Greece is broken, and can’t be fixed

By Felix Salmon
February 15, 2012
Mohamed El-Erian says, the broken dynamics surrounding Greece right now are extremely reminiscent of what was happening in Argentina in 2001.

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As Mohamed El-Erian says, the broken dynamics surrounding Greece right now are extremely reminiscent of what was happening in Argentina in 2001. New money is necessary, but it’s also insufficient; it all feels like some kind of Samuel Beckett-style existential paradox. You must go on, I can’t go on, I’ll go on.

To provide a bit of context here, look at the amount that the Greek economy has already shrunk: 16%. That compares to 20%, peak-to-trough, in Argentina, and 29% in the US in the Great Depression. But the big problem in Greece is that the worst economic effects of austerity haven’t even happened yet.

“On the current path – which is not sustainable in my view – we may very well see Greek GDP go down 25-30 percent, which would be historically unprecedented. It’s a disastrous crisis for them,” Dadush, a former senior World Bank official, said…

“They’re suffering. It’s nasty,” said Weisbrot, who has studied the lessons to be learned from economic crises in Latvia and Argentina. “If you could say with a reasonable probability that the worst was over, then that would be different. But you can’t say that. They’re in for a long nightmare.”

The point here is that both Europe and Greece need a light at the end of the tunnel. Without that, social unrest in Greece will only get worse, the credibility of its promises will continue to deteriorate, and the Europeans will be understandably reluctant to throw good money after bad. And right now that light does not exist. Greece probably can’t implement the austerity package it’s promising, and even if it does, GDP won’t start growing to the point at which its debt-to-GDP ratio will come down to a remotely sustainable level. Which brings me to El-Erian:

First, they should stop repeating the claim that there is no “Plan B.” Telling people that there is no alternative to a discredited policy merely pushes them either to resist an approach that does not work, or to opt for mayhem. Recent official remarks heard in Greece (“We must show that Greeks, when they are called on to choose between the bad and the worst, choose the bad to avoid the worst”) do little to engender hope.

The lesson of what happened in Argentina should be top of mind:

After the Argentine parliament approved yet another new austerity package, the IMF agreed to release its financing tranche. But it was too late to save a discredited approach, further undermining the Fund’s standing.

Indeed, rather than engendering confidence, Argentine citizens withdrew their bank deposits over the next few months. Capital flight accelerated. The government again failed to deliver on its policy commitments. Most important of all, social and political pressures mounted, reaching a tipping point.

One of the weirder aspects of the Greek crisis is the way in which deposits in Greek banks have not fled the country. Many have, but Greeks still have something in the region of €150 billion on deposit in Greek banks. (I’m pretty sure that non-Greek deposits in Greek banks are de minimis.) If history repeats itself — and there’s no reason to believe that it won’t — that’s going to change.

There will be some kind of muddle-through bailout deal which allows Greece to do a bond exchange before its €14 billion bond coupon comes due on March 20. But the new money coming into Greece from the Troika will be less than the amount of money flowing out of Greek banks, and the lack of credit and liquidity in the country will only exacerbate the current depression and increase the number and severity of riots. Eventually, Greece will tip, and will leave the euro in a chaotic manner. I’m thinking late summer.

That’s not a Plan B anybody really wants. Greece’s budget deficit doesn’t disappear when it exits the euro, which means that it will have no real choice but to print new drachmas to cover that deficit. (Certainly no one outside Greece is going to lend the government new money at that point.) As a result, there will be a spiral of devaluation and inflation in Greece. Nominal GDP growth never felt so bad.

Is there a Plan C? Is there a real alternative? I think that there probably isn’t. El-Erian talks in a vague way about “economic restructuring”, “institutional changes”, and “policy flexibility” — all of which is code for the kind of deep-seated economic reform that Germany went through under Gerhard Schroder. That involved a combination of falling real wages and popular unhappiness in the context of a fundamentally strong and growing economy running a large current-account surplus. It also took many years, without real guarantees that it was going to work.

Greece doesn’t have that kind of leadership, partly because its population has no good reason to believe that such reforms would work or be at all effective in increasing national competitiveness. On top of that, it’s trying to act from a position of weakness rather than strength, and in any case it simply doesn’t have the time to implement changes which involve a fundamental restructuring of the nation’s social compact, including the population’s willingness to pay taxes.

Which is why I feel that what we’re seeing right now is the playing-out of the endgame in Greece. It reminds me in a way of the fiscal debate within the Obama administration, where the Christy Romer faction wanted “naked stimulus” without worrying too much about cuts down the road, while the Peter Orszag faction wanted “coupled stimulus” where short-term spending was offset by long-term budget cuts and revenue hikes. Basically everybody in the administration wanted stimulus, of one form or another — but that’s exactly what they didn’t get.

Similarly, in Greece, if you look at the various players — bondholders, the European Commission, the Greek government, the Greek population — all of them want Greece to stay in the euro. I have a feeling they’re all going to be very, very disappointed.


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Greece doesn’t need defeatism dressed as expertise. Suggest Plan C is simply to solve rather than shrug off the underlying problems. 1. Money supply can come from public not private (bank) sources. 2. Money from public sources can cause less not more inflation compared to bank-created (bubble-inflating) money. 3. Public-created money can be backed by public debate on supporting economic, ecological and social activity that can build not undermine the economic, ecological and social basis for future growth. Eg expand ecosystems don’t lose them. Not rocket science.

Posted by blindspotting | Report as abusive

The EU is trying to remove as many resources as it can from Greece before the Greek government realizes what’s going on. Once the EU finishes bailing out its financial institutions which have lent to Greece, they’ll have no appetite for doing anything to help Greece. With luck, they’ll get some properties at fire sale prices as part of the process (privatization being a condition of aid).

A sensible government would realize the EU’s policies won’t help Greece and would default on its debt and leave the EU in the best shape it can. Argentina survived default and is in good shape today.

Posted by 3oosion | Report as abusive

I don’t understand why the financial and socio-political reform program has to be set up as an everything right now or nothing agreement. Why can’t the financial and political reforms be negotiated incrementally at thresholds with a long horizon? The way anybody looks at it is if I have to negotiate everything right now I’m way screwed, and they’re ALWAYS right.

Posted by Woltmann | Report as abusive

I don´t think that the various EURO goverments ever considered giving Greece a second bailout. They are just proping up the Greek zombie to buy time to complete the first bailout and to try and build up some kind of fire wall for the exit of Greece and several other countries from the EA. Also I think that most European politicians severly underestimate the political and economic colateral damaages of the ensuing exits.

Of course the good old USA will be isolated from this bazaar situation and associated damage. Yeah, sure! Hang on to your hat.

Posted by gAnton | Report as abusive

You speak of Greece as if it were a broken down washing machine or a faulty hair dryer! I do not think a country of 11million human beings CAN possibly be talked about like this! It is improper, immoral and disrespectful. There are children and old people suffering daily a dreadful & uncertain existence and the young are ‘punched drunk’ with fear for their future. The alienation of many commentators and politicians (including some of our home grown)and lack of respect to their fellow citizens is hurting deeply by adding insult to injury as well as distorting solutions on offer.
I would have hoped our ‘civilised’ partners in Europe and the rest of the world would have it in their capable minds and hearts to come up with a process that places respect for humanity at the heart of it. Instead, ordinary Greek people are trapped in a show of arrogant and egotistic display of power, greed and incompetence.

Posted by mswilliamson | Report as abusive

Hey, Salmon,
Greece is not broken, that has been tried many times before. It is rather EU and Germany that removed their mask and showed their true twisted and broken face to the rest of Europe and the world. Take a deep breath man, and do not exhale

Posted by AriPerry | Report as abusive

A few weeks ago AP reported that Greece is giving disability payments to pedeophiles and kleptomanics. A country that does this can’t be serious about fiscal austerity. Greek inflation will be in the 30% area, eventually.

Posted by NormanB | Report as abusive

mswilliamson, Capitalism (and that’s what we really are talking about here, what with lenders to a Greek government – which spends more than it collects in taxes – expecting to be paid back as the fundamental issue) doesn’t have and never has had “respect for humanity at the heart of it.”

If the world comes out of this crisis with a better understanding of that fact, rather than just the vague childlike “life isn’t fair” notions, then we will all have advanced as a species.

Posted by Strych09 | Report as abusive

@NormanB Ask your local Human Rights and EU Commission for details

Posted by AriPerry | Report as abusive

@mswilliamson: you’re absolutely right. No person is written-off and the head of the article is unapproriate.

There is ample support for Greece. 130 billion euros (!) of it is allocated and waiting to be deployed. However, not one eurocent is going to be free-of-charge until the Greek people pay normal taxes themselves and politicians start to become adults instead of blindly robbing their population. As long as this basic decent and patriotic behavior is not shown, forget ANY large gestures by the taxpaying European. We care not for Greece’s GDP, it is not our responsibility, and from an ethical viewpoint it can never be the responsbility of others then Greeks themselves. It would be perverse in every perspective to suggest otherwise.

Posted by FBreughel1 | Report as abusive

“Instead, ordinary Greek people are trapped in a show of arrogant and egotistic display of power, greed and incompetence.”

Smells like revolution to me. The “ordinary Greek people” take back power from the greedy and incompetent elite who led them into this mess, and repudiate the entire outstanding debt.

Chaos. Disorderly default. Things are trending very badly.

Posted by TFF | Report as abusive

Nice Post..

Posted by Rudini | Report as abusive

Nice post, indeed. The comparison with Argentina is quite appropriate in the context of being Europe’s “periphery” but otherwise it is not as Argentina had essentially a currency crisis while Greece does not have its own currency. The pesofication policy of Argentina, however, provides a clue to what Athens might be considering at this time. The problem with outright default is that the majority of the bonds are currently held by Greek banks and pension funds. Either way, the country will implode.

Posted by Tseko | Report as abusive

TFF, what you wrote is accurate as far as it goes, but after a take over, default, and return to the Drachma, whoever winds up in power is still going to have to get ordinary Greeks to pay taxes, and pay them regularly. In fact, after a disorderly default, no one outside Greece is going to be lending the Greek government any money any time soon, so collecting taxes is going to be even more important than it is now.

It is not just incompetent elites who are the problem.

Posted by Strych09 | Report as abusive

If only the Greek people paid their taxes instead of rioting they’d probably be doing alright, or at least be in a workable situation. Bottomline is they never bothered to even TRY to make a balanced budget the entire time they were EU members. If the Greeks had ‘pride for the suffering’ of their own people as an above poster noted, they’d paid into the system and help themselves instead waiting for hand-outs that they leverage against political calamity. No sympathy for those that threaten to bring down our way of life because they had no will to fix a problem while it was still fixable.

Posted by CDN_Rebel | Report as abusive

“It is not just incompetent elites who are the problem.”

You sure? My guess is that the average Greek worker reports his income and pays his taxes. It is the business owners, the doctors, the self-employed professionals who routinely avoid taxation (reporting laughably low incomes).

The “elite” may be 10% or 20% of the population, not just 1%, but there is plenty of evidence that they’ve been gaming the system for years. The backlash is likely to hit them hard.

Posted by TFF | Report as abusive

My God Salmon…seldom have I seen a more ignorant reporter. Go back to school and see if you can take some lessons in real investigative reporting!

Posted by ariesraven1 | Report as abusive

This is surely one of the more interesting tests of representative government in a long while. The Euro took away Greek society’s last avenue for fairly distributing the pain from the inevitable consequences of corruption (i.e. devaluation). How do you eliminate the corruption when so many are taking part in it, and the rest don’t trust the ability of the state to function cleanly?

I don’t think you can. All you can do is leave the Euro.

Posted by AngryInCali | Report as abusive

The problem is that even if the Greek economy were growing at 50% a year, the Greeks still wouldn’t pay their taxes.

Posted by maynardGkeynes | Report as abusive

> “If only the Greek people paid their taxes instead of rioting”

This is half of the problem. Most of the Greek people think that if they were honest tax payers, they would be the only ones in Greece!

This problem is only going to be solved, as Mr. Salmon suggests, with root-and-branch reform. Nobody in Greece will believe that the system is sustainable, fair or economical while civil servants (cronies of the ruling party) are permitted to retire at 45 or 50 on full salary (which is already higher than equivalent salary in more successful countries). They won’t want to be among the few “gullible” Greeks being bled dry to prop up a system that is fundamentally doomed in the medium term.

All of these reforms basically have to be enacted at the same time. There simply isn’t time for the sort of incremental approach Mr. Salmon says was done under Mr. Shröder. It has to be done all at once, and with a very high degree of competency and political firmness, and a steady hand for “just doing what is right”: so that all Greeks believe together that it’s genuine reform that’s happening for real. The only way Greece can do this is by letting Germany show them how it’s done. And by admitting to the Greek people that this is what’s happening. Because the Greek people simply won’t believe that the same old corrupt Greek politicians are suddenly going to clean the system out…

Perhaps the Greeks should take a leaf out of the Romans’ book of governance; and elect a dictator for a fixed period of time to sort out this mighty mess.

Posted by matthewslyman | Report as abusive

How can somebody talk about a whole population, using such ridiculous prejudices, without noticing that the idea of collective punishment is a fascist idea? Because some Greeks are stealing money (actually these are the ones that the european leaders talk with -politicians and those that are near them) we must punish all of them. Of course, the punishment does not affect those that are the ones to blame nut all the rest, as always. But who does really care, right? We can go on believing that (ALL the) Greeks are lazy and (ALL) don’t pay their taxes and the european citizens have now the excuse for everything that is not going right in the economy.

Posted by stop_fasc | Report as abusive

Shawn Tully of Fortune has some good reporting on what Greece has done, what it has failed to do, and what needs to be done to its economy. 5/greece-economic-reforms/?iid=A_F_News

Posted by Curmudgeon | Report as abusive

I think what’s happening in Greece is a disgrace, as Greeks have practically lost their independence. A more workable solution would be to let the democracy in Greece come back through new elections. Possibly, the new government would be ready to make bold and swift decisions in an independent direction that would actually make things better. Even though it would prove internationally very unpopular, such tactics may be very effective, as the case of Orban in Hungary. Following the IMF dictate has hardly helped any country in the past – plenty of examples are in Joe Stiglitz’s book on IMF’s ‘help’.

Posted by Radek.kow1 | Report as abusive

I’m quite sure that Felix is right about Greece’s eventual default. What I can’t understand is why the rest of Europe would continue to pump billions of Euros into Greece.

Could it be that even after flooding Eurozone banks with short term cash, the rest of Europe is in such a precarious situation that they dare not let Greece default quite yet?

I can’t imagine that they actually think they have a chance of restoring Greece to the financial stature required of Eurozone members.

Whether or not the Eurozone wishes to continue pumping Euros into Greece, Greece should turn them down. The pain of a chaotic default would be horrible, then Greece the trouble would pass and they would reap the benefits of having a negligible amount of debt and a weak currency.

Remaining in the Eurozone casts their financial misery in cement.

On a side note, taking the time to understand this situation in a pragmatic and realistic way and having the courage to speak the truth is not a display of unkindness; it is a display of diligence and integrity.

Posted by breezinthru | Report as abusive

Greece’s problems cannot be fixed if it stays in the Euro. The exchange rate is simply too high. Engaging in an austerity package will simply mean no economic growth in perpetuity. At least if they leave the Euro, they’ll only suffer inflation for a few years, but then have a way out through higher export growth.

The current proposals are more about bailing out French banks than the Greek economy, and in the process Greeks are being deprived of the very democracy they brought to the western world.

Posted by Sechel | Report as abusive

Seems to me, there is no difference (on the downsides) to a Greek default under the EU death spiral plan, or under an orderly exit from the Eurozone.

However, there is an upside to exiting the Eurozone, in that it can immediately price its labor and goods relative to the Euro, competitively. Whereas, if they stay with the Euro, the ONLY means to reaching equilibrium with the core Eurozone countries, is to cut real wages and prices.

You say that no one will want to lend to Greece if they leave the Euro…well they’re already there: 520% 12 month bond rate. That does not mean that they cannot take advantage of IMF help, however, and that’s an important distinction.

OR as I suggest: If the core Eurozone nations believes in their austerity program, then they should back it up with a $1T € bet. If their austerity fails to show improvement in the Greek economy in 12 months, then the core Eurozone nations will fork over $1T € to Greece, for free (Germany will be responsible for $700B of that, for all their hot rhetoric of late).

Posted by GRRR | Report as abusive

Forget about Greece! You should all be watching California slide into the Pacific with the load of debt around our neck.
The sad part is where California goes so does the Nation.

What you all need is a big can of Brasso. Useful for shinning brass on a sinking ship!

Posted by Iacomus | Report as abusive

I honestly haven’t read through the comments, but the drop in GDP for Greece is staggering to me.

There’s a lot of confusion about what GDP is. People tend to look at a 20% drop in Greece’s (or Ireland’s, for that matter) GDP and say “well, they got what’s coming to them for running up debt like they did.”

But that makes no sense at all. Think of someone who racked up a lot of credit card debt and then had 20% of their hours cut? Would one just react “well, they got what’s coming to them” to their income drop?

No, in fact the drop in income makes it tougher to pay back the credit card debt. There is also no reason they should suddenly become 20% less productive because of their credit card debt, which is completely unrelated.

So, the fact that Greece has seen their GDP drop so viciously because of debt should create a lot of pause among those who think austerity and tight money is the way out of this. Why should a country’s real income drop so much right when they need to pay back their debt?

That’s why NGDP targeting is so important. As long as wages are stick (and they always are), a big decline in NGP will always lead to a completely unnecessary drop in RGDP. The drop in RGDP will then make all assets decline in real value, even if the assets would have been fine if RGDP did not suddenly drop for no good structural reason.

Posted by mwwaters | Report as abusive

“All of these reforms basically have to be enacted at the same time. There simply isn’t time for the sort of incremental approach Mr. Salmon says was done under Mr. Shröder. It has to be done all at once, and with a very high degree of competency and political firmness, and a steady hand for “just doing what is right”: so that all Greeks believe together that it’s genuine reform that’s happening for real. The only way Greece can do this is by letting Germany show them how it’s done. And by admitting to the Greek people that this is what’s happening. Because the Greek people simply won’t believe that the same old corrupt Greek politicians are suddenly going to clean the system out…”

There is one way for Greece to make sure the pain of austerity is equally suffered among everyone: exiting the Euro and having everyone paid the same salary with a less valuable currency.

The only downside for exiting the Euro is the real costs to anybody doing business in Greece or with Greek companies. All the contracts, bonds, etc. are denominated in Euros. Presumably the contracts under Greek law would be redenominated through Greek law to the new currency, while the contracts under other countries’ laws would still be in Euros. Then there’s the matter of whether anybody would want to do business with Greeks after they essentially default en masse. There’s A LOT of real costs in sorting out all the contracts and with the reduced flow of capital to Greek projects with good NPV.

But no country has successfully reduced nominal wages to make them competitive in any sort of reasonable time span. The unemployment caused by wages above market levels also have very real costs, just like the real costs of leaving the Euro. And the large amount of unemployment, brain drain, etc. certainly does make the costs of high unemployment seem far more than the costs of leaving the Euro with subsequent return to less unemployment.

Posted by mwwaters | Report as abusive

Felix, Good work and thinking.

Greece and all propped up societies must have resemblance of economic reality not because ‘these are hard times’ as many would like to pose it but because Greece went over the cliff in their balances long ago and fundamentally.

This would be a situation of ‘fearing the domino affect’ if the situation were easily contained or the impacts not just and right medicine.

The public has a right to protest and also to readjust. If that includes the ‘most youthful and brightest fleeing the country, then is that not just what was expected as part of the benefits of international competition in commercial alliances?

Greece used to be a quaint and inspiring place. It should be humbled to return to that now.

Posted by Maravedis | Report as abusive

reuters and felix should have included recognition of the reforms and experiences of the mayor of thessaloniki pe/0,1518,815289,00.html#ref=nlint

greece is not broken, but there is much that needs fixing

Posted by scythe | Report as abusive

Is this a personal opinion blog, or a poor example of journalism????

Posted by greekamerican | Report as abusive

Furthermore Felix, your opinion has little in common with Mohamed El-Erian’s philosphy of Greece’s potential to overcome the crises…. ary/elerian15/English READ!!!!

Posted by greekamerican | Report as abusive

Greece can’t be fixed because Greece never worked. Since they broke away from the Ottoman empire after WW I, they have tacked back and forth from one crisis to another.

You ought to go back to the BBC archives and read up on the 1940′s and the British experience. That was followed by the U.S./Colonels junta experience. I knew about all that but couldn’t fit it together until I was reading about Gertrude Bell and the formation of modern Iraq.

At the end, the Ottoman empire was utterly corrupt, and functioned on baksheesh and not much else. The infrastructure and especially the taxation system were non-functional. They had large numbers of unproductive state employees. Go down the list of problems throughout the empire and you will still find them there, unaddressed. The difference this time is the Euro. Greece has to go, or functional Europe has to step in and teach these guys pretty much everything.

I love Greece. Funky, funny, interesting people. Stunning beauty. Great food. But bat-guano insane when it comes to politics and civil government.

Posted by ARJTurgot2 | Report as abusive

I was reading the comments and wondering what all the negativity is to this post…because, after all, the only real solution is going to be Greece leaving the Euro. Period. All this dance is pretty obvious for what it is and this train is in motion and it’s not going to stop at all. Furthermore it doesn’t have to because there is no light at the end of the tunnel.

Then it dawned on me: Greece is the perfect example of how austerity will NEVER work anywhere, and these people who put politics ahead of actual economic reality will be repudiated in the most violent way possible when Greece pulls after a crushing collapse of the system due to the austerity demands of the Troika. Also, the prospect of the ordinary people rising up to take over scares the crap of of the 1% and the people who would back them because, as has been pointed out, it’s not the common people that aren’t paying taxes in Greece. It’s the equivalent of their 1%. This would be the ending for any country that doesn’t take appropriate taxation actions as the rich get away with paying less or nothing and the debt to keep up the lifestyle of the middle class is done by government spending.

I get it! This is why the negative comments about the post. And they should be scared if they’re backing this line of thought. It’s completely batshite insane in Greece and it’s going to be in the US too.

Posted by skyman123 | Report as abusive

I’ve heard a lot of the comparisons with Argentina and will leave my two cents on the matter, since I’m quite familiar with the Argentinian collapse (I live in Uruguay, right across the river, my wife is from Argentina, I travel there several times a year, etc.)
My main observation is the extremely destructive effect that the bank run and freezing of deposits had. It generated a wave of panic, paranoia and anger that I’d never seen before. By the time the situation finally collapsed, I was seeing (employed) middle class professionals worrying about where would they obtain food and whether to buy land and grow it themselves or not!!
THAT was the tipping point, to me. If the Greeks/EU can keep the banks working, they can keep this mess going on for quite a long time, if not….the Greek government will need some helicopters to evacuate their offices.
Also, I wouldn’t put too much stock on the tax collection problem in Greece; it has been like that for several decades, I guess, but Greece doesn’t experiment a Depression every 15 years or so, right?
Lots of countries are fiscally undisciplined and survive reasonably well.
Sure, the mix of the Euro straitjacket, large capital inflows AND persistent fiscal indiscipline was a lethal cocktail, but the problem was the cocktail, not any one of its individual ingredients.

Posted by Charrua | Report as abusive

@charrus: tax collection is never a problem if you have your own currency, since you can just print money (i.e. use the inflation tax). And that’s exactly what Greek did in the past, and what Argentina is doing now (also Britain, Japan and the United States). But the Greek government can’t create euros out of thin air. Rather, it has to obtain them from its citizens.

The obvious solution to all Greek problems is a stiff tax on “land”, which is the one tax that can’t be evaded and which doesn’t interfere with economic growth. But the Greeks are so corrupt that this is precisely the tax they resist the most. Every Greek peasant (and most greek citizens are peasants at heart) wants to think of himself as a big landowner who has the option of retiring to his great estate whenever he wants and living off the profits of his olive trees. So instead of taxing land, they tax productive labor. It takes a helluva lot of suffering to bring a peasant back to reason, so I don’t expect any quick solution to Greece’s problems. Maybe in 2030 there will be some signs of improvement.

Posted by revelo | Report as abusive

this is so much too/do about nothing. u guys do not noe that the reason the Greeks are where they are is because there are too many wet/panties on the debt board that were too afraid of offending them.the pilco bond groupa, sat with the euro groupa and negotiated this bailout, and the euro groupa said”otay.u.k. take the bite up the rear. and they did?! and now the dogs are bak barking for more?? NO! tough luv, dude! go to the oracle, an hear wat she bank did not do this for me wen it forclosed on my house??! so w.t.f.!?

Posted by sensrbtch | Report as abusive

“my bank did not do this for me wen it forclosed on my house”

That’s the difference. Your note was secured by a mortgage on your house. You stopped paying, they took your house.

Sovereign debt is not secured by anything. If Greece stops paying, the lenders get nothing.

Posted by TFF | Report as abusive

“Your note was secured by a mortgage on your house. You stopped paying, they took your house.

Sovereign debt is not secured by anything. If Greece stops paying, the lenders get nothing.”

As usual TFF is right on the money. The interesting thing going forward is what happens after the default. The Greeks simply can’t balance the budget next year unless they basically fire half their civil servents and cut payouts to current pensioners. The question will be how will they borrow. I think the answer is that the Greeks will give up some of their soveringty and post collatteral. Some of those islands looks pretty nice!

Posted by y2kurtus | Report as abusive


Mr Papoulias ,whose salary is more than this of presitent Obama, (yesterday resign from his privilege I mean his salary), as concern my view and many others of my friends cycle, may have lost his awarness with reality when accused Mr Soilbe that he does not respect Greece.
Maybe is a good way for him to act as a populist, trying to be easy dear to locals as the vast majority of Greeks Know very well that the problem is not Mr Soilbe who made and makes realy efforts to help Greece but the inability and disability of Greek politiciens (corraption, deception , and an obsolate political regime) who for decades used to seize the power, the fact that nobady of them (greek politicians) answer for crimes of corraption and bribery it is obvious and indicative example in recent decades of Greek history
In conclusion the vast- vast majority of ordinary people hier in Greece support the idea to continue joining the euro end can bear all the austerity measures that
it is needed to help Greece come roud again What realy frustrate us are the inability und irresponsibility of our politiciens deprive us from perspective and good future in addition I would like to say a big thanks to all Europa and especially to Mr Soilbe for their efforts to transform my country from a Balkan -Asien land to a European one

Tsakiridis Savvas

Posted by megoo | Report as abusive

@TFF :

“[...] the average Greek worker reports his income and pays his taxes. It is the business owners, the doctors, the self-employed professionals who routinely avoid taxation (reporting laughably low incomes) [...]”

You cannot *begin* to imagine how correct this statement is. All of it.

Posted by dandraka | Report as abusive

No country can continue to operate indefinitely with an externally financed deficit and anything over 90% GDP debt.

Congratulations on realising this basic fact in the context of Greece. Now that it is obvious.

Can you also realise that the same applies to the US & UK?

Posted by Dafydd | Report as abusive

“Can you also realise that the same applies to the US & UK?”

Yup. The biggest difference is that the US borrows in a currency that it controls.

I find Greece interesting because it represents one potential future for the US. While the difficulties are admittedly worse in Greece than here, I could see that changing over the next 10-20 years. The most fundamental problem is tax avoidance by the wealthy. It is VERY HARD to overcome that kind of selfishness (and unfortunately the US is trending in that direction with tax cheats on the rise while tax rates on the wealthy are repeatedly cut).

Seems to me that a VAT or sales tax would have a higher compliance rate? Might Greece consider moving in that direction? As an added benefit, it immediately devalues the bloated pensions.

Posted by TFF | Report as abusive

Sounds like default, the sooner the better, is the right course for Greece.

Posted by billbradbrooke | Report as abusive

@TFF VAT in Greece has gone from 18% to 23% in 3-4 year’s time.

Posted by dandraka | Report as abusive

The problem is we look at Greece as a singular, freak case, while we should look at Greece as a caricature, an aggravated cartoon which actually gives us the profile of the world in general.
We all know that after Greece multiple other European nations are waiting for the same fate not only in South Europe but on the East side, and also further North. And while some of those countries are not in the Eurozone their imminent collapse will be hurting the rest of Europe just as well, and through that the whole global economy.
And again the European problem is not a problem in itself, it is just a symptom of the true disease, the foundation our whole lifestyle is built, maximum profit with minimum investment, exploiting everybody and everything around us as long as it is possible for short term benefit without any regard for the long term.
We learnt the vast inequalities in between social layers in the US, and the UK, the champions of democracy and freedom, we learn the working conditions, and “slave labour” western companies emily people in China and similar markets, we see the desperate helplessness of the G20 and similar global meetings, we see how almost absurdly the US Presidential campaign is disconnected from everyday reality, how almost automatically we slide into from one war to another in the Middle East, how democratic principles and institutions are ignored all over the globe in order to keep the profit making machine in action and we could continue with dwindling natural resources and crisis situations at basically every human institution we ourselves built.
Trying to separate, and locally observe different seemingly disconnected problems will just deepen our problem.
Sooner or later we have to see what countless experts have been telling us for a while now: we are in a system failure, our present lifestyle, attitude, human relationship is self destructive. We are all on the same boat that is sinking and the only solution is to start working together, mutually for each other. Greece is just a small passenger on this boat.

Posted by ZGHerm | Report as abusive

Greece can recover soon from financial crisis.

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Posted by jasonalonzo | Report as abusive