Standing At Thermopylae

By Peter Boone and Simon Johnson

No one in official Washington is seriously worried about Greece.  It’s far away, relatively small, and – anyway – “we already sent the IMF”.  Under current circumstances, this is very much like saying 2,500 years ago: We sent 300 Spartans to stand against a horde of Persians, so what’s the problem?

The Greek economic situation is worsening fast – with government bond yields rising rapidly today (currently the 10-year rate is around 7.5 percent).  Unless there is rapid action by the international community, this has the potential to get out of control.

There are three scenarios to consider: the nightmare, the “savior”, and the decision.

Nightmare scenario: No one makes a quick decision, and bond spreads for other relatively weak eurozone countries take off.  “Core Europe”, such as Belgium and France, are also hit by higher bond yields.  At that point, the EU does something small for Greece, but that does not really address the worsening problems elsewhere.  Real interest rates remain differentiated across Europe, with Germany very low and the periphery very high.  This causes very different growth rates, feeds into strikes, and budget deficits worsen.  European banks take capital losses so (again) need to recapitalize.  The periphery banks need their recapitalization to be funded by the state, which increases national debt.  At some point soon a European country defaults.  Then there is a wave of defaults.

“Savior” scenario:  Phone Larry Summers, and he will help arrange another round of unconditional bailouts for all creditors everywhere – perhaps on scale that makes the 13 bankers episode look small.  The strategy will be to welcome all the moral hazard back into the system so people feel the risk of state (and private) bankruptcy is zero.  Each day we delay now, Mr. Summers and his colleagues will have to provide more largesse - and more distortion – when they finally come in.  For example, they could do a new round of “stress tests” and decide that each European nation has a good enough plan to reduce its budget deficit.  Perhaps the eurozone nations agree to a common tax or fiscal mechanism to help each other through transfers.  They then open the European Central Bank (ECB) lending windows to all those countries.  Investors realize they are safe because the ECB shows it has no backbone – maybe Mr. Trichet resigns but probably not, so the spreads come in, etc.  The moral hazard issues are mind-boggling, and it would very hard to get any teeth into the system after that.  The financial markets would, of course, in the short term stand up and applaud – until they thought through and began to understand all the consequences for government balance sheets.

Decision scenario: As we laid out at length on Tuesday, Greece faces only hard decisions involving some combination of: much more fiscal austerity than is currently in the cards, debt restructuring (also known as default), and leaving the eurozone.  Given all the players involved on the European side, it is hard to see how they take any of these decisions soon.  This is why “prompt correction action” is never prompt and rarely truly corrective – politicians in this situation (and regulators more generally) have an incentive to delay taking hard decisions that will encounter serious pushback; they would rather wait for events – either they will get lucky or, more likely, they will be forced in a particular direction.  But this is exactly how you get forced to a decision point where the only options really are “global collapse or overly generous rescue that creates major problems down the road”.

The US needs to step forward with some clear leadership on these issues.  The situation would still be difficult, given the attitudes and fractious nature of Europe.  But Washington will not even try – the White House still doesn’t understand what it has helped create and the dangers that this poses.

84 responses to “Standing At Thermopylae

  1. Again, not to be too much of a smart-ass on this, because I know there already is and will be much human suffering on this, but “let them eat cake”. The Greeks were amazingly selfish and irresponsible on this. Germany and France can give them a SMALL amount of help for the sake of humanity and then let them feel the consequences.

    I don’t think the Euro will even suffer that much if they let Greece go.

  2. Okay, I know that George C. Scott, in his cinematic portrayal of Gen. Patton, incorrectly attributed the quote “”L’audace, l’audace, toujours l’audace!” But, the sentiment enjoys some relevance in this case.

    It seems to me that the most practiced and successful — might I say “audacious” –practitioners of l’audace are the very bankers Simon fingers in the “savior” or Larry Summers scenario. Their audacity knows no bounds as they advance their interests, wielding power over their minions in bodies such as the U.S. Congress and the White House. I worked on Capitol Hill in D.C. for many years, and toward the end of my tenure, I concluded that most Members of Congress lived in fear despite their best efforts to strike a profile of courage.

    The attitude of our supposed saviors seems to be,”Qu’ils mangent de la brioche”, if the masses will be left with enough to afford even that.

  3. If I were more economically savvy, I’m sure I would understand this, but why, oh why, does Europe need American leadership (Saviour scenario) to solve a financial problem?

    Oh wait, it’s a joke. My bad.

  4. In fact trading of greek bonds in the greek secondary market was halted twice today as the spread over the 10yr Bund reached 456 bp and massive liquidations followed. Technically we’ve crossed the line as right now it would be close to impossible to sell bonds in the market if we wanted to.

    http://www.isotimia.gr/default.asp?pid=24&ct=13&artid=82624 (Greek)

    Germany is very likely to delay any EU decisions until the regional elections (May 9th IIRC). IMF officials are in Greece since Tuesday, apparently offering technical assistance with budget monitoring and with the new tax law which is currently being drafted. Negotiations on the final version of an IMF rescue plan could be going on right now. My vote goes to the “decision scenario” with option 1 of the previous post: tougher austerity coupled with bridge loans with default down the line, when it becomes clear that the funds provided are not nearly enough as GDP contraction keeps the budget deficits high and the debt snowball rolling. In the meantime, Germany is buying time for German banks to unload greek debt and minimize the consequences of the default.

  5. There is not much discussion here about the downside of U.S. involvement. But the fact is, Greece needs to be responsible for its own past actions. As painful as that might be to both Greece and the rest of the world, it is a necessary step toward righting a world where irresponsible sovereign debt is becoming a norm. Maybe Obama and the Democrats will become more aware of the consequences of irresponsible government spending. But I’m not holding my breath.

  6. Michael G. Heller

    Boone and Johnson, are you guys trying to start a panic?

  7. Not ”Qu’ils mangent de la merde”? After health care “reform,” that’s certainly what a lot have concluded.

  8. john haskell

    Simon- you are correct, when a country desperately needs to borrow and the markets are effectively closed to it, per “kyriakos” above, yes, there is a “potential to get out of control,” in fact it may well be out of control already.

    And with the country locked in to the euro and off season bed-and-breakfasts costing EUR 200 a night, there may also be a little bitty issue with competitiveness.

    If I had to bet, I would put my money on a payment stop by the end of the month. The IMF doesn’t have enough money to fix this problem. Wouldn’t that qualify as “prompt corrective action”? It certainly would be prompt, corrective, and an action.

  9. The French economist P.Jorion sees a pattern repeating
    , which reminds him of the Bear Stearns-Lehman Brothers
    collapses , which should lead next to the collapse of Portugal

    Grece: Ça va très mal finir ! It s going to end very badly

    http://www.pauljorion.com/blog/?p=10022

  10. Actually I heard on the news last night that you can get b&b in Santorini (arguably one of the most beautiful places in the world) for 25-30 euros (though probably not in mid-August when all greeks get their vacation).

    Maybe you should try it ;)

  11. Okay, I know that George C. Scott, in his cinematic portrayal of Gen. Patton, incorrectly attributed the quote “”L’audace, l’audace, toujours l’audace!”

    You mean that Danton really said it? That’s what I thought too, but then I figured, maybe Danton had actually quoted Frederick, who knows.

    Maybe Coppola thought American audiences didn’t know who Danton was. But the real life Patton, a history fanatic, would’ve gotten that right.

  12. Kyriakos,

    What mechanism would the German banks use to off load Greek debt?

  13. Selling bonds at reduced prices to hedge funds – probably vulture funds if Argentina is a model for Greece.

  14. john haskell

    80 euros a night on March 7-9 was the best I could do for Santorini. what was nuts was 180 EUR for a b&b in Nafplio.

  15. When your government’s 6-month bonds are yielding seven percent, you are already in a panic.

  16. Pressure Intensifies On Greek Debt, Yields Surge‎ – Wall Street Journal – April 8 – excerpt

    “Prevailing uncertainty over Greece’s ability to fund itself, and the rising likelihood that the country will resort to the emergency lending facility set up for it, kept Greek government bonds under increasing pressure Thursday, pushing 10-year Greek yields further above 7%.

    “There can now be little doubt that Greece will have to turn to the IMF [International Monetary Fund] for help,” said Beat Siegenthaler of UBS AG in a note.

    Siegenthaler said a debt restructuring proposal at the outset can be ruled out; “rather, the objective of the IMF programme will be to help Greece regain market confidence by means of heavy financial and verbal support…

    Such a sharp rise in shorter-dated bond yields shows that investors aren’t just worried about the long-term outlook for a borrower, but also about the nearer-term risk that it won’t be able to service its debt.”

    http://tinyurl.com/yj6qzd4

  17. der-rote-andy

    Thanks for Your advice, but they already had 30 years of BIG-BIG help. So what do you expect now from us? Sending my wife to earn money on the streets for some lazy jacks just to prevent them from paying the bill after 30 years of “dolce vita”. Don´t make me angry, time to laugh is gone… :-((

  18. der-rote-andy

    That´s it. Thanks a lot for some clear words from an open and honest mind.

  19. der-rote-andy

    Take a tent and have some place on the camping ground. This is really cheap, may be only 40-50 Euros (+electricity). ;-) Wouldn´t You call it a bargain, vacany at Greece…? Have fun :-))

  20. For once I would like to see the underlying premise of intervention tested, i.e., that if we don’t intervene we get a financial disaster. Remember, when we bailout a debtor we are really just bailing out its creditors. In the case of sovereign debt, these creditors are sophisticated and should suffer the consequences of their poor investment decisions. And if they happen to be my pension fund, so be it.

    BTW, we heard equally alarmist claims prior to Iceland’s vote and not a peep since. Yes, Moody’s is threatening to downgrade their debt to “junk”, but where are the stories of Icelandic “suffering” as a result of their so-called default on the IceSave bailout?

  21. Everyone knows at some point the bailouts had to end. Why do they have to end now? (It’s really THEN! The Germans didn’t bail out Greece last year … )

    Subsidizing Greece’s debt service costs would have been cheap and fairly simple. Doing so with the understanding for Greek fiscal reform would have bought some time. This would have allowed Greece to restructure itself within the euro framework and added some luster to the … currency union as well as prevented the current nonsense.

    It is always better to be too soon than too late which may as well be ‘never’.

    Unfortunately, Greece has seen interest rates subsidized for years and has blown the cash on ‘luxury’ and pointless energy waste, just like its big brothers and sisters. Oh, well. No more bailouts for Greek spendthrifts.

    So says Angela Merkel.

    The only scenario where the authors aren’t smirking is the nightmare scenario. It is the most real, it is taking place under our noses and there is little to be done to limit damage at this juncture. Greek short rates haven’t gotten up to 25% … per day, yet. Soon …

    Greece ought to default now and get it over with. Do the ‘Dubai Dance’ and wait to see then who shows up with a check. A default will tip the euro- banking system toward the abyss so it’s pay now or pay later. Greece is small but it, too … is too big to fail.

  22. What would the vulture funds expect out of their purchase of highly discounted Greek debt? Look at a real panic,say buying Greek debt at 33. The vultures know they will get Drachma’s at some point or a bailout. The Drachma debt conversion hope would be a high convertibility from Euro’s to Drachma’s. The Drachma’s would always have value to tourists going to Greece.

    The major institutional holders of Greek debt brought this on by not quietly dealing with the problem quite some time ago before the media and hoopla prized by speculator’s was generated.

    Again, given the fact that Greek debt is a pittance percentage of the external debt of Portugal, Greece,Ireland and Spain combined owed to the top 6 creditor nation investors, the creditors exhibited great incompetence in dealing with their collection problem.

    I suspect we have an Asian type crisis now in it’s early stages. At long last, the problem will be that of the bursting boil. Something that might only be dealt with by letting time cure the infection.

  23. john haskell

    Russia’s 12 1/2% of 2028′s bottomed out in the low 20′s although they never stopped paying (in usd no less). The Nizhny Novgorod eurobond which I believe had a 7 1/2% coupon traded down to 15, got restructured in which they cut the coupon to 5 1/2% and extended the maturity two years, then paid at par at the new maturity. The Moscow eurobond traded at 40 in April of ’99 and paid off at par in May of 2000.

    Just some historical background for what happens when you devalue the currency and restore your trade balance.

  24. john haskell

    Munchau, you tricked me!

    -French pension fund manager

  25. Wow those are ripoff prices. Try to find something yourself (not through travel agents I mean). Most hotels and b&b’s have sites now, google a bit and give them a call or send them an e-mail. That’s what most greeks do nowadays. Negotiate a bit, they’ll probably give you a high price in the beginning, especially if you tell them you’re from the US (you guys have a good reputation over here: good manners, deep pockets). Tell them you have an offer for 40 euros from your travel agent but you reeealy liked the photos in their web site. I’d even suggest getting over there and finding a place afterwards if you don’t mind a little adventure, I’ve done that sometimes myself.

  26. john haskell

    I checked multiple websites. the owner of the place in Nafplio said I could have gotten a “better deal” if I had called her directly, but of course I had no way to find her without using an internet search in the first place. Oh and after checking 5 different rental places the best I could do for a rental car over the (2 day) weekend was 115 euros so that was a pretty competitive deal too.

    Hotels in Tokyo for our May trip will cost less than Nafplio… there’s a lesson here somewhere.

  27. What can I say, it still sounds way too expensive. Maybe they’re trying to rip off rich foreigners, in which case of course you’re absolutely right, they will get what they deserve. But my guess is that this summer prices will plummet in Greece: people in the islands can’t afford to be expensive. For many of them tourism is the only source of income.

  28. You’ve never actually done that have you? If you had you wouldn’t be talking out of your ***.

  29. I’m sure you didn’t look hard enough. I’m looking at a pricelist of a 4 star hotel in santorini and it says 50 euro for the suite in May. It took me 5 min to find it.

    http://www.villamanos.gr/

  30. I take that back. After reading your comments I guess you probably did pay 40 euro for a tent.

  31. A true bailout is not likely. IMF doesn’t have enough money to do it and Germany will never accept (or participate in, which is the same) an EU funded rescue. I assume Merkel’s position hides more than simple acceptance of the right wing populist (and borderline racist) rhetoric of the German tabloids. Some strategy has to be there. My guess is that Merkel insisted in IMF participation in the rescue plan because she wants them to handle the debt restructure process – none of the EU beaurocrats has any experience.

    Eventually, Merkel wants to kick Greece out of the eurozone but it won’t be easy, for technical and political reasons. Treaties will have to change and, even if Greece is deprived of voting rights, others know that if that door opens they might be the next in line. An interesting development in the EU council was that opinions were divided along political instead of national lines: socialist parties (even german) wanted an EU funded bail-out while right wingers (with the exception of Sarkozy) wanted the IMF to take over. Munchau predicts that Greece will default but stay in the eurozone.

    Ironically the Greek left wants the same thing as the German right wingers. I suggest RMF’s Report on the Eurozone Crisis for some valuable insights on the crisis, the Greek situation and the future.

  32. No one has mentioned the predatory nature of much of the “loan product” sold to the Greeks by US bankers. These are exactly analogous to subprime mortgages and liar loans.

    You need a bailout scenario that doesn’t make these fraudulent credits whole.

  33. Greek’s debt is repayable. If my debt reached 120% of my income, I’d be angry at myself for letting it happen, and I’d pay it off as quickly as I could. I could do it over several years. It wouldn’t be a picnic. So can Greece. The Greeks just want picnics forever.

  34. Euro Bonds Spreads: Greece at Record

    4/08/2010 05:20:00 PM – CalculatedRisk – excerpt

    “According to The Times: Greece on the brink as bond rates surge to record highs the Greek Bond spread increased to an all time record 463 bps today (shown on graph in red).

    There is very little change for the other PIIGS (Portugal, Italy, Ireland, and Spain), although the UK spreads suggest we might need to add a “U” to “PIIGS”.

    http://www.calculatedriskblog.com/

  35. Canucklehead

    Iceland, Dubai, Ireland… Haven’t heard much about them lately. Stuff happens.

    There is no need to worry about Greece. They simply need to get their act together. They will, once they realize they don’t have the birthright they think they have.

    The Euro does not need Greece. After today, look at it’s strength. Once this little political tempest is over and Greece gets new leadership, they can get down to business. No one trusts or respects the current government. No one in Europe can step forward and share the burden because the current government will dump on them/bite the hand that feeds them.

    The smartest thing would be for Greece to default. Then they can look inside to decide if they are a serious country.

    I realize some see this as hard hearted but there is more to worry about than Greece. They blew their chance. Life is all about opportunities.

    It’s time to pay the cheque…

  36. Greece staggers deeper into crisis

    38 minutes ago‎ – Globe & Mail – excerpt

    “Greece is sinking deeper by the day into what has become an unprecedented crisis for Europe’s young currency union, its troubles spreading from the government to the financial sector and pushing the country ever closer to seeking emergency aid.

    The repeated pounding by international investors, which illustrates how a promised support package from the European Union and International Monetary Fund has failed to calm markets, threatens to force Greece to reluctantly accept outside help to meet its funding needs and may add to fears about unmanageable government debt loads elsewhere in Europe and around the world.

    The Greek tragedy roiling markets is casting a cloud over the global recovery and analysts say it may only be averted by Europe’s leaders ceding responsibility for resolving the crisis to the IMF.”

    http://tinyurl.com/y9yjark

  37. Canucklehead

    You lend based on character. How do you define Greek virtue in all of this?

    You can’t look at any option that includes dealing with the current government because there is no leadership. They have no meaningful character. What you have is an entity that is trying on different shades of lipstick to see what the benefactor wants. That is no way to run a country.

  38. “the White House still doesn’t understand what it has helped create and the dangers that this poses.”

    Well neither do I understand how it was the White House that created Greece’s problems…. this sounds like pure hugo chavez blabber… blame it all on the White House.

    “Greece faces only hard decisions”

    Greece faces no decision Greece faces consequences.

  39. Another fantastic essay by Michael Hudson on the European debt crisis. Michael Hudson is becoming a must read. Parts of the essay are in today’s Financial Times, but the whole thing can be read here:

    http://neweconomicperspectives.blogspot.com/2010/04/coming-european-debt-wars.html

  40. john haskell

    50 EUR for “near the bus stop” and no caldera view? Go right ahead. That seems in line with what I paid.

  41. john haskell

    Hudson’s error riddled essay is a must-miss. I want my 15 minutes back – 10 minutes to read it and another 5 composing a response correcting his arithmetic and economic mistakes.

  42. If you want the best you got to pay for it. What did you expect? You can’t blame others for your non-realistic expectations. If you expent to pay 50 euro for this then yeah, Greece is not competitive.

  43. Right, the consequences of Germany’s beggar thy neighbor policies and the big credit bubble that ECB created.

  44. I’m sure you could do better.

  45. john haskell

    the “off season b&b at 200 eur a night” was in Nafplio, not Santorini.

    I was just in Greece and it was my very clear impression that GR is relatively overpriced to other European tourist destinations. This is amply supported by any number of analyses which show an increase in the real price level of as much as 50% vs. Germany since Euro accession.

    I assume you live in Greece so you hear the complaints as well- that “everything has gotten more expensive since we joined the Euro.” You may find a cheap hotel on Santorini or in Thessaly but that is kind of beside the point.

    The point is that with an uncompetitive real exchange rate, it won’t be possible for GR to meet IMF demands to increase taxes, since there aren’t enough profits to pay the tax. You can’t make foreigners take vacations in Greece as opposed to some other country and you can’t make people use Greek shipping companies regardless of price – and those two sectors are 35% of GDP right there.

    The End.

  46. Where do you get your info on Greece, german tabloids? The current government still leads in the polls by 10% despite widespread protests against the austerity measures. In fact the current government does a lot more that managing the economic crisis. An ambitious project of re-engineering the government structure is on going (Kallikratis) which aims to consolidate local governments with the purpose of transferring power to them in the future. They changed the high ranking government officials’ recruitment process and opened it to the public. They are in the process of shutting down thousands of commities, organizations etc. in an effort to reduce the size of the government. They are reforming healthcare with cost cutting measures. They are reforming social security. The management of the debt has been lauded by analysts around the world. The list goes on, I could go on forever.

  47. Europe needs Greece a lot more than Greece needs Europe.

    Europeans love to claim Greek history as their own, and proof of their ancient, superior and democratic culture. That and sealing the southern flank against Turkish influence was the entire reason for including the country in the original Eurozone.

    Take away Greece, and European history is a lot less impressive, and a lot more about raw imperialism and conquest, than democracy.

  48. I have heard the complaints and it’s true that everything has gotten more expensive, inflation in Greece was higher than EU average during the last decade. But don’t expect me to agree with your conclusion that greek tourism is uncompetitive because you checked a few websites and failed to find a good deal for a specific destination (out of thousands) for a specific weekend of the year. When you are about to go on a trip halfway around the globe you should at least do some research and have some realistic expectations. International tourism is a free market, Greece is as expensive as it affords to be. If the hotel owners in Nafplio or Santorini can get their hotels fully booked at those prices then those are the prices you’ll have to pay. I don’t understand how people who seem to value free market capitalism fail to understand how it works.

  49. john haskell

    there are certainly people staying in Greek hotels. The owner of the hotel in Nafplion said they did a very brisk business on the weekends renting out rooms to Athenians.

    Athens is a 3′ 20″ flight from Moscow; I don’t consider that to be “halfway around the world.”

    My quote of the hotel owner’s statement about Greece being the most expensive sunny destination out of the UK remains unchallenged. I would go ahead and add that it is probably also the most expensive sunny destination originating out of Moscow, excepting exotica like the Maldives.

    I don’t think most people are that interested in EUR 30 one way or another on a hotel rate. The interesting question is where the Greek government might find the tax revenue to service its current debt load. My guess is “nowhere.”

  50. I’m not surprised by what the hotel owner told you. Nafplio is a very close to Athens and it’s not a summer destination, it has tourism all year long and especially in the spring. It’s very popular for romantic weekends. So a weekend in Nafplio in the spring is not off-season, it’s more like high season. See what a little research could have told you? Instead you made an arbitrary assumption based on too little information. It fitted well with the stereotype of lazy spendthrift greeks who expect too much for too little but that’s about it.

    It may be that Greece is an expensive destination. But it competes in a world market for tourism. The prices are not determined by government mandate so I don’t see what the issue is. If greek tourism not competitive in the international market prices will go down, there’s no avoiding it. It’s harder to find cheap destinations nowadays and luxury hotels are much less acessible than a decade ago but I can tell your from my 20 year experience in spending holidays around the country that things haven’t changed that much, provided of course you can be bothered to spend some time searching for a good deal. Moreover, it’s definately better the last couple of years and it’s much likely to get cheaper in the immediate future.

  51. I’ll make sure to transfer your thoughts on debt servicing to the government. I’m sure they’re interested.

  52. This site is more humorous than usual. Discussion on tent prices. hahaha. Wonder what the price of kerosene in Greece is now?? You guys gonna tell me??

    Question I want to ask, on the small chance that loser rednecks who listen to Glen Beck and belong to the Tea Party visit this blog. If things get really hairy in Greece (near chaos) what you think Greeks there will pay for gold???? Think really really super hard, what people living in tents on the street in Greece will pay for gold????

    If you think really really super hard, you’ll realize all these Glen Beck voiced advertisements for gold Glen Beck does are for the enrichment of ONE person, and it’s NOT you.

  53. By the way, it’s “de l’audace” not just “l’audace.” It doesn’t make sense without the “de.” And the quote is “De l’audace, encore de l’audace, toujours de l’audace et la France est sauvée.” Boldness, more boldness, always boldness, and France will be saved. Something like that, I believe.

  54. No German created a civil service system and a related system of government owned/influenced businesses that serve a principal purpose of funnelling public funds to party faithful (PASOK and ND in seemingly perpetual sequence) in exchange for votes. Getting a party member’s nephew a “just show up” job plus not paying taxes is what has eventually caught up with Greek finances. Don’t misunderstand me here: Greeks can be incredibly hard working. Their ability to put up illegal construction is a marvel as is the habit of leaving the rebar on the top floor exposed so as to claim the building to still be under construction and avoid taxes on that basis. I don’t remember seeing this so much in Hamburg, for example.

  55. Canucklehead

    Life is so simple. It’s good to hear that Greece has everything well in hand. Funding can go to others in greater need… Baltics, Spain, Ireland, Iceland, Portugal.

    Greece… Keep up the good work.

    Nice knowing you…

  56. Canucklehead

    Did Greece invent the pylon on the road of life?

  57. Tax evasion, nepotism, cronyism, fiscal irresponsibility are real problems. But they are not enough to explain the problems the Greek economy faces today. You may want to read Heiner Flassbeck’s (deputy finance minister of Germany at the start of the EMU) article entitled “The Greek Tragedy and the European Crisis, Made in Germany” for more. For even more details I suggest the RMF paper I linked in a previous comment. Martin Wolf’s commentary in the Financial Times is also a good place to get an idea about the credit bubbles in Greece, Portugal, Ireland and Spain (which fuelled real estate bubbles in the last two) and how they destroyed public finances when they collapsed. Do you know for example that greek household liabilities were 10% of GDP in 2000 (one of the lowest in Europe) and only recently reached German levels (60%) after almost a decade of bubble expansion of consumer credit by the Greek banks, expansion fed by the ECB? Did you know that greek labour productivity rose twice as fast as german during the last decade (from a much lower base ofc)? Do you know that the average greek works 1,5 times as much as the average German and is paid 25% less?

    I don’t want to absolve greek governents or greek people who voted for them, evaded their taxes, built illegally etc. But the conventional wisdom that everything would be alright if greeks hadn’t been the lazy spendthrift liars they are is nonsense, as conventional wisdom in such complex matters often is. And unfortunately in this case it’s racist nonsense. I have never evaded my taxes, my credit card balance is 60 euro, my wealth greatly exceeds my liabilities, I have been hard working honest and prudent my whole life and now, for the first time in my life and for no apparent fault of my own I have mouth-breathing knuckle-dragging idiots calling me a lazy spendthrift scoundrel who deserves to go bankrupt. I don’t have to take it, not without a fight.

    Do you know what the biggest irony is? German people have been scre*ed for a decade by wage dumping policies, then they got scre*ed again when they bailed out the banks that had the biggest responsibility for their troubles and now they have been convinced that the source of their troubles is the Greek people, only to be scre*ed again when they are asked to bail out their banks for a second time for recklessly feeding the Greek debt bubble.

    I wish my German brothers the best of luck.

  58. They need to find a way to pull out of the eurozone and default.

    Defaulting is easy, but does anyone have a workable mechanism for them to pull out of the eurozone?

  59. For simple minded people life is simple indeed.

    You don’t know me.

  60. Canucklehead

    Go Read G-Pap’s comments in his Time magazine article (iMarketNews.com). That was not helpful. That article defines lack of leadership and smacks of amateur hour.

    Greece needs to get it’s act together as everyone is getting tired of this soap opera. People are moving on. The Euro is strengthening. Greece is being left in the dust.

    It’s your country. Stop blaming others and roll up your sleeves. Get to work. When you are finished with the Germans, who is next?

  61. Funny how we seem to be more concerned about irresponsible governmental spending (which is at least democratic) as opposed to irresponsible corporate investing…

  62. Everyone says stuff like this – but has anyone actually talked to anyone from Greece to see if this is really their attitude?

    I suspect it’s far more complicated than a country full of careless people who want their cake and eat it too.

    People talk like millions of people with complex governments behave as a single entity, like that “lazy neighbor Mike who keeps borrowing my tools”.

  63. The way people are going after Greece around here sounds an awful lot like how people when I was growing up would talk about, “Those lazy blacks,” when they frankly had no idea.

    I don’t know if the political leadership of Greece did stupid things or not, but the generalizations about the character of a nation as a whole going on strikes me as having roots in racism (at least it echos the racism I saw growing up when applied to ethnic groups in the states). It smells the same for sure.

  64. I am trying to understand what is going on here.

    Financiers, and rating agencies, were enriched by arranging loans to Greece and other EU countries now at risk for default. Some financiers are betting these same countries will default. Sometimes the financiers who arranged the loans are the same folks who will cash in when the loans default.

    Where did the cash reserves come from to lend?

    Pension funds, savers, promised-interest on securitized debt. Sovereign borrowers have spent this money for real and allegedly-corrupt purposes.

    Perhaps the best thing these countries can do is default and rebuild their economies. While the lending practices need to be reformed.

  65. Updates, because some people may be interested:

    - Fitch downgraded greek debt (BBB- from BBB+). S&P and Moody’s soon to follow.

    - Greek finance minister announced the quarterly results and they are good: Budget deficit is down by 40% compared to Q1 of 2009. It is on track for the annual target.

    - Probably as a result of the previous, specifics for the EU rescue plan will be announced soon in an effort to calm the markets. Negotiations are underway and preliminary reports speak of IMF level rates (3,5 – 4%).

    - Meanwhile the spread over the 10yr Bund declined to 392bp, which is high but well below panic levels. However, the downgrade is expected to influence the bond rate tomorrow.

    - The greek government is expected to announce more budget cutting measures soon. It seems that, for the time being, tougher austerity combined with an IMF/EU bail-out package is the scenario.

  66. Thanks for the replies to my question.

    Predatory lending and then the vulture funds show up for their meal … The paradigm does not seem too wholesome, to put it mildly.

    We need more philosphers :)

  67. Canucklehead

    Has the definition of racism changed to “I don’t agree with you?”

  68. Canucklehead

    That 14% short term doesn’t help…

  69. Nice debate team comeback but it doesn’t mean anything. I don’t agree or disagree with the ultimate point of your thesis – I don’t know what the truth is (and said as much).

    I just disagree with your tone which seems to be long on stereotypes and short of detail. When you say something like, “They have no meaningful character” about a large group of people on a subject that calls for significant nuance, it sounds an awful lot like racism. I’m not saying it’s the same same thing, but it comes from the same dogmatic roots.

  70. No, the definition of racism is the same as always. When people say things like “the greeks were selfish and irresponsible”, “the Greeks just want picnics forever” “they think they have a birthright” they are squeezing 11.000.000 individuals into a stereotype. When people are not seen as individuals but as representatives of stereotypes, when a nationality (typically our own) is viewed as an example of what’s righteous and another as the epitome of dishonesty and immorality, the road to racism is wide open.

    This attitude is exemplified in the dehumanizing acronym PIIGS that many use so lightly, forgetting how this kind of dehumanization has been used repeatedly in history to degrade humans to the status of animals, preparing them for the slaughter. It is of course an exaggeration to suggest that the olive skinned southerners are being prepared for economic slaughter, but I can’t help but notice the glee when you say “Greece is being left in the dust” in another comment or when someone else says “let them eat cake”.

    So, I won’t be polite like scathew here. Guess what: you’re a racist.

  71. So, Mr. Rogers takes all this time and words to tell us he’s been short on Greece?!

  72. “I am trying to understand what is going on here.

    Financiers, and rating agencies, were enriched by arranging loans to Greece and other EU countries now at risk for default. Some financiers are betting these same countries will default. Sometimes the financiers who arranged the loans are the same folks who will cash in when the loans default.”

    It seems like they were selling financial crack and cashing in on the life insurance policies of their clients.

  73. kyriakos wrote”

    “It is of course an exaggeration to suggest that the olive skinned southerners are being prepared for economic slaughter.”

    I would agree with the above, speaking as a pale-skinned person of Eastern European Slavic origin. In a few months the discussion will move to another country and another….

  74. Canucklehead

    I think you need to get serious. Lending is based on character. The borrower needs to show that they understand the unsustainable nature they have placed themselves in. In Greece’s case, that unsustainable nature has been propogated for many, many years. That unsustainable nature is at the core of their political system.

    When you request funds from other cultures, they will judge you based on their cultural values of thrift, honesty, integrity, goodwill and community spirit. If you come up short, you need to change or look to other lenders.

    Sitting down and crying racist reflects poorly on you.
    You need to show some potential to do the right thing. You need to show that potential now or people will pass you by.

    That’s life. You do the same thing.

  75. I didn’t ask you to lend me money. You are the racist not the lenders. You, personally. Unlike you I’m not making absurd generalizations. Your understanding of lending is nonsensical. Cultures don’t lend money. Bankers do.

    I understand your intellectual capacity is extremely limited. Don’t worry about it. That’s life.

  76. Cancucklehead

    Thanks for your time. It was an interesting learning experience and dialogue.

  77. No it wasn’t. I feel dumber every time I talk to people like you. At least I hope you realized why you’re a racist piece of sh*t.

  78. @kyriakos

    I discovered an American economist today named Michael Hudson. Interesting thinker. If you have not heard of him, you might want to check him out.

    http://michael-hudson.com/

    http://neweconomicperspectives.blogspot.com/

  79. Thanks tippy, those are good links. I particularly liked his views on Latvia, the lastest IMF disaster that the Economist touts as a success while acknowledging the dramatic decline in output (close to a third of the country’s GDP in the last couple of years, 17,5% last year alone), the massive unemployment (23%, the highest in Europe), the wave of immigration out of the country that drains all skilled labour out of the country, the corruption that has taken over local politics etc.

    Widespread poverty will not be the only consequence of the “sovereign debt crisis” we’re currently in the middle of. I Hungary, the other european recipient of IMF assistance, paramilitary groups, controlled by the fascists who are expected to gather enough votes to enter parliament in the upcoming elections, are parading through gypsy neighborhoods to scare the people. Italy toughens it’s laws on immigration, Greek soldiers parade their racism. As for Germany vs Greece, what can I say it really pains me. Btw I read a good NYT article on the subject a few weeks ago:

    http://www.nytimes.com/2010/03/07/weekinreview/07kulish.html?ref=global

    The ugly beast of nationalism is rearing it’s head in Europe once again. And we’re feeding it, oblivious as usual to the lessons of history.

  80. Germany Said to Accept EU Loan Compromise for Greece

    April 11 (Bloomberg) — “Germany is prepared to give Greece loans at below-market interest rates, dropping its opposition to subsidies as European finance ministers meet to discuss the terms of a lifeline for the debt-stricken nation, a European government official said.”

    http://www.bloomberg.com/apps/news?pid=20601087&sid=a4reHxxCyU2E

    Score one for Sparta.

  81. Hudson is entirely new to me. But very interesting. I like what he has to say about debt cancellation. If a “sovereign” cancelled all debt every decade or so, it would certainly make lenders put their lending practices in order.

  82. Kyrakos,

    Hudson suggests the rating agencies having completely discredited themselves with the AAA-rating debacle, are now “blackmailing” countries saddled by debt to repay, or else face a downgrade in their sovereign credit ratings. Just ridiculous. IMHO ratings by the rating agencies are not worth the paper they are printed on.

    IHMO maybe Greece could hire Hudson and some of his colleagues from the University of Kansas at Missouri, for consulting on how to fend off these attacks on Greek economic and domestic security.

    Very alarming to learn there is a right-wing resurgence in Europe.

  83. john haskell

    Canuckle – I wouldn’t worry about it. I tried to make a point about Greece being relatively overpriced for tourists (B&B in Nafplio > 4* in Tokyo) and Kyriakos told me I didn’t know how to use the Internets.