If only they’d defaulted way back then

Protesting farmers have been a regular feature of the social unrest that has sporadically gripped Greece. It is now more than seven years since the Greek financial crisis erupted and the debt drama has often had a deja vu quality about it.

Eclipsed last year by the UK’s vote to exit the EU, and Donald Trump’s equally unlikely US electoral victory, the nation’s epic struggle to keep bankruptcy at bay has been out of the spotlight.

All of this would be entirely over by now.

Compare and contrast with Iceland….

50 comments on “If only they’d defaulted way back then

  1. If only the Greeks had carried out a wholesale economic restructuring back then. If only they had had a military coup way back then. If only they had defaulted back then. If only the Euro had collapsed or they had withdrawn back then.

    A lot of possibilities really. But as long as the Greeks need to keep borrowing in order to spend more than they earn, as long as the Europeans want to keep indulging them so that their moronic dreams of a Federate Europe move ever forward and never falter, as long as the Greeks hope for something to fall from the Magic German Moneytree which will mean they won’t have to earn their own living, it is going to be Greek Groundhog Day.

    I think Punxsutawney Phil would say it is going to be a long cold winter in Hell before anyone does anything sensible.

  2. They are still running a budget deficit. They have often said they are not – and in 2014 they came close to not doing so – but then in 2015 they returned to their drunken sailor norm:

    Greece recorded a Government Budget deficit equal to 7.20 percent of the country’s Gross Domestic Product in 2015. Government Budget in Greece averaged -7.93 percent of GDP from 1995 until 2015, reaching an all time high of -3.60 percent of GDP in 2014 and a record low of -15.20 percent of GDP in 2009.

    Those are all on official figures of course. The same ones they have been forging for the past generation. Believe them if you must. The bottom line is that a default would result in them not spending about 8% of their GDP that the nice Germans keep giving them. They should default.

    Then the Greeks would know what austerity was.

  3. I think those are after interest and debt repayments….and I think they’re running a primary budget surplus, which is the important thing if you’re going to default.

  4. Even if they claimed they were running a budget surplus, why would anyone believe them? I wouldn’t believe the Right, but the Lunatic Left is another whole problem.

    The best solution is for them to default. Then when the tide goes out, we will see who is naked.

  5. So Iceland used its now-defunct banks to steal enormous quantities of Dutch and British money, effectively destroyed its currency in the process, and is now enoying the currently high price of fish.

    That’s a model to follow?

    For once I agree with SMFS – Greece should default (again), and keep doing it until people learn to stop lending to them. Euro or Drachma is really not the major issue. Default is (unavoidable) theft, and is just done a different way when you can print your own money. Either the politicians fix the problem or the market will do it for them.

  6. “Either the politicians fix the problem or the market will do it for them.”

    Or the long suffering Greek people take matters in to their own hands.

  7. Two questions for BiG:

    1. A default with your own currency is a part of the standard ‘fix’ for this situation. But a default within the Eurozone? How exactly us supposes ti work? What happens then?

    2. That ‘hot chocolate’ question I put the day on tariff barriers: do you agree with the EU’s externall barriers? Do you agree with Richard Murphy and Colin Hines on this?

  8. Worth pointing out that, as usual, it won’t be the ordinary Greeks – Costas & Maria – who have lived beyond their means & run up the debts. They’ve done a fair day’s work for a fair day’s pay to pay for their lives, (Albeit some of the jobs will be the creation of funny money used to buy their votes) The people who’ve dropped the country in the shit will be its political class & much of the personal debt will have been run up by its middle classes with their preferential access to credit.
    And now, of course, Costas & Maria will be suffering to bail out those politicians & bankers & to protect the wealth of the middle classes in Greece & in the countries were party to the scam. For no-one gives a fuck about Costas & Maria.

  9. bloke in spain – “Worth pointing out that, as usual, it won’t be the ordinary Greeks – Costas & Maria – who have lived beyond their means & run up the debts. They’ve done a fair day’s work for a fair day’s pay to pay for their lives,”

    Garbage. It is precisely the ordinary Greeks who have lived beyond their means. Greece has had a little bit of the Mobutu leadership but that money has gone on cheap mortgages, early retirement, hefty welfare, the Athens underground and so on. Greeks – all of them to a first order approximation – have been living beyond their means. The Germans have paid for it.

    “And now, of course, Costas & Maria will be suffering to bail out those politicians & bankers & to protect the wealth of the middle classes in Greece & in the countries were party to the scam. For no-one gives a fuck about Costas & Maria.”

    They shouldn’t have voted for PASOK.

  10. So Europe has a shortage of lettuce broccoli and courgettes following floods and snow in Spain and Italy, and supplies from California are being sourced. Does anyone know why Greece and Cyprus aren’t stepping up here with some over-priced supplies to tide the North Europeans over? Or maybe they are, but we don’t hear about it as it they are bought up by non-UK supermarkets.

  11. SMfS. I see much the same here in Spain. Yes, Jose & Maria have benefited from all that public sector spending that’s created jobs, bought their votes. But they’ve done the jobs just as diligently as they’d have done real jobs. When our city spends money it doesn’t have paving those pedestrian precincts we don’t need, the guy laying those pavoirs gets just as tired & dirty doing it as he would do if they had a purpose.
    It’s Spain’s insufferable middle classes who’ve pyramided debt, overcooked the property sector with developments nobody wants. And now don’t want to face the consequences.
    So it’s Jose & Maria get turfed out on the street when they can’t find the rent.
    I’m in no way a socialist but this whole pile of shit has been built on the backs of ordinary folks They’re not the ones were at the front of the queue for the handouts of funny money. If the whole thing fell over, it wouldn’t be their savings at risk (savings enhanced by the funny money). Because they don’t have much in the way of savings. “Austerity” is mostly the rich protecting their own at other people’s expense.

  12. I’m not sure that the Krauts have paid for it, because their industry has blossomed under the artificially low (for them) value of the Euro. The Greeks have an artificially high (for them) value of the Euro, which dissuades (for example) holidaymakers going there. If they returned to the DM and the Drachma, the former would rise until Greeks couldn’t afford Merc/Audi/BMW etc, and the Drachma would fall until Greece was busting at the seams with folk wanting sun, sea and stifado.

  13. @Bongo
    “Does anyone know why Greece and Cyprus aren’t stepping up here with some over-priced supplies to tide the North Europeans over? ”
    Oh FFS! That’d imply Greece & Cyprus had fields full of lettuce broccoli and courgettes destined to otherwise rot & the transport infrastructure sitting idle to move it.
    Lead time.
    Judging by the 2€80 cauliflower on the supermarket shelf, yesterday (couple weeks ago 1€), Spain’s using it’s domestic consumption supply to bridge the demand gap.

  14. “Jose & Maria have benefited from all that public sector spending that’s created jobs, bought their votes. But they’ve done the jobs just as diligently as they’d have done real jobs. When our city spends money it doesn’t have paving those pedestrian precincts we don’t need, the guy laying those pavoirs gets just as tired & dirty doing it as he would do if they had a purpose”

    Sort of true, but if you are employed by a crook, and he goes to prison and has all his assets removed, you can’t really complain now can you? You were living on stolen goods, so when the gig is up, morally you haven’t got a leg to stand on. Even if your work as gardener or cook was just as hard as that for legit employer. In fact Costas and Maria have more culpability because while you may not know your employer is a crook and the money stolen, voters vote with their eyes open – they know what they are voting for, and how they expect to benefit from it. If you vote to steal from others, expect no sympathy when the SHTF.

  15. Nope, bis. I’m implying Greece & Cyprus should already be producing this sort of stuff in winter anyway ( I suspect they are not ). But that they should now switch the sales to where to it gets the highest prices.

  16. “So it’s Jose & Maria get turfed out on the street when they can’t find the rent.
    I’m in no way a socialist but this whole pile of shit has been built on the backs of ordinary folks They’re not the ones were at the front of the queue for the handouts of funny money.”

    No, but they keep voting for the snake oil salesmen who offer free stuff paid for by other people. There are more working folk than middle class socialists, if the working classes didn’t vote for the Left they’d get nowhere near power. If you vote for socialists you are culpable for what they do, even if you get the shaft in the process.

  17. I was in Greece all last week with work, and the Greeks are still talking about their political and economic futures- they are very exercised about the position they are in.

    The folks I spoke to blame the politicians for spending money the country doesn’t have on high probability voting groups- pensions for the old, public sector wage rises etc.

    There’s more anger in the young/educated/middle class at the local politicians than the Troika/merkel/illuminati. When you speak to those outside the young/educated/middle class the position is reversed- they hate the EU, and do so to a degree that makes Ecksy look like Nick Clegg.

    Every Greek I know thinks the current position is unsustainable and that things are going to get worse.

  18. I know Greece quite well, and it is a third world country. Corruption is at African levels. Tax evasion is endemic. Enterprise is opening a bar or getting EU grants for crops you can’t be bothered to harvest. Many of the talented leave to join the diaspora. Every Greek who remains wants to take out more than he puts in, even if that means voting knowingly for politicians who will only make the national situation worse. And Greeks have a strong tendency to blame everyone but themselves…the country was ravaged by slav, Frankish and Venetian invaders…the Turks bled the country dry…the Nazis stole their gold…and they lost their Marbles to the British. The national story is of victimhood. Greece is mess, and things aren’t going to change any time soon. That said, they are a friendly and hospitable people.

  19. “Sort of true, but if you are employed by a crook, and he goes to prison and has all his assets removed, you can’t really complain now can you? You were living on stolen goods, so when the gig is up, morally you haven’t got a leg to stand on.”

    Sorry, not true at all. Unless you yourself knew all about it and we’re happy living with it then you become a marginal victim of the crimes, collateral damage.

  20. I’d go along with that, Jim, if there was equality of information. But there isn’t. Folk get lied to.
    Ordinary folk don’t understand how the whole thing works because their energies are devoted to doing the things puts food on the table & roofs over heads. So they trust what they’re told. Crooks don’t tell you they’re crooks & in this day & age it’s the crooks are in government.

  21. “If they returned to the DM and the Drachma, the former would rise until Greeks couldn’t afford Merc/Audi/BMW etc…”

    The Greeks would just import even more stolen ones from Albania.

  22. ” Unless you yourself knew all about it and we’re happy living with it”

    Which is exactly the position the labouring classes in Greece are in – they know they are voting for crooks, they just do so because they think they will benefit from the crookery. So regardless of how hard the work they do maybe, they are still morally culpable for voting for the crooks.

  23. “Ordinary folk don’t understand how the whole thing works because their energies are devoted to doing the things puts food on the table & roofs over heads. So they trust what they’re told. Crooks don’t tell you they’re crooks & in this day & age it’s the crooks are in government.”

    Sorry, don’t buy that. People are not stupid, they know a crook if he was on their doorstep selling them stolen goods, so just because the crooks are further up the food chain is no reason to excuse your vote. We’ve had 100 years of socialist history to examine now, and its brought nothing but misery and death to everyone who tries it, voluntarily or not. If you don’t get that by now you don’t deserve my sympathy.

  24. “Folk get lied to… they trust what they’re told.”

    Trust in government in Greece is very low, and ordinary greeks have an attitude problem. They know the score. They know what the problems are, but everyone wants someone else to pay for them. They tell themselves that they shouldn’t pay this tax when everyone else is evading it and that someone else will take/pay this bribe if they don’t. Costas and Maria are implicated in the whole dreadful mess.

  25. ‘So they trust what they’re told.’

    How’s that working out for them?

    Democracy . . . you get the government you deserve.

  26. Hang on a moment.

    So, ignoring SMFS’s bone-headed conflation of Europe and Germany, who’s the idiot?

    Why did Germans continue to elect politicians that would press on with the Euro, and fail to police it?

  27. @Ironman,

    Default is not usually the fix when you run your own currency – printing more of it (at least electronically) is the easier option then. That is essentially what the USA, UK, and even much of the eurozone wa/is doing with QE. The governments want to continue to borrow, at low rates, the market would not allow that so the central banks do it for them.

    That doesn’t work when the debts are in a currency the government cannot magick more of into being (Argentina’s dollar loans, or Greece’s euro loans). The next default in the eurozone would most likely look like one of the last two (Greece to IMF in 2015, Greece to private bondholders in 2011).

    The EU should set no tariffs on any imports of anything from anywhere. And neither should anyhwere else. I don’t agree with Tim that doing this unilaterally immediately is a good thing. They are still (to the extent they remain) useful bargaining chips, and we’ve spent the best part of 30 years eliminating them or drastically reducing them, globally. There really isn’t much further to go, so why start a revolution now in a process that is evolving quite adequately?

    We also need to bear in mind that while people like Tim and I, basically western market capitalist liberal types (even if Ecks and SMFS think I am a communist), care about the enrichment of the population as a whole. Many others still think about the wealth of nations, and care more for hegemony (even be it obtained by state-subsidised dumping) than actual economically rational outcomes. If tariffs help to focus the minds of certain leaders of certain countries on implementing their actual advantages, rater than trying to obtain by foul means new advantages, so be it.

    So yes, the economy is political.

  28. BiG

    Well,first, thank you for not imaging I see you as a communit and for recognosing I am not one of those headbangers.

    I am struck by this: , “and we’ve spent the best part of 30 years eliminating them or drastically reducing them, globally. There really isn’t much further to go, so why start a revolution now in a process that is evolving quite adequately?”

    I do think you want it both ways. You declare yourself (and I I nelieve you) against tariifs and presumably non-tariff barriers. You indicate just how much tariffs have come down globally and that “there isn’t much further to go”. And yet during the referendum you along with just about every Remainer warned of the pending armageddon from removing ourselve from the single market and the customs union.

    For my part I see enough distortion enough product that Europe should be impor ting but is instead producING to show the damage done by theEU’s external barriers. It’s monstrosity stands high.

    As regards defaults, neither the UK nor US had any sovereign debt crisis to handle. So describing their QE in terms of ‘default’ is disingenuous. Similarly you are being disingenuous to talk of Greece’s.previous defaults. The previous debt crises were kicked down the lane by the ECB fibally and probably illegally embarking non its own sovereign debt purchase programmes. A true Eurozone sovereign default would leave the defaulting nation shut our of bone markets… and you know it.

  29. Taking the UK out of the single market could be pretty dangerous. It really depends on what deal the UK can get from the EU. There is a high risk of a “reatliatory” deal, which damages both the UK And the remaining EU economically by the imposition of high tarrifs. Not only does the EU want to discourage other countries from the same path, there is plenty of game theory that people will accept losses to punish others. Stuff that makes sense for repeat transactions. Read Daniel Kahnemann on this, for example.

    This is not to mention that non-tarrif barriers are the biggest trade restraint these days.

    A zero-tarrif world is optimal and desirable, the reality of getting there is clearly less straightforward.

    With the producing not importing (I guess you are thinking largely agriculture), I take your point and refer to earlier discussions about this being an insurance policy (and those high non-tarrif barriers). It’s a good job we didn’t leave our entire food supply in the hands of the Gadaffis and Assads of this world, or have it now in the hands of the Putins or Mugabes. As they did, as those who still run semi-functional countries continue to want want, and as many free traders continue to advocate. Not letting Europen agriculture disappear completely is a good strategic choice, but, I agree, difficult to defend on a purely economic basis if you forget the enormous strategic benefit of controlling the food supply.

    Like I said, many people outside the west do not think purely about wealth maximisation. Putin has many times turned off the gas taps rather than sell profitably, in order merely to flex his muscles. You really wouldn’t want him doing that with food.

  30. The UK and US don’t have sovereign debt crises because they can’t have sovereign debt crises. Both countries control their own currency.

    What they have needed in the last decade is many shed loads more cash:

    https://www.google.de/search?q=uk+debt+to+gdp

    Without QE the financing costs of that would have been ruinous. That is the situation Greece is in, as well as not being able to grow its way out of its debts.

    It’s clear Greece is never going to be in a position to cope iwth its current debt load. Large amounts of it need forgiving. Maybe the bondholders should eat a third of the losses and European taxpayers eat a third. What no one is going to allow (or should even consider) is Greece to become a failed state. And it can be prevented from happening again but brings out squeals against the undemocratic technocrats installed with close supervision from outside. Thing is, you aren’t exactly sovereign when you are bankrupt either, so unless you can find some democratically-electable home-grown politicians with financial sense (fat chance), you are faced with Hobson’s choice of a Troika (or whatever form of foreign interference) or destitution. I know which I’d pick were it Germany in this situation.

    Being in the euro really has very little to do with this. They could (like German local authorities did) borrow in Swiss Francs – defaulting would hardly see Greece thrown out of the Swiss Franc area. It’s a meaningless concept.

    The supposed panacea of devaluation brings inflation, and higher interest rates squashing investment. The boost is a one-off, in the interval before prices rise and extract the costs from the population, and ultimately from producers (in the form of higher wage demands) in a different way to the default scenario.

  31. ‘Shored up by a third EU-led bailout, Athens was told this week that further rescue funds would not be forthcoming until’

    This time is going to be different.

    Ha ha ha ha!

  32. BiG

    “The EU should set no tariffs on any imports of anything from anywhere.”

    Tariffs amd protectionism are part of the essence of the EU. Fortress Europe and all that.

    “There really isn’t much further to go,…”

    For example, EU has 39% tariffs on New World wines. There’s a long, long way to go.

    “Taking the UK out of the single market could be pretty dangerous.”

    Project Fear never dies…

    “There is a high risk of a “reatliatory” [sic] deal,…”

    So a club that punishes leavers is a benign one that we should never leave because…? No, the Fourth Reich is evil.

  33. Get the Greeks to load up on a metric shedload of German goods with borrowed German Euros then default and devalue.
    Pay them back in worthless Drachma.(it is what they deserve)
    If the Germans complain then put all those refugees on trains to Berlin and exit the EU so they can’t take them back.

    The German economy has made a mint by having shit economies like Greece holding down the value of the Euro, time to spread a bit of that wealth Fritz

  34. “Being in the euro really has very little to do with this. They could (like German local authorities did) borrow in Swiss Francs – defaulting would hardly see Greece thrown out of the Swiss Franc area. It’s a meaningless concept.”

    German LAs may have borrowed in Swiss Francs, if they defaulted there was still euros (or DM, not sure when this was) for the locals to use as currency. If the Greeks default on their debts in euros, they can’t go on using euros in Greece, the EU won’t allow it, for obvious reasons, namely if they can default why can’t everyone else? So there would be no medium of exchange in Greece, they’d have to transition to a new drachma (or whatever). This is incredibly disruptive, making the default almost impossibly painful. Or theoretically painful, I actually think it would OK, the markets know Greece can’t grow its way out of the debts, any solution would be seen as better than the status quo. But of course you wouldn’t know how it would go until you tried it, and by then it would be too late if it was horrendous.

    So being in the euro (ie not in possession of their own printing press basically) IS the source of their woes. They can neither properly stay in it, or leave it. The only solution is to hope that the Germans have a change of heart and let them default within the euro, rather than just lending them more money to pay service the debts they already have. Which I can’t see happening (see above).

  35. BiG

    There might well be a high risk of a retaliatory nkn-deal. And yes, it might well damage EU nations more than us. In fact this sews the number one arebt offered by Project Fear to stay in.

    It’s worth noting though that there is absolutely nothing positivr abouit the EU in this at all. It iis an admission of the sheer implicit fascism at the heart of the project. In the long run the answer becomes very simple indeed : we must get out and stay out.

    Can I also thank you for implicitly acknowledging the ‘Fortress Euripe’ nature of the project . The U.S. is quite right in wanting to see this beast die.

  36. If the Greeks default on their debts in euros, they can’t go on using euros in Greece, the EU won’t allow it, for obvious reasons, namely if they can default why can’t everyone else?

    How would the EU ‘not allow it?’ Lots of places that aren’t the US use USD as their currency – usually because they have a history of debasing their own currency and can’t borrow in it.
    Continuing to use the Euro would mean that Greece couldn’t monetize their deficits (which is sort of the whole point of controlling the money supply for a chronic over-spender), but I don’t why they couldn’t do so, or what mechanism the EU would use to prevent it.

  37. BiG has answered it for us – although he jasn’t followed through to the conclusion his own excellentnlogocnis leading him. Any body/organisation without seigniorage that does not.make good non its debts faces rising borrowing g costs to the point not effectively is shut out of capital markets. That is where Greece is headed.

    The amswer:leave the Eurozone.

  38. We have a long running thread on this subject on the sailing forum I use. Interestingly the ex-pats there reckon most Greeks want to stay in the Euro because they don’t trust their own politicians.

    There’s always an excuse, but the EU can kicking can’t carry on much longer. We’re now in to delays because of Geman and French elections. Then there’s dealing with Brexit and Trump. This intractable problem isn’t going away.

  39. @dcardno: well even if the ECB couldn’t stop the Greeks using the euro, there’s no way they could continue to use it given they have a massive balance of payments deficit. Money would just drain out of the economy. They need to have a devaluation to balance things up a bit – encourage their strengths (cheap holidays) and discourage their weaknesses (buying BMWs). If they keep the euro a devaluation is impossible other than the hard way – via economic repression and reduced wages, which is what they are suffering right now.

  40. BobRocket – “The German economy has made a mint by having shit economies like Greece holding down the value of the Euro, time to spread a bit of that wealth Fritz”

    Sorry but you mean the Germans worked harder and longer than they should have, saved up more money than they needed to, only to have it stolen to subsidise Greeks while they lounged about doing nothing?

    The Germans are *worse* off from this deal. They have consumed less than they could have. The Greeks are better off. They have consumed a lot more. The Germans have been spreading the wealth around. They need to stop.

  41. Jim, Greece has already defaulted twice in the last 10 years (okay one was “merely technical”) and is still in the euro.

  42. SMFS,

    they were the ‘Sick Man of Europe’ before the Euro, well made but overpriced goods that no one could afford to buy, they effectively devalued the Mark to be on a par with the Lira, Drachma, Peseta and Escudo, no wonder you see BMWs/Mercs everywhere when the purchase price is comparative with a Peugeot/Fiat.
    How many people would buy Miele when its real price would be twice that of Hoover ?
    The German economy could cope with the UK leaving but not the PIGS (the Pound was bouyed by the Euro economy and the Euro was held down by ours). If they left the Euro would skyrocket taking out the German economy.

  43. “Greece has already defaulted twice in the last 10 years (okay one was “merely technical”) and is still in the euro.”

    It hasn’t walked away from its debts though has it? Said ‘Hard luck boys, we’re not paying a penny, go swivel for it’? Its just renegotiated each time. Thats what I’m talking about, a complete reset, clean slate and start again. I can’t see the other Eurozone countries allowing them to do that and stay in the euro. If they can, whats to stop all the indebted countries doing the same? Especially if they can run a primary surplus before debt payments.

  44. @Jim,

    If you’re talking about something other than default you should state so up front, rather than talking about default, getting the answer on default, and then saying it wasn’t the answer you were looking for.

    It still is. From memory the bondholder haircut was 70%. By some measures it was the largest sovereign default in history. And Greece is still in the euro, the euro still exists, and you can still buy Ouzo in Athens and in Berlin.

  45. @BobRocket,

    So Peugeot and Renault should learn how to make better cars for the money, or cheaper cars of similar quality. Right? Competition is good?

  46. BiG,

    If you artificially increased the price of a BMW by 20% and kept all other things equal, would they sell as many ?
    German cars were premium products, even VWs were expensive to buy (they were better cars than their cheaper local equivalent) which is why they were rarer on the road than today, they devalued their currency by joining the Euro and have been able to keep it artificially low ever since.
    If the Germans reverted back to the Mark it would soar by over 30% and imports from Germany by the other Euro members would increase in price with the consequent loss in sales (imports would be displaced by domestic alternatives).

  47. It’s a pity that Churchill was so adamant in his dealings with Stalin that he wanted Greece for the West. It would have been much better for everyone (Including Greece) if he had offered Greece to Stalin in return for, say, Hungary and Czech to be under the control of the West.

  48. BobRocket

    they devalued their currency by joining the Euro and have been able to keep it artificially low ever since.

    Is this true? I thought the mark went in at slightly too high a rate (in 1999), and as a result Germany deliberately kept wage inflation strictly under control for a decade or so? By the time of the crash it had more than rebalanced, and hence where we are?

    And with low euro interest rates (suitable for Germany) through that period resulting in higher inflation in other euro countries further exasperating the imbalance by 2008?

    Ie, Germany consciously consuming less during the first decade of the euro, whilst others were consuming more, supported by euro interest policy, giving the Germans a solid advantage at the first big downturn?

    Anyone got some hard stats?

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