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Of Greece and the IMF

So the IMF recommends restructuring Greek debt, and doesn't want to get involved otherwise.

It makes sense. No getting blood out of a stone, and you can't keep people in hock for generations. Look what that did to Germany after WWI; it poisons people, it poisons nations, and these things have a habit of spreading.
Of course it doesn't make the EU look great, but what kind of institution doesn't do real proper checks on a country's economy before letting it join? Especially when there's no mechanism for leaving?

No-one wants to throw good money after bad. We can forgive the debt but give no more, let Greece slide out of the EU, declare bankrupcy and carry on by itself, very tough indeed and surely all the 'example' needed, if we are feeling brutal. Or we can help them rebuild which may annoy everyone and set a worrying precedent for other Eurozone economies in trouble, but lays the groundwork for a secure more prosperous state, which surely benefits all of Europe. Again, it worked for Germany. The mistake is to punish and bully, which does not make for a secure state. Are we prepared to risk that to get our money back? I am no economist, and fully admit I may be wrong... but it is most peculiar that the realities of economy were ignored when Greece joined, and are now being invoked as some inescapable law of the universe, like physics or something. They can't pay. There it is.



( 6 comments — Leave a comment )
Jul. 15th, 2015 09:10 am (UTC)
This is all the common sense - I would vote for you to be Queen of the world.
Jul. 15th, 2015 10:10 am (UTC)
Sounds marvellous! Come and be my prime minister, we'll get some excellent people together and fix the world!
Jul. 15th, 2015 12:04 pm (UTC)
Several problems with this common sense approach.

1. It is illegal. Fundatmentally illegal and would require a change to the Treaty of Rome to happen.
2. Greece owes money poorer than it money. Explain to the citizens of those countries, e.g. Bulgaria, why they aren't getting their cash back, when experiencing lower standards of living.
3. Greece owes €360 billion. Span owes €1.3 Trillion and Italy owes €2 Trillion. Both of these countries have sizable political movements that are also advocating debt relief. What do you think will happen if you set the precedent that people can just vote their debts away?
Jul. 15th, 2015 01:42 pm (UTC)
Good points, I'll try to answer them to the best of my understanding.
1. If it's illegal, how come the IMF is recommending it? And how come it wasn't illegal for Germany?

2. The EU made a mistake with Greece - it might even be more than a mistake. It might have been a deliberate turning of blind eyes to some pretty stellar accounting anomalies - I don't know if Bulgaria gave Greece a direct loan, am I right in thinking that it just paid into EU coffers like all other members? In which case the EU, having made the decision to include a known risk, should support and protect smaller more vulnerable economies from suffering because of the default. Hopefully this won't be necessary in future if we're more mindful of our maths.

3. Yes, as I mention above, of course one issue is the response of other economies who owe more seeing Greece seemingly 'get away with it.' But that's like comparing someone gradually and painfully paying off heavy debts to someone who is an out and out bankrupt. However difficult things are for the former, they can pay in time, they have not lost everything. As I understand it, the IMF is saying that in their opinion, Greece cannot ever repay its debt. I'm happy to be corrected on that if I have misread it...

The trouble is that some creditors don't want to accept that this money is not coming back, that we made a bad bet in letting Greece join. We speculated...and we lost. Perhaps there's a desire to believe that they're lying, that there's loads stashed away somewhere, that we can take their land or their treasures or something or everything, a kind of bailiffs's apoplexy that surely we must, must get our money back.

But we won't. If we take everything there is to take now, we still won't get our money back and we aren't even following basic cynical wisdom as exemplified by Kruschev's quote; "When you are skinning your customers, you should leave some skin on to heal, so that you can skin them again." It's as though there is an attempt to take the whole skin and demand the right to any skin that might grow back... which it won't cause we won't even leave enough to heal!

Perhaps there is a need to punish, to give warning to others never to renege on their debts, never to mess with us financially, or we'll let them sink...but no-one sinks alone. It didn't work with the treaty of Versailles and it won't work now. It will create a simmering mess right on the borders of Europe. Is it worth it?

Edited at 2015-07-15 01:44 pm (UTC)
Jul. 15th, 2015 04:06 pm (UTC)
Re: Good points, I'll try to answer them to the best of my understanding.
1. The Treaty of Rome didn't exist at the time. It does now and to change it needs the unamimous agreement of all 28 signatories. However the private debt did indeed give Greece debt relief in 2012 - €100 billion in total, in 2012. There is no private debt with Greece anymore, nobody will lend them money, it is only nations in the EU who are lending with their tax payers money.
2. Yes Bulgaria did sign up to the collective mechanism and yes there is an inherent risk. That is why they are inclined to now tell Greece to fuck off when they are asking for another €80billion on top of what they already owe. Naturally they don't want to send good money after bad. Greece needs to accept that it is bankrupt, declare itself bankrupt and drop out of the Euro.
The will also point to the fact that the Greeks owe €75 billion to Greece in unpaid tax, a situation that has got worse since Syriasa got elected on the basis that they would end austerity and not pay back the debt.
3. The cost of servicing Greek debt as a proportion of GDP in Jan 15 was 2%. They even had agreement that there interest paid would be returned if they stuck to the terms of the bailout, which they didn't.
Nobody is talking about gradually and painfully paying off debt - they are talking about borrowing another €80 billion. They aren't being punished - they can chose tomorrow to not pay back a penny and go bankrupt. They simply don't want to and given the history of not fulfilling their side of the bargain many countries in Europe simply don't trust them and want cast iron guarentees that any further money lent will be recoverable. All they are doing is representing the people that elected them.
Spain and Italy are also still borrowing astronomic sums. If there was even a hint that they would default there will be a systemic economic shock that will make the great depression look mild.

Jul. 15th, 2015 04:57 pm (UTC)
Re: Good points, I'll try to answer them to the best of my understanding.
Let me see if I understand this.

Greece has had fiscal problems - including widespread tax evasion - for a long time. These escalated dramatically into after joining the EU. A lot of work went into 'shaving' said debt, but even with such attempts, Greece could not repay that debt without loans. They got those loans. But the loans came with demands for major austerity drives that in and of themselves shrink the economy and weaken recovery. If the economy shrinks, there is less money with which to pay back debtors, so the debt - and presumably interest on that debt - grows. It grows into a massive unpayed and unpayable debt. This is what the IMF seems to be pointing at.

At what point do we see Greece's economy flourishing to the extent that it can pay its creditors off? Answer, according to the IMF, never. Never. It's done.

I am not even sure we are disagreeing on this. There is certainly a valid argument for Greece declaring itself bankrupt and leaving the Euro; the real question is how to facilitate this in such a way that it doesn't create a humanitarian crisis for the ordinary people of Greece, or jeopardise the security of the continent. But what is eminently clear is that no-one is getting their money back, so more of the same - loans plus austerity demands that make paying those loans back ever more unlikely - seems like an absurdity.

Edited at 2015-07-16 07:43 am (UTC)
( 6 comments — Leave a comment )



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