Comments on: How to make Greece more like GM than Lehman http://blogs.reuters.com/breakingviews/2011/06/23/how-to-make-greece-more-like-gm-than-lehman/ Mon, 26 Sep 2016 03:26:00 +0000 hourly 1 http://wordpress.org/?v=4.2.5 By: Indus88 http://blogs.reuters.com/breakingviews/2011/06/23/how-to-make-greece-more-like-gm-than-lehman/comment-page-1/#comment-7841 Mon, 27 Jun 2011 03:52:43 +0000 http://blogs.reuters.com/columns/?p=6320#comment-7841 The problem with Greece is not just the debt. It’s the lack of competitiveness. GM could and can make competitive cars once the huge indirect costs from pension, health care and other benefits were removed and wage costs had come down. Greece is running a very large trade and current account deficit in the midst of a very deep recession. In addition to that its tax collection mechanism is broken and surplus public sector employment is gigantic.The reason that the proposed program is so painful is that the government is raising taxes to pay for these surplus employees which it dares not / wants not to lay-off. You cannot have GM style restructuring without radically slimming down the state. So inevitably Greece has either to leave the Eurozone and default on debt to regain competitiveness (remember private sector debt is constant while prices and profits are declining fast -in spite of wage reductions) or the Eurozone will have to indefinitely guarantee Greek debt turning the country de-facto into a protectorate. Pick and choose

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By: OrlandoGomezT http://blogs.reuters.com/breakingviews/2011/06/23/how-to-make-greece-more-like-gm-than-lehman/comment-page-1/#comment-7829 Fri, 24 Jun 2011 14:07:27 +0000 http://blogs.reuters.com/columns/?p=6320#comment-7829 I think it´s unwise to compare banks with automakers, thus why I opposed the bailout for GM but not for the banks. Stakeholders in banks are massive, something pretty unique as an industry, and for the most part it becomes an issue of liquidity and trust in the whole system rather than letting them go down or saving them.

One bank falls and banks with interests in said bank (interbank deposits and borrowing) face a sensitive liquidity issue that immediatly affects their short term obligations. That´s why it´s harder to be prepared for a bank than with any other form of bankruptcy, in essence, all is good in a bank until it´s not, and when it´s not it just blows up. It´s the essence of a business that rely´s entirely on trust.

The problem with Greece´s default, is mainly the effect it would have on other euro countries. It will significantly increase the cost of borrowing in sovereign bonds for all euro denominated nations, and of course their own banks, this will hurt the balance sheets of european banks all across the board, and could possibly trigger a liquidity event in one of those banks that will make it go on a Lehman.

Greece in itself is not a Lehman Brothers, it is undoubtfully more like GM… the problem with Greece, is that it COULD trigger a Lehman Brothers in an other nation (I´m looking at France) due to the increased cost of borrowing on sovereign bonds and interbank lending… and we certaintly don´t want that.

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