in 1984 with the first running of the Yukon Quest Sled Dog Race.

The prize money was transferred from a U.S. bank to a Canadian one and the cheques issued in U.S. funds at the Canadian end. Somewhere during the week of transition and final execution we incurred a loss of $1,200.00 while dealing with a purse of $50,000, due to exchange rates etc.

The sweat equity of volunteers had to fund raise to pay off that little operational difficulty.

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:bugeye:

 

EU economic crisis - News Analysis -09-14-2011
http://www.youtube.com/watch?v=Hjs1EpKItIo

 

"... The Trioka (EU/IMF/ECB) inspectors say Greek 2011 fiscal target is no longer within reach. ... Although the Greek government has achieved major reductions in the deficit since the start of the program, the achievement of the fiscal target for 2011 is no longer within reach. This is due in part because of a larger-than anticipated drop in GDP as well as slippages in the implementation of some of the agreed measures. ..." From: http://www.stateofthemarkets.com/re.../1/0/9a03ddd63382d9337d36fbd06b04932915ec4913

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Why kick-the-can (down the road) is such popular game in France. It is sort of like extortion: Give Greece funds now or suffer huge losses. Or as the mafia puts it: "Pay your protection money or your business will soon burn down."

I.e. to avoid bigger losses NOW, I predict the Trioka (EU/IMF/ECB) will pay the smaller amount needed in November even thought Greece is not able to meet the requirements to get this trance of funds, but just before Christmas when big Greek bonds are scheduled to be paid, the Trioka will stop throwing good money after bad and let Greece default. Some Christmas present for the world's economy is it not, as no one knows where it ends with banks taking 50% or more hair cuts?