Greece’s Debts Are Europe’s Problem
By Barry Ritholtz - May 29th, 2011, 3:00PM
Greece seems to be coming up a lot around here today. I mentioned How to Fix Greece in this morning’s reads; John Mauldin discusses how dysfunctional Europe is here.
David Kotok extensively looks into the Barron’s piece here.
But not all of you have a subscription to Barron’s. so have a gander at this infographic, from that article. It tells quite a story:
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what the hell, click on the graphic
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Source:
How to Fix Greece
VITO J. RACANELLI
Barron’s MAY 28, 2011
http://online.barrons.com/article/SB50001424053111903548904576343340195494116.html
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May 29th, 2011 at 5:48 pm
It is ok,
Hans in Germany can work a little harder so Yorgo in Greece can enjoy his ouzo by the beach and listen to the bouzouki.
May 29th, 2011 at 6:31 pm
This shows the hope for democracy. The bankers now want mortgages on Greek assets in order to advance more money to help pay the bankers. If one or more of these countries tell them to F off and goes back to their own currency, we may get the crisis that will dethrone the bankers.
Yorgo will have hard times for a decade whichever way this goes. Hans isn’t gonna want become a slave to the banks for the next decade.
May 29th, 2011 at 6:38 pm
Deutsche Bank and Societe Generale? Hmmm. Where I have heard those names before?
May 29th, 2011 at 7:53 pm
There have been revelations that the Prime Minister of Greece and his family forced the Hellenic Post Bank of Greece to sell it’s 1.3 bln in Greek CDS to a company by the name of IJ Partners, of whom Papandreou is presumed to have a stake. The value of these contracts is now estimated at roughly 27 billion dollars. Members of parliament have spoken out on the floor, including leader of LAOS Mr. Karatzaferis, and New Democracy MP Mr. Kammenos.
This is enslavement of the highest order. Please read the document below and circulate it. It was the best I could do to piece together all the different pieces of news and information that exist on this from greek blogs, media and legal documents. If anyone would like to add or correct statements made within, please leave a comment on the blog post or respond to this comment on ZH.
http://coveringdelta.wordpress.com/2011/05/29/accusations-of-treason-in-the-greek-parliament/
May 29th, 2011 at 9:38 pm
Essentially, the Greek Government borrowed money from German and French Banks to allow Yorgo, a train driver for the Nationalised Greek railways, to retire at age 50 with a pension of EUR 150K. (A little like some US States, particularly California, in that respect.)
Now, the Greek Government wants to borrow money from Germany (Via the EU/ECB) and the US (Via the IMF) to pay back the Banks. This is a shell game designed to further bailout the German and French Banks “Through the back door”.
Perhaps unsurprisingly, taxpayers in Germany and other countries are increasingly unwilling to fund this largesse. Why do Governments, against the will of their own people, continue to bailout incompetent Banks at the expense of ethe taxpayer and,in the process, destroy the free market and perpetuate “Too big to fail” and moral hazard?
May 29th, 2011 at 10:11 pm
philipat,
your Query: “Why do Governments, against the will of their own people, continue to bailout incompetent Banks at the expense of the taxpayer, and, in the process, destroy the free market and perpetuate “Too big to fail” and moral hazard?” (w/Edit)
See some of ..
Mark E Hoffer Says: November 10th, 2008 at 9:35 pm
karen,
it isn’t “the banker bailout” bill, it Is “the banker Takeover” bill..
of course, we pay the Bill, they get the Takeover..
depending on the location of your chair, a beautiful thing~
but, hey, we gots a new President, he”ll “Change” everything if we only “Hope” hard enough..
actually, it’s the other way ’round, He better Show “Change”, or “Hope” We’re too ‘Cained out to notice..”
http://www.ritholtz.com/blog/2008/11/amex-we-are-a-bank-too/#comment-125451
~~
http://www.ritholtz.com/blog/2008/11/words-for-the-wise-oct-27-nov-2-2008/
CNBC: Recovery Could Take 20 Years – Hugh Hendry
“The ongoing financial turmoil and economic gloom will take 10 or 20 years to heal, Hugh Hendry, partner at hedge fund Eclectica, told CNBC.”
“..Sovereign Society: Felix Zulauf – world is entering a “soft depression”
“Zulauf believes we’re entering a soft economic depression. If not for the government’s backstops on October 13 to prevent further stock and credit market seizures, a depression would have followed. Zulauf is convinced the markets would have crashed.
“His prediction of a severe recession will take the S&P 500 Index down all the way to 550, possibly 500. Stocks have already plunged 40% from their October 2007 highs. Zulauf is adamant: ‘US stocks are still not cheap. The S&P 500 Index trades at 1.7 times book-value and the Dow more than 3.5 times book. This is still expensive.’
“The Swiss advisor now predicts a very different world will emerge as a result of widespread government nationalization of banking. These efforts – started in the West – will send the wrong message to emerging markets, also likely to follow the same course of full or partial nationalization.
“This will also mark the end (at least temporarily) of the globalization theme, as markets will gradually be closed to foreign competition amid a marked increase in government regulation of financial markets. He also expects foreign currency controls as economic distress accelerates.
“According to Zulauf, a ‘soft depression’ lies ahead. And Europe might be the focal point because the banking system there is worse than in the United States.
“‘There’s a disaster unfolding in Eastern and Central Europe. These countries are now unwinding leverage, namely Hungary, Romania and Bulgaria. They’ve borrowed heavily in foreign currencies and now have to pay those funds back as bank liquidity dries.’
“Zulauf also believes Italy, Greece and Spain will eventually exit the single European currency, or the euro.
“He seriously doubts the euro – in its current form – will survive beyond 10 years as government deficit ceilings are breached amid a bulging credit crisis. The 15 members comprising the Eurozone must keep budget deficits at 3% of GDP or lower in accordance with the Maastricht Treaty…”
~~~
LSS: & IOW, this, the Topic of this ~2011-dated Post, is, just, so much re-hash of ~”What has been Known..”
~~~
Good Q:, though, very Bright of you..(seriously, a Q: more People should be asking..)
May 29th, 2011 at 10:22 pm
Look, you’re just going to have to forgive my ignorance, but it sounds to me, like someone is going to have to be shot here…. This kind of designed negligence can not go unpunished…
It just don’t look good…
May 29th, 2011 at 11:28 pm
@philipat and bubowski
The EU is more a less the US-China economic relationship on a smaller scale. Yorgo is not much different from your average American in the 2000′s who was encouraged to borrow to buy more Chinese goods, except that Hans was encouraged to buy Northern European goods. Hans is analigous to one of those industrious Chinese workers.
The Germans have really been playing the China game but were spared the need for currency manipulation by the inherent flaw in the Euro. The Euro is weaker than the DM would have been because the EU has a good proportion of weak economies in the PIIGS and others. If there had been no Euro, Germany’s goods would have been priced in much stronger DM and it would not have been able to export all those precision goods it has sold since the turn of the century because the PIIGS, probably the French and even the Americans could not have afforded them. It would not have so many industrious Hans employed because its goods were too expensive. Instead the Germans have played the game like more or less like China, joining the EU and using the Euro to be able to export goods priced in a currency much weaker than it would otherwise have been. This has provided employment to all those self-righteous hard-working Hans.
OTOH the PIIGS have had a currency (also the Euro) much stronger than their old national currency would have been and they were able to buy more German stuff with it.
But where do the Yorgo’s get the Euro’s to buy all that German stuff? The northern european banks were only to0 happy to lend Greece and Yorgo the money to buy all those German goods, much like the PBOC has lent the US and Joe Sixpack the money to buy all that Chinese stuff. (The ECB probably would have done it but wasn’t allowed to.)
After being encouraged to borrow, Greece and Yorgo now owe more than they can pay. The Germans are not guiltless; they have profited by keeping their factories humming and collecting all those Euros the PIIGS paid for German good when they otherwise wouldn’t have been able to compete. The Euro’s Germany and other exporting countries have been collecting came from their own banks, just in the round about way of being lent to Greece and Yorgo first to finance their purchases.
The US has only avoided the fate of Greece because it controls its own currency and can print all of the reserve currency it wants. The PIIGS can’t as their money is controlled by the ECB, i.e. the German and French governments who are owned by the banks, just like here.
May 29th, 2011 at 11:32 pm
Oops – typo. Hate the WordPress editor. Obviously, Yorgo and not Hans was encouraged to buy Northern European goods.
May 30th, 2011 at 1:26 am
They’ll print. They always print. It is print or hang for those types and they know it
I don’t even know why legitimate news sources even entertain their games of musical chairs when it is all orchestrated anyway. The media should just count down the stages before the (insert relevant country or regional) central bank cranks up the printing press to turbo speed from the norm
May 30th, 2011 at 3:40 am
Actually, the Eurozone is also the US’s problem because you guys pay for large parts of the IMF support.
Let Greece default, let Portugal default, let Ireland default. Do the math, the non-default options DO NOT MAKE SENSE. Enough of this bullshit.
May 30th, 2011 at 3:46 am
I should add that in the case of Greece, the Greeks now actually have the better hand at the negotiating table. In their place, I would certainly not agree to another bailout – at least not on the terms now being dictated. The Greek government has been brainwashed by the eurocrats and bankers to believe that the country will go up in flames if they default. It will not.
The next few years will be horrible and painful no matter what. Get out from the crushing debt burden and start fresh on your own terms. The claims that trade will seize and greece will be unable to do business with the rest of Europe/world are ridiculous. Greece is better off leaving the Eurozone, devaluing and thinking about themselves first. Say F U to the EU, people.
May 30th, 2011 at 7:34 am
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May 30th, 2011 at 7:38 am
One of my personal analytical strengths is that I always try to break complicated problems down into simple and abstract issues. Then I analyze these more abstract and simplified issues. Then, finally, I upscale the solution to the original problem. This technique makes the hype and crap disappear, and frequently exposes it as ridiculous.
Greece is, basically, a professional deadbeat, and Europe can’t make it pay. Greece started this mess by conspiring with GS a few years ago to hide massive debt as off balance sheet derivatives. Only a deadbeat does that. Now they appear to lack interest in paying their obligations. Lots of pixels have been spilled in trying to figure out how to solve te issue without making any real changes, but, it appears, it’s harder to hype debt than it is to hype stock prices.
So, it boils down to “how do make a deadbeat county pay their bills when they know they can make you cover their debts for them if they ignore you long enough?” This is the current state of the debate. To answer this question properly, you need to put yourself in the shoes of the deadbeat and ask yourself how to continue stalling. Then, answer to yourself, “how can you counter this?” In the simplest terms, the only two options are default or Europe paying the bills for Greece and hoping the bond markets don’t view Europe as an analog to Uncle Stupid. Or repossession.
May 30th, 2011 at 7:39 am
. . . . while here in the good ol’ U.S. of A. our only-too-competent “leaders” lead us down the primrose path, blithely unaware any problems even exist:
http://neweconomicperspectives.blogspot.com/2011/05/what-happens-when-government-tightens.html#more
and it’s bidniss as usual:
http://climateprogress.org//2011/05/27/report-gas-price-spikes-tax-american-economy-to-benefit-oil-companies/#more-50300
but, hey – enjoy the “holiday weekend!”
May 30th, 2011 at 7:43 am
It’s all Greek to me:
http://theautomaticearth.blogspot.com/
May 30th, 2011 at 8:13 am
“French and Germany banks…are amoung the most exposed to Greek debt….”
Is it the banks themselves?
Or is it the bank’s customers, like pension funds? Wealth individuals?
Banksters versus retiring French and German workers, who is really going to be whacked by the default?
If its retiring workers the pressure to bail out “the banks” will be unstoppable.
May 30th, 2011 at 9:03 am
How to solve Greece’s deadbeat issue:
1) Wait for S&P to fall to sub 1000 after end of QE2
2) Fed tells Greece to buy slightly out of money call options for commodities and stocks that react strongly to QE. Fed loans Greece money for this.
3) QE3 begins
4) Markets rise with liquidity, animal spirits, and volume increase.
5) 1 month before end of QE3, Greece sells calls for big profit.
6) Greece pays back Fed with QE3 profits and also pays back all current debt.
May 30th, 2011 at 9:08 am
Haigh:
The way things work these days, the governments accept it as holy writ that they have to protect their banks no matter how stupid the bankers have been. The whole elite power structure is built around the bubbles created by the banks and they don’t want it to collapse. Look how powerful DSK had become despite his behavior which had been publicized for years. The Germans are probably hamstrung by their inability to envision anything as messy and disorderly as what Barry advocates. Hans of Germany is mostly worried about his job and benefits and doesn’t doesn’t see that the status quo is unsustainable because of the increasingly large bailouts required to allow other countries to continue buying what Hans makes; the job and benefits are in danger either way.
That’s why I think a crisis where the status quo becomes politically impossible to maintain is the only chance to restructure things short of a bigger collapse.
May 30th, 2011 at 10:30 am
It seems like the European community is doing everything possible to destroy the Greek economy, in which case they are acting against their best interests as well. This site here has a good discussion of why the latest proposal, selling asset to pay debt is harmful in the long term
http://dismalpoliticaleconomist.blogspot.com/2011/05/more-on-europes-march-towards-non.html
and that same site earlier talked about how Greece could leave the Euro and leave the European economy and community in shambles.
http://dismalpoliticaleconomist.blogspot.com/2011/05/omg-how-greece-could-leave-euro.html
In America we do not pay much attention to this stuff, but with Spain tetering on the brink the worst case scenario is a second financial crisis in Europe, and somehow that does not seem like a good thing.
May 30th, 2011 at 3:10 pm
With unemployment over 15%, austerity in Greece is already way beyond the point where it has become counter-productive. Every unemployed person looking for a full time job is about $100K/year or GDP lost forever. The one thing you do not want or need in a country that has serious economic problems is unemployment. One of the reasons China keeps growing is that they have decided not to allow the personal and societal loss of unemployment. In contrast, our free market capitalism models are hopelessly incapable of dealing with this catch 22. We either throw large numbers of people into unemployment, thereby killing the GDP that is supposed to pay back the debt, or we let the market forces make a run on the country driving the interest payments up to a level that leave no other choice than default.
May 30th, 2011 at 8:59 pm
@Mike in Nola
Good points all, except that we are discussing SOVEREIGN debt. Debt which was squandered at the Government level on Yorgo’s salary, benefits and pension, all at grossly inflated levels. Perhaps Yorgo deployed some of this largesse on German imports, but that is secondary.
Add on top of all the other inputs here that Tax Evasion is the National Sport in Greece and you have the recipe for insolvency, not illiquidity. Greece primarily has to get its own house in order and, in the interim, I can see no good reasons why Fritz in Germany, Heike in Finland etc should see thier *Very high rates of) taxation used to bail out German and French Banks. No more than Joe sixpack (Now known as Joe fourpack, with WalMart perhaps kicking in two for free) should have used his taxes to bailout the falied TBTF US Banks.
These countries are, for purely political reasons, following the Japanese model, and the outcomes are likely to be the same. What was that old joke about the definition of stupidity being to do the same things over and again and expect the outcomes to be different? The Swedish model was incredibly succesful and was there for all to see, yet out “Elites” (Read Bankers) wouldn’t permit this.
May 30th, 2011 at 11:28 pm
It may be sovereign debt, but it didn’t just sit in the treasury. I read somewhere that about one in three Greek workers has a public sector job.
Analogously, while the PBOC did not directly lend Joe Sixpack any money, it still funded his purchases of Chinese goods at you-know-where through purchases of Treasuries.
I’m not defending Greek government efficiency, or rather inefficiency, but this all has the same aura as the US subprime lenders griping about all those deadbeats they lent money to. Greece’s economy wasn’t exactly a secret.
BTW, according to ZH, the Germans have caved and are going to approve more money to kick the can a little further downt he road.
May 31st, 2011 at 9:29 pm
Well, what a surprise that the Bankers win again?!
June 3rd, 2011 at 1:43 pm
[...] included having lenders take 50% losses. For a good summary of sources and charts on the crisis, check in here. Comments [...]