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 Post subject: Greece Financial Bailout
PostPosted: Wed Feb 17, 2010 5:41 pm 
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I don't know if this has been discussed in the general economy thread, but this appears to be blowing up to the poin that it needs its own thread anyway.

Can someone please explain what is going on here in regards to Greece, what relief they received, fraud, and where Goldman Sachs fits in?

http://www.telegraph.co.uk/finance/fina ... ignty.html


Greece loses EU voting power in blow to sovereignty
The European Union has shown its righteous wrath by stripping Greece of its vote at a crucial meeting next month, the worst humiliation ever suffered by an EU member state.


By Ambrose Evans-Pritchard, International Business Editor
Published: 7:56PM GMT 16 Feb 2010


The council of EU finance ministers said Athens must comply with austerity demands by March 16 or lose control over its own tax and spend policies altogether. It if fails to do so, the EU will itself impose cuts under the draconian Article 126.9 of the Lisbon Treaty in what would amount to economic suzerainty.

While the symbolic move to suspend Greece of its voting rights at one meeting makes no practical difference, it marks a constitutional watershed and represents a crushing loss of sovereignty.

"We certainly won't let them off the hook," said Austria's finance minister, Josef Proll, echoing views shared by colleagues in Northern Europe. Some German officials have called for Greece to be denied a vote in all EU matter until it emerges from "receivership".

The EU has still refused to reveal details of how it might help Greece raise €30bn (£26bn) from global debt markets by the end of June. Investors are unsure whether this is part of Kabuki play of "constructive ambiguity" to pressure Greece and keep markets guessing, or reflects the deep reluctance by Germany to be drawn deeper in an EU fiscal union. Greek bonds sold off as ten-year yields jumped to 6.42pc, but the euro rallied to $1.3765 against the dollar as broader issues resurfaced in currency markets.

Jean-Claude Juncker, head of the Eurogroup, hinted that ministers have already agreed on a support mechanism, should it be necessary. It will most likely involve by bilateral aid by eurozone states. He said proposals for an IMF bailout - backed by Britain - were "absurd" and would shatter the credibility of monetary union.

Many Germans disagree, including Otmar Issing, once the backbone of the European Central Bank. He said an EU rescue for Greece would be fatal, arguing that unflinching rigour is the only way to hold monetary union together without political union.

Tuesday's EU verdict amounted to a thumbs down on Greece's earlier austerity efforts, viewed as too reliant on one-off measures and too light on spending cuts. Greece must reduce its deficit from 12.7pc of GDP to 3pc in three years. Greek customs officials expressed their anger by kicking off a three-day strike, the first of many stoppages set to culminate in a general strike next week.

However, premier George Papandreou has won support from key political parties and a majority of the people. Greece may yet surprise critics by mustering its Spartan Spirit.


http://www.bloomberg.com/apps/news?pid= ... lN9E&pos=1

Goldman Sachs, Greece Didn’t Disclose Swap, Investors ‘Fooled’

By Elisa Martinuzzi

Feb. 17 (Bloomberg) -- Goldman Sachs Group Inc. managed $15 billion of bond sales for Greece after arranging a currency swap that allowed the government to hide the extent of its deficit.

No mention was made of the swap in sales documents for the securities in at least six of the 10 sales the bank arranged for Greece since the transaction, according to a review of the prospectuses by Bloomberg. The New York-based firm helped Greece raise $1 billion of off-balance-sheet funding in 2002 through the swap, which European Union regulators said they knew nothing about until recent days.

Failing to disclose the swap may have allowed Goldman, a co-lead manager on many of the sales, other underwriters and Greece to get a better price for the securities, said Bill Blain, co-head of fixed income at Matrix Corporate Capital LLP, a London-based broker and fund manager.

“The price of bonds should reflect the reality of Greece’s finances,” Blain said. “If a bank was selling them to investors on the basis of publicly available information, and they were aware that information was incorrect, then investors have been fooled.”

Michael DuVally, a spokesman at Goldman Sachs in New York, declined to comment.

Legal ‘At the Time’

Goldman Sachs, Wall Street’s most profitable securities firm, is being criticized by European politicians including Germany’s ruling Christian Democrats, who have questioned whether the firm helped Greece hide its deficit to comply with the currency’s membership criteria. Greece is also being faulted by fellow euro-region countries for failing to disclose the swaps to EU regulators.

The swaps used by Greece to manage debt were “at the time legal,” Greek Finance Minister George Papaconstantinou said on Feb. 15. The government doesn’t use the swaps now, he said.

Eurostat, the EU’s statistics office, this week ordered Greece to hand over information on the swaps transactions by the end of this week in an investigation that may extend to other EU countries.

Goldman Sachs earned about 735 million euros ($1 billion) underwriting Greek government bonds since 2002, data compiled by Bloomberg show. Goldman Sachs underwrote 10 bond sales. Prospectuses for six of them, obtained by Bloomberg, contain no mention of the swaps. The other four couldn’t be obtained.

‘Fear the Worst’

The yield on Greek 10-year government bonds jumped to as much as 7.2 percent on Jan. 28 amid the worst crisis in the euro’s 11-year history. The premium, or spread, investors demand to hold Greek 10-year notes instead of German bunds, Europe’s benchmark government securities, widened yesterday by 18 basis points to 323 basis points.

The spread reached 396 basis points last month, the most since the year before the euro’s debut in 1999, compared with an average of 57 basis points in the past decade. A basis point is 0.01 percentage point.

“When people start to fear that the numbers aren’t accurate, they fear the worst,” said Simon Johnson, a former International Monetary Fund chief economist who is now a professor at the Massachusetts Institute of Technology’s Sloan School of Management in Cambridge, Massachusetts.

No ‘Smoking Gun’

Goldman could face legal liability “if it could be established that they were knowingly hiding risk, and therefore knew or had reason to know that the bond disclosure documents were misleading,” said Thomas Hazen, a law professor at the University of North Carolina at Chapel Hill. “But that would be a tough hill to climb, in terms of burden of proof. There’d have to be some sort of smoking-gun memo.”

The swap enabled Greece to improve its budget and deficit and meet a target needed to remain within the region’s single currency. Knowledge of their existence may have changed investors’ perception of the risk associated with Greece, and the price they may have been willing to pay for the country’s securities.

“From what we know, this is an egregious example of a conflict of interest” for Goldman Sachs, MIT’s Johnson said. “Even if the deal had been authorized, it doesn’t let them off the hook.”

A Greek government inquiry this month identified a series of swaps agreements with securities firms that allowed the country to hide its mounting deficit. Greece used the swaps to defer interest payments, causing “long-term damage” to the Greek state, according to the Feb. 1 document, commissioned by the Finance Ministry.

Cross-Currency Swap

European Union officials said this week they only recently became aware of the transaction with Goldman. The swaps don’t necessarily break EU rules, European Commission spokesman Amadeu Altafaj told reporters in Brussels on Feb. 15.

The transaction with Goldman consisted of a cross-currency swap of about $10 billion of debt issued by Greece in dollars and yen, according to Christoforos Sardelis, head of Greece’s Public Debt Management Agency at the time.

That was swapped into euros using a historical exchange rate, a mechanism that implied a reduction in debt and generated about $1 billion in an up-front payment from Goldman to Greece, Sardelis said. He declined to give specifics on how the swap affected the country’s deficit or debt.

European politicians such as Luxembourg Treasury Minister Jean-Claude Juncker this week criticized Goldman Sachs for arranging the Greek swap and are pressing the firm and Greece for more disclosure. Chancellor Angela Merkel’s Christian Democrats aim to push for new rules that will force euro-region nations and banks to disclose bond swaps that have an impact on public finances, financial affairs spokesman Michael Meister said.

“Investment banks are guilty of being part of a wider collusion that fudged the numbers to make the euro look like a working currency union,” said Matrix’s Blain. “The bottom line is foreign exchange and bond investors bought something sellers knew not to be the case.”

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 Post subject: Re: Greece Financial Bailout
PostPosted: Thu Feb 18, 2010 1:04 am 
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JP morgan was bombed right?

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 Post subject: Re: Greece Financial Bailout
PostPosted: Thu Feb 18, 2010 3:04 am 
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windedsailor wrote:
JP morgan was bombed right?


Image

With that gin blossom, I bet he was bombed a good deal of the time.

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 Post subject: Re: Greece Financial Bailout
PostPosted: Thu Feb 18, 2010 3:19 am 
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Basically, Greece has more debt than it can afford *and* it doesn't have a printing press like the U.S. does. I'm not sure how the currency swaps work, but I guess it's just a gimmick they used to go into debt without having to tell people about it, kind of like the U.S. has done with GSE guarantees.

They can't get a bailout from the EU, because it's illegal, and it would be political suicide for any particular country to add to their own debt in order to essentially pay Greek government employees. Their only options are really (a) IMF bailout, which American taxpayers would be upset with, and (b) default.

And it should be noted that the same problems exist in Portugal, Italy, Ireland, and Spain. If Greece is bailed out by the IMF, those other countries will come knocking, and they're bigger.

Here's an article on the swaps:
http://www.ft.com/cms/s/0/cc82f954-1a3f-11df-b4ee-00144feab49a.html?nclick_check=1
Quote:
Wall Street’s role in the unfolding Greek debt crisis will come under greater scrutiny after European Union authorities requested information from Athens about currency swaps.

The transactions were undertaken from 2001 to 2008, and may have allowed the highly indebted Greek government to conceal billions of euros of new debt from the public and regulators.

The information was requested by Eurostat, the EU’s statistical office, and is due by the end of the month. “The question is, was this legitimate in government management operations?” Amadeu Altafaj Tardio, a European Commission official, said.

A key focus for authorities, according to Mr Altafaj Tardio, would be whether the currency swaps, a derivatives transaction, had been calculated based on prevailing market rates.

Goldman Sachs, Morgan Stanley, Deutsche Bank and other investment banks arranged complex transactions that enabled the Greek government to raise cash for budget spending without having to classify the proceeds as public debt.

One of the biggest of such deals was a securitisation in 2001 in which Greece raised €2bn backed by grants the finance ministry expected to receive from EU structural funds.

Italy, Spain and Portugal used similar forms of off-balance sheet accounting as they sought to keep their budget deficits within the 3 per cent of gross domestic product mandated by the eurozone.


The Commission said on Monday that the Greek government failed to disclose information about the currency swaps to a Eurostat team that visited Athens in September 2008 to monitor Greece’s debt management.

But Greeks with knowledge of a 2002 currency swap and a series of asset-backed securitisation deals – all carried out under the previous Socialist government that held power between 2000 and 2004 – disputed that contention.

“Eurostat knew all about these deals, which were perfectly legal at that time. We didn’t keep them secret,” said a former senior Greek finance ministry official.

George Papaconstantinou, Greece’s finance minister, told a meeting of the European Policy Centre think-tank: “The kind of derivatives contracts that are being reported by some newspapers were, at the time, legal and Greece was not the only country to use them. They have since been made illegal, and Greece has not used them since.”

He added: “The current government has neither mandated not considered any instrument which is not compliant with Eurostat rules.”

A Eurostat representative declined to say which transactions were subject to the group’s request, or whether it was focusing on the work of specific banks.

The focus on Wall Street, first detailed in a New York Times report, came as the Commission on Monday moved to tighten control over member states’ book-keeping. It approved proposals that would strengthen Eurostat’s hand to audit governments’ finances and ensure they provided accurate data. Those measures will now go to the European Council for consideration.

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 Post subject: Re: Greece Financial Bailout
PostPosted: Thu Feb 18, 2010 5:19 am 
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what i gather from that piece is that goldman sach's role is analogous to that of the rating agencies that gave AAA ratings to all those repackaged subprime mortgages, in as far as them failing to do their jobs correctly (assessing creditworthiness) fue to conflict of interest. the rating agencies were being paid by those repackaging the subprimes, goldman sachs was being paid by the debtor whose debt they were "rating".

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 Post subject: Re: Greece Financial Bailout
PostPosted: Thu Feb 18, 2010 5:49 am 
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rafa_garcia18 wrote:
what i gather from that piece is that goldman sach's role is analogous to that of the rating agencies that gave AAA ratings to all those repackaged subprime mortgages, in as far as them failing to do their jobs correctly (assessing creditworthiness) fue to conflict of interest. the rating agencies were being paid by those repackaging the subprimes, goldman sachs was being paid by the debtor whose debt they were "rating".

It sounds like they had a role of an underwriter in this case... Like they lined up buyers for these "securities" or something.

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 Post subject: Re: Greece Financial Bailout
PostPosted: Thu Feb 18, 2010 5:02 pm 
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I don't really understand what happens when a country goes bankrupt.

I mean... what do they repossess the Acropolis?

Obviously massive inflation and nothing is worth anything but.... I just have no concept of what really happens other than that.

Also... I'm not sure how Not working helps ones massive debt situation.

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 Post subject: Re: Greece Financial Bailout
PostPosted: Thu Feb 18, 2010 5:23 pm 
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Electromatic wrote:
I don't really understand what happens when a country goes bankrupt.

I mean... what do they repossess the Acropolis?.


it's not that they go bankrupt, they just default on their debt. for example, when argentina had their massive crisis in the early 00's they defaulted on debt, i.e., they just stopped making their interest payments, and i know there are still creditors with whom they have not yet settled.

but it obviously affects their ability to get funds, as obviously no one will want to lend to them. many times this is where a body like the imf comes in, which lends money, but forces the country to stick to a plan to put their finances in order (cut spending, fiscal reform, privatize, etc.)

of course, like you said, a bunch of other problems build up/persist: unemployment, inflation, currency devaluation, etc.


Electromatic wrote:
Also... I'm not sure how Not working helps ones massive debt situation.


is this about the civil servants' strikes? their priorities are short term and egotistical (like pretty much everyone's), what they care about first and foremost is their own benefits and salaries, not the country's finances

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 Post subject: Re: Greece Financial Bailout
PostPosted: Thu Feb 18, 2010 5:45 pm 
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rafa_garcia18 wrote:
Electromatic wrote:
I don't really understand what happens when a country goes bankrupt.

I mean... what do they repossess the Acropolis?.


it's not that they go bankrupt, they just default on their debt. for example, when argentina had their massive crisis in the early 00's they defaulted on debt, i.e., they just stopped making their interest payments, and i know there are still creditors with whom they have not yet settled.

but it obviously affects their ability to get funds, as obviously no one will want to lend to them. many times this is where a body like the imf comes in, which lends money, but forces the country to stick to a plan to put their finances in order (cut spending, fiscal reform, privatize, etc.)

of course, like you said, a bunch of other problems build up/persist: unemployment, inflation, currency devaluation, etc.


Electromatic wrote:
Also... I'm not sure how Not working helps ones massive debt situation.


is this about the civil servants' strikes? their priorities are short term and egotistical (like pretty much everyone's), what they care about first and foremost is their own benefits and salaries, not the country's finances



Thanks.

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 Post subject: Re: Greece Financial Bailout
PostPosted: Thu Feb 18, 2010 8:37 pm 
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cut spending - rafa


You've got the wrong continent buddy...

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 Post subject: Re: Greece Financial Bailout
PostPosted: Fri Feb 19, 2010 2:20 am 
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Electromatic wrote:
I don't really understand what happens when a country goes bankrupt.

I mean... what do they repossess the Acropolis?

Obviously massive inflation and nothing is worth anything but.... I just have no concept of what really happens other than that.

Also... I'm not sure how Not working helps ones massive debt situation.

Because Greece shares a common currency with the rest of the EU, they can't print money. Thus, there won't be inflation; if anything, money will be harder to come by. Defaulting on debt is a deflationary event, and unless they can paper over the debt with printed money, it just money harder to come by.

The immediate problem will be that anybody who owns Greek debt will take a haircut, and if anyone had too much of it, they might require a bailout. It could cause a ripple effect that way. The medium term problem is that they won't be able to borrow money anymore, and because they're running a deficit, they'll be unable to pay Greek government employees. This will cause civil unrest.

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 Post subject: Re: Greece Financial Bailout
PostPosted: Fri Feb 19, 2010 2:42 am 
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J's doing a great job in here--I'm still waiting for Kris to set us straight even further.


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 Post subject: Re: Greece Financial Bailout
PostPosted: Fri Feb 19, 2010 2:53 am 
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It's an interseting situation thats being watched closely here. Our situation in Ireland supposedly isn't as bad as theirs but this is on the cards potentially for us too. Our assets were totally mismanaged and banks single handedly ruined our economy by overlending leading to a property boom and hugely inflating prices. That situation is never sustainable and soon ends. But the Greeks have a thing about civil unrest it seems, and we're not far behind them so the next few years should be interesting.

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 Post subject: Re: Greece Financial Bailout
PostPosted: Fri Feb 19, 2010 3:45 am 
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Green Habit wrote:
J's doing a great job in here--I'm still waiting for Kris to set us straight even further.

SD's got this. I was going to add that Greece doesn't have the luxury of having a sovereign central bank and the world's reserve currency and hence couldn't inflate their way out of this, but SD got it.

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 Post subject: Re: Greece Financial Bailout
PostPosted: Fri Feb 19, 2010 4:29 am 
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So when can we expect a global economic collapse and massive revaluation of resources?

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 Post subject: Re: Greece Financial Bailout
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Also it's funny that there is almost no conceivable(to me) way that the US could benefit from such a realignment since right now we consume far, far more than a legitimate share of resources due to financial trickery.

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 Post subject: Re: Greece Financial Bailout
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Buffalohed wrote:
So when can we expect a global economic collapse and massive revaluation of resources?

Patience.

If you listen closely, you can hear some of the rivets popping.

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 Post subject: Re: Greece Financial Bailout
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$úñ_DëV|L wrote:
Electromatic wrote:
I don't really understand what happens when a country goes bankrupt.

I mean... what do they repossess the Acropolis?

Obviously massive inflation and nothing is worth anything but.... I just have no concept of what really happens other than that.

Also... I'm not sure how Not working helps ones massive debt situation.

Because Greece shares a common currency with the rest of the EU, they can't print money. Thus, there won't be inflation; if anything, money will be harder to come by. Defaulting on debt is a deflationary event, and unless they can paper over the debt with printed money, it just money harder to come by.

The immediate problem will be that anybody who owns Greek debt will take a haircut, and if anyone had too much of it, they might require a bailout. It could cause a ripple effect that way. The medium term problem is that they won't be able to borrow money anymore, and because they're running a deficit, they'll be unable to pay Greek government employees. This will cause civil unrest.



I wonder what this will do long term to the overall health of the EU and how the seperate entities get along.

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 Post subject: Re: Greece Financial Bailout
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http://www.economist.com/world/europe/d ... extfeature

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Let the Greeks ruin themselves
Germany has Europe’s deepest pockets, but it does not want to pay to save troubled euro-zone economies
Feb 18th 2010 | BERLIN | From The Economist print edition

Illustration by Peter Schrank
LESS than a year before the euro became the currency of 11 European countries in January 1999, a declaration signed by 155 German-speaking economists called for an “orderly”—ie, long—delay. The prospective euro members, they said, had not yet reduced their debt and deficits to suit a workable monetary union; some were using “creative accounting” to get there, and a casual attitude towards deficits would undermine confidence in the euro’s stability.

Now the prediction is coming true, says Wim Kösters, of the Ruhr University in Bochum and one of the original signatories. Greece, which joined the euro two years after its inception, has concealed the dodgy state of its finances. Now it is under attack from speculators. A default could spread panic to other deficit-plagued economies, including those of Spain and Portugal, with scary consequences for Europe’s already shaky banking system. But if Greece’s partners bail it out, defying the euro’s founding treaty, the currency will suffer. Either way, the euro is in trouble.

This dilemma is felt especially keenly in Germany. It was a wrench to surrender the Deutschmark, symbol of post-war recovery and economic success. On the eve of monetary union 55% of Germans were against it, making their nation the euro zone’s most reluctant founders. When a “rescue” is mentioned, all eyes fix on Germany, Europe’s biggest economy and most creditworthy borrower. Germans fear that a rescue of Greece would, in effect, extend their welfare state to the Mediterranean.

Greece’s travails put Angela Merkel, the chancellor, in an uncomfortable position. German taxpayers are in no mood to save what they see as profligate Greeks, having already pledged €500 billion ($682 billion) to shore up their own banks and billions more for companies. The liberal Free Democratic Party (FDP), the junior partner in her coalition government, is against a rescue, as are many politicians from her own Christian Democratic Union (CDU). The Young Entrepreneurs’ Association declared that it would be “fatal” for Germany to foot the bill for Greece’s “budget chaos”.

A domestic row over welfare makes charity for foreigners a still more awkward subject. This month the constitutional court ruled that the government had erred in setting benefits for the main welfare programme, called Hartz IV. It has until the end of the year to come up with a new formula, which may cost more money. Guido Westerwelle, the FDP leader, lamented the “late Roman decadence” of a society that treats welfare beneficiaries more generously than workers. His outburst, in turn, annoyed Ms Merkel. “I can’t explain to someone on Hartz IV that we can’t give him a single cent more but that a Greek gets to retire at 63”, said Michael Fuchs, a CDU leader in the Bundestag.

On February 11th Mrs Merkel joined other European leaders in offering Greece vague support, while demanding concrete plans to slash its budget deficit. Since the summit, the demands have become more concrete and talk of aid even more vague. On February 15th finance ministers from the 16 euro-zone countries told Greece to take additional steps to cut its budget deficit by four percentage points of GDP to 8.7% this year. A harsh austerity plan, they hope, will be enough to deter speculators—and to reassure their voters at home that Greece is not getting off lightly. The model is Ireland, whose brutal spending cuts restored market confidence without aid from its European neighbours.

A bail-out, Mrs Merkel fears, would break the bargain Germany struck in accepting the euro: that the single currency’s members would never jeopardise its stability nor ask Germans to pay for anyone else’s mismanagement. That said, the currency union was hardly an act of martyrdom by Germany. In the past decade its firms have modernised and their workers have accepted miserly pay rises, boosting their competitiveness. In a euro-less Europe, its trading partners could have erased some of that advantage by devaluing their currencies. Instead, many of Europe’s weaker economies failed to reform and Germany accumulated gratifyingly large current-account surpluses. Nor has the crisis been entirely bad news. The euro has weakened by about 10% against the dollar since the beginning of 2010. Under the circumstances, that was not a harbinger of inflation but a welcome tonic for European exports—especially German ones.

The path out of the crisis is unclear. Greek bonds remain under pressure (see chart). Arguments rage over which chain reaction would be more damaging: serial bail-outs or serial defaults. A legal opinion by Bundestag experts argues that help for Greece might be allowed by European treaties if the crisis can be blamed on outside forces, like speculators or the global recession. Some economists (mainly non-German ones) say Germany can contribute to a longer-term solution by stimulating domestic consumption, which would help the Mediterranean miscreants grow out of their problems. There is talk of more co-ordinated “economic government” within the euro-zone (see Charlemagne).

Mr Kösters is sceptical. “No one knows what economic government is,” he says. Europe’s single market and currency set countries in competition with each other on the basis of their economies and institutions. Germany largely rose to the challenge. Now, says Mr Kösters, it is up to Greece and the others to do the same.

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 Post subject: Re: Greece Financial Bailout
PostPosted: Sat Feb 20, 2010 2:02 am 
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Electromatic wrote:
$úñ_DëV|L wrote:
Electromatic wrote:
I don't really understand what happens when a country goes bankrupt.

I mean... what do they repossess the Acropolis?

Obviously massive inflation and nothing is worth anything but.... I just have no concept of what really happens other than that.

Also... I'm not sure how Not working helps ones massive debt situation.

Because Greece shares a common currency with the rest of the EU, they can't print money. Thus, there won't be inflation; if anything, money will be harder to come by. Defaulting on debt is a deflationary event, and unless they can paper over the debt with printed money, it just money harder to come by.

The immediate problem will be that anybody who owns Greek debt will take a haircut, and if anyone had too much of it, they might require a bailout. It could cause a ripple effect that way. The medium term problem is that they won't be able to borrow money anymore, and because they're running a deficit, they'll be unable to pay Greek government employees. This will cause civil unrest.



I wonder what this will do long term to the overall health of the EU and how the seperate entities get along.


I wonder that as well. Just read this juicy quote:
Quote:
"How does Germany have the cheek to denounce us over our finances when it has still not paid compensation for Greece's war victims?" Margaritis Tzimas, of the main opposition New Democracy party, told parliament.


Next week will be interesting. Greece, Portugal, and Italy are all coming to market with new bond issues.

_________________
John Adams wrote:
In my many years I have come to a conclusion that one useless man is a shame, two is a law firm, and three or more is a congress.


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