Greece

The entire thing is worth reading, but the key take away:<p>&quot;Regulatory mistakes and agency issues within banks encouraged poor credit decisions. Spanish banks lent into overpriced real estate, and German banks lent to a state they knew to be weak. Current account imbalances within the Eurozone — persistent and unlikely to reverse without policy attention — implied as a matter of arithmetic that there would be loan flows on a scale that might encourage a certain indifference to credit quality. These were European problems, not national problems.<p>But they were European problems that festered while the continent’s leaders gloated and took credit for a phantom prosperity. When the levee broke, instead of acknowledging errors and working to address them as a community, Europe’s elites — its politicians and civil servants, its bankers and financiers — deflected the blame in the worst possible way. They turned a systemic problem of financial architecture into a dispute between European nations. They brought back the very ghosts their predecessors spent half a century trying to dispell. Shame. Shame. Shame. Shame.&quot;

I just read this Duke law paper[1] saying that in 2012 Greek creditors took a 64% haircut. I had not realized they had received such debt relief already. From the report:<p>&quot;Within the class of high- and middle-income countries, only three restructuring cases were harsher on private creditors: Iraq in 2006 (91%), Argentina in 2005 (76%) and Serbia and Montenegro in 2004 (71%). There are a number of cases of highly indebted poor countries, such as Yemen, Bolivia, and Guyana, that imposed higher losses on their private creditors. However, the Greek haircut exceeds those imposed in the Brady deals of the 1990s (the highest was Peru 1997, with 64 per cent), and it is also higher than Russia’s coercive 2000 exchange (51%)....the 2012 Greek exchange was exceptional in size, exceeding the next largest sovereign credit event in modern history, which to our knowledge wasRussia’s default on 1.7 billion British pounds in 1918, equivalent to just under 100 billion in 2011 Euros. The Greek exchange also easily surpasses the German default of 1932-33, the largest depression-era default on foreign bonds, comprising 2.2bn US$ at the time, or approximately 26 billion in 2011 Euros.&quot;<p>[1] <a href="http:&#x2F;&#x2F;scholarship.law.duke.edu&#x2F;cgi&#x2F;viewcontent.cgi?article=5343&amp;context=faculty_scholarship" rel="nofollow">http:&#x2F;&#x2F;scholarship.law.duke.edu&#x2F;cgi&#x2F;viewcontent.cgi?article=...</a>

This was my main take-away:<p>&quot;There is one morality tale that says the debtor must repay, or she has sinned and must be punished.<p>There is another morality tale that says the creditor must invest wisely, or she has stewarded resources poorly and must be punished.<p>We get to choose which morality tale we most use to make sense of the world. We do, and surely should, use both to some degree.<p>But if we emphasize the first story, we end up in a world full of bad loans, wasted resources, and people trapped in debtors’ prison, metaphorical or literal.<p>If we emphasize the second story, we end up in a world where dumb expenditures are never financed in the first place.&quot;

Far better one that turned up in my G+ feed a few days back:<p><a href="http:&#x2F;&#x2F;faculty.chicagobooth.edu&#x2F;anil.kashyap&#x2F;research&#x2F;papers&#x2F;A-Primer-on-the-Greek-Crisis_june29.pdf" rel="nofollow">http:&#x2F;&#x2F;faculty.chicagobooth.edu&#x2F;anil.kashyap&#x2F;research&#x2F;papers...</a><p>&quot;A Primer on the Greek Crisis: the things you need to know from the start until now&quot;, Anil Kashyap, University of Chicago, Booth School of Business, June 29th, 2015<p><i>1) How did Greece get into such trouble?...</i><p>To accompany that:<p>&quot;Greek Debt Crisis: How Goldman Sachs Helped Greece to Mask its True Debt&quot;<p><a href="http:&#x2F;&#x2F;www.spiegel.de&#x2F;international&#x2F;europe&#x2F;greek-debt-crisis-how-goldman-sachs-helped-greece-to-mask-its-true-debt-a-676634.html" rel="nofollow">http:&#x2F;&#x2F;www.spiegel.de&#x2F;international&#x2F;europe&#x2F;greek-debt-crisis...</a><p><i>Goldman Sachs helped the Greek government to mask the true extent of its deficit with the help of a derivatives deal that legally circumvented the EU Maastricht deficit rules. At some point the so-called cross currency swaps will mature, and swell the country&#x27;s already bloated deficit.</i>

The title was edited from &quot;The best analysis of the situation in Greece&quot; to &quot;Greece&quot;. The former title, while baity, is a much better description of the article than just the name of the country. Might as well call it &quot;Blog&quot;.<p>It would have been much better to, for example, delete &quot;the best&quot; and leave &quot;analysis of the situation in&quot; so that readers understand what <i>about</i> Greece is being discussed.

This is a much better primer on the situation:<p><a href="http:&#x2F;&#x2F;faculty.chicagobooth.edu&#x2F;anil.kashyap&#x2F;research&#x2F;papers&#x2F;A-Primer-on-the-Greek-Crisis_june29.pdf" rel="nofollow">http:&#x2F;&#x2F;faculty.chicagobooth.edu&#x2F;anil.kashyap&#x2F;research&#x2F;papers...</a>

I&#x27;ve meet a handful of young greeks(Age: 17-29) since 2010 and when asked about their situation, especially the unemployment rate they all said the same thing, young greeks don&#x27;t want to work unless it&#x27;s a high paying gov. secure job with 6 hours a day 5 days a week schedule. Ironically all of them were gamers but considering that the unemployment rate is about 50% with young greeks, it&#x27;s hard to argue with that.<p>Also one important thing was said many times, most of greeks try to avoid taxes or they don&#x27;t pay them at all. They&#x27;ve told me this is especially rampant in tourism. It&#x27;s hard to argue with that, depending on where you traveled you can experience this first hand.<p>It&#x27;s so easy to blame everyone else for your own problems, lets not forget how much money has actually been pushed to Greece since 2010 via financial injections and what have they done with it? What good is it to keep pushing more and more money into Greece when the people and it&#x27;s gov don&#x27;t want to change and without change how can you expect any progress?

Tyler Cowen responds:<p>“Interfluidity has an interesting but quite wrong post on how to think about Greece. International relations simply could not be run on the principles he advocates, most of all in conjunction with democratic nation states. His weakest point becomes evident when he writes:<p>““Among creditors, a big catchphrase now is “moral hazard”. We cannot be too kind to Greece, we cannot forgive their debt with few string attached, because what kind of precedent would that set? If bad borrowers, other sovereigns, got the idea that they can overborrow without consequence, if Spanish and Portuguese populists perceive perhaps a better deal is on offer, they might demand that. They might continue to borrow and expect forgiveness, and where would it end except for the bankruptcy of the good Europeans who actually produce and save?<p>“The nerve. The fucking nerve. Lenders, having been made nearly whole on their ill-conceived, profit-motivated punts, now fear that if anybody is nice to somebody who doesn’t deserve it, where will it end? I’d resort to that cliché about chutspa, the kid who murders his parents then seeks leniency ‘cuz he’s an orphan. But it’s really too cute for the occasion.”<p>“That’s a non-answer, with anger filling in for the required substance as to why Germany and others should allow this. “Your government is making things much worse. If you want to borrow so much more from us, you have to play by the rules and also stop spitting in our face and calling us Nazis and terrorists while negotiating” is more relevant — and yes relevant is the right word here — than any point he makes.<p>“A political program has to be something that voters could at least potentially believe, and international negotiations therefore cannot stray too far from common-sense morality, including when it comes to creditor-debtor relations. That is the point which today’s progressive economists are running away from as fast as is humanly possible. And for all the Buchanan-esque and public choice points about “rules of the game” this one about common sense morality unfortunately has ended up as the most important.<p>“Look at this way: if you lost a public relations battle to Germany, you are probably doing something very badly wrong.”<p><a href="http:&#x2F;&#x2F;marginalrevolution.com&#x2F;marginalrevolution&#x2F;2015&#x2F;07&#x2F;greece-and-syriza-lost-the-public-relations-battle.html" rel="nofollow">http:&#x2F;&#x2F;marginalrevolution.com&#x2F;marginalrevolution&#x2F;2015&#x2F;07&#x2F;gre...</a>

Interfulidity is one of the best economics blogs out there. Last year he did a five-part series on welfare economics[0] that, while quite lengthy, was very well-done. Anybody that&#x27;s interested in political economy, but has a more traditional Econ 101 background, it&#x27;s a good place to start.<p>[0]: <a href="http:&#x2F;&#x2F;www.interfluidity.com&#x2F;v2&#x2F;5149.html" rel="nofollow">http:&#x2F;&#x2F;www.interfluidity.com&#x2F;v2&#x2F;5149.html</a>

I largely agree with this article. It is still very dubious to me how anyone thinks that things like increasing VAT at the moment are going to help anyone.<p>However I don&#x27;t really understand the author&#x27;s reasoning here:<p>&gt; I’ll end this ramble with a discussion of a fashionable view that in fact, the Greece crisis is not about the money at all, it is merely about creditors wresting political control from the concededly fucked up Greek state in order to make reforms in the long term interest of the Greek public. Anyone familiar with corporate finance ought to be immediately skeptical of this claim. A state cannot be liquidated. In bankruptcy terms, it must be reorganized. Corporate bankruptcy laws wisely limit the control rights of unconverted creditors during reorganizations, because creditors have no interest in maximizing the value of firm assets. Their claim to any upside is capped, their downside is large, they seek the fastest possible exit that makes them mostly whole. The incentives of impaired creditors are simply not well aligned with maximizing the long-term value of an enterprise.<p>The argument he disagrees with here is that the creditors are actually not so much interested in getting back their money but in keeping leverage over the government to enact reforms [0]. He believes that this cannot be the case, because as creditors their incentive is not the long-term good of the nation, but only their short-term recovery of the debt. I don&#x27;t think this is necessarily true.<p>In the end, the goal of the EU should be (I hope) to allow Greece to become a prosperous nation with a sustainable economy, to form a stronger union overall. Whether or not the actual debt ever gets fully repaid should be secondary to that. So aren&#x27;t the incentives in this case, unlike for corporate debt, actually quite well-aligned?<p>To me the idea that the creditors do not want to give up all their leverage (the debt) makes perfect sense to me. The Greek government has shown time and time again that it is unable to enact the reforms it needs to. Properly reforming the political structures and getting rid of clientelism and waste is going to require some external factor forcing them to act.<p>[0] <a href="http:&#x2F;&#x2F;www.vox.com&#x2F;2015&#x2F;7&#x2F;2&#x2F;8883307&#x2F;merkel-nsa-wikileaks-greek-crisis" rel="nofollow">http:&#x2F;&#x2F;www.vox.com&#x2F;2015&#x2F;7&#x2F;2&#x2F;8883307&#x2F;merkel-nsa-wikileaks-gre...</a>

This is an interesting take on things w&#x2F; a lot of merit, but I think Vox actually summed it up better here w&#x2F; a short video and a longer article: <a href="http:&#x2F;&#x2F;www.vox.com&#x2F;2015&#x2F;6&#x2F;30&#x2F;8867939&#x2F;greece-economic-crisis" rel="nofollow">http:&#x2F;&#x2F;www.vox.com&#x2F;2015&#x2F;6&#x2F;30&#x2F;8867939&#x2F;greece-economic-crisis</a><p>Until&#x2F;unless the rich European countries are willing to subsidize the poorer countries, as a financial union, the Euro is just a complete non-starter since the fiscal policies these states need are so far apart.

This can probably use a neutral title. &#x27;An analysis of the situation in Greece&#x27; or somesuch.

When the Greek government originally borrowed their debts, they did so mostly from commercial banks in other EU countries. Therefore, the first Greek crisis was systemically dangerous. It had the potential of dragging the entire EU banking system into the mud. In the meanwhile, these commercial EU banks have been able to offload their Greek debt paper onto their own governments and onto supranational EU organizations. Today, a Greek default would no longer put the EU banking system in jeopardy. It is the European Financial Stability Facility (EFSF) and similar organizations at national and international level that would see a hole appearing in their financial paperwork, if Greece defaulted.<p>Therefore, the point of view of Alexis Tsipras, the Greek prime minister, makes a lot of sense. Let Greece simply default and let the current debt holders dump the Greek paper on the open market, where it will trade at cents to the Euro. Inasmuch as Greece finds more money in the future, the Greek government can try to buy back debt paper in order to destroy it. The current holders of Greek paper would indeed lose money but in fact they have lost that money already. If they simply had the courage to let the open market value their holdings, they would see today already that most of the value has already gone. Nobody has any hope of seeing the money back represented by the Greek debt paper. Why not just admit it?<p>Historical lesson: Borrowing large amounts from EU banks is a one-way bet. Their governments will not let these banks go bankrupt and therefore, if need be, they will take over the debt. Since these governments cannot collect the debt either, they will eventually have to forgive the debt.

&gt; &quot;The world is full of unworthy and unscrupulous entities willing to take your money and call the transaction a “loan”. It always will be. That is why responsibility for, and the consequences of, extending credit badly must fall upon creditors, not debtors. There is one morality tale that says the debtor must repay, or she has sinned and must be punished. There is another morality tale that says the creditor must invest wisely, or she has stewarded resources poorly and must be punished. We get to choose which morality tale we most use to make sense of the world. We do, and surely should, use both to some degree. But if we emphasize the first story, we end up in a world full of bad loans, wasted resources, and people trapped in debtors’ prison, metaphorical or literal. If we emphasize the second story, we end up in a world where dumb expenditures are never financed in the first place.&quot;<p>This is great. What, then, about a middle road? Absolve greece of its debts. Write off its liability as a sunk cost, let bygones be bygones. Then cut it off from the ECB. Let the government figure out how to run a sustainable economy, and when they&#x27;re ready, bring them back in.

This article is far from objective, let alone &#x27;best analysis&#x27;. It is a perfect example of cherry picking data.

&quot;They had knowingly and purposefully brought weak states into the Eurozone, because they genuinely, even nobly, wished to build a large, strong, United Europe.&quot;<p>For folks who know Europe&#x2F;Europeans well, is this true?

How do you call this an analysis? This is pretty blatant political polemic. It isn&#x27;t an &quot;analysis&quot; but a rant. The Greeks lied about their financial condition in an effort to support a pension system that lets people retire far earlier than the rest of Europe. Bring the pension system and other spending in line in exchange for some haircuts on the debt- that&#x27;s the fair answer. Not this crud about how the other European countries &quot;betrayed&quot; Greece. Man that&#x27; some offensive nonsense.

For those not wanting to read, just look at this image (from the post): <a href="http:&#x2F;&#x2F;i.imgur.com&#x2F;c7IYmaY.png" rel="nofollow">http:&#x2F;&#x2F;i.imgur.com&#x2F;c7IYmaY.png</a>

The TROIKA GDP Forecast graph is great! I think from now on I am going to send it to any investor who thinks asking pre-revenue companies for projections is a reasonable thing.

You could say that the current Greek problems are a consequence of bad governance, but that alone is not enough.<p>See Finland for instance:<p><a href="http:&#x2F;&#x2F;www.nytimes.com&#x2F;2015&#x2F;07&#x2F;03&#x2F;opinion&#x2F;paul-krugman-europes-many-disasters.html?rref=collection%2Fcolumn%2Fpaul-krugman" rel="nofollow">http:&#x2F;&#x2F;www.nytimes.com&#x2F;2015&#x2F;07&#x2F;03&#x2F;opinion&#x2F;paul-krugman-europ...</a>

Nick Szabo&#x27;s take on it: <a href="http:&#x2F;&#x2F;unenumerated.blogspot.com&#x2F;2015&#x2F;07&#x2F;the-greek-financial-mess-and-some-ways.html" rel="nofollow">http:&#x2F;&#x2F;unenumerated.blogspot.com&#x2F;2015&#x2F;07&#x2F;the-greek-financial...</a>

I would like to thank the author for putting together the words I would like to had put, but being out of skill and full of anger, I wasnt able to.

I really don&#x27;t know that much of the details of this particular situation, I&#x27;ve grown tired of hearing about this sort of thing. I RTFA and it was interesting, but then it&#x27;s always interesting, isn&#x27;t it.<p>I was surprised that a CTRL+F &quot;Icelend&quot; in this thread turned up nothing. While I&#x27;m sure there were many differences in their situation, I bet there were a lot more similarities. My crude analysis of this situation is, it is yet another example of &quot;men behaving badly while playing with other people&#x27;s money&quot;. And when I say men, I&#x27;m not using it in the gender agnostic sense.<p>When this sort of thing happened to Iceland, they had the choice of &quot;doing the right thing&quot; (aka do what they were told by the international banking industry), or go it on their own. After some &quot;public discussions&quot;, it was decided they would go it on their own. And a key learning that came out of that public discussion was to ensure females were involved in the process:<p><a href="http:&#x2F;&#x2F;www.theguardian.com&#x2F;world&#x2F;2009&#x2F;feb&#x2F;22&#x2F;iceland-women" rel="nofollow">http:&#x2F;&#x2F;www.theguardian.com&#x2F;world&#x2F;2009&#x2F;feb&#x2F;22&#x2F;iceland-women</a><p>And by most accounts, Iceland is now doing generally &quot;ok&quot;.<p>By the way, I have no idea if that article is at all authoritative on the topic of Iceland or females role in its recovery, I did a 5 second google search. My point is, as the author of the article (that is the topic of this post) clearly pointed out, the original deal with Greece was built on a fair amount of lies, that everyone <i>knew</i> were lies. I particularly liked the reference to this term: <a href="http:&#x2F;&#x2F;www.urbandictionary.com&#x2F;define.php?term=IBGYBG" rel="nofollow">http:&#x2F;&#x2F;www.urbandictionary.com&#x2F;define.php?term=IBGYBG</a><p>And my experience (as a man), dealing with other men for many decades now is: a certain subset of men have absolutely no moral qualms about lying in the pursuit of power; other men of the same personality type, even if <i>seemingly</i> enemies, are happy to go along, and the collusion between these opposing actors who share the same mindset often results in them all rising into positions of extreme power, and they eventually blow the whole place up. It&#x27;s probably always been this way in a sense - in the good old days, it resulted in war - nowadays, it results in financial markets blowing up.<p>I know there are all sorts of holes in my &quot;theory of the world&quot;, and I don&#x27;t even care, because this same shit will continue to happen indefinitely, and it will always be men running the show, but there&#x27;s no way to prove causation because it will <i>always</i> be men running the show.

The basic idea:<p>BMW wants to sell more cars to greeks. Greeks don&#x27;t have enough money so they can&#x27;t buy. Deutsche Bank (DB) gives &quot;free money&quot; in loans. (And of course DB knows that greece isn&#x27;t exactly &quot;strong&quot; economically.) We are talking about a greek population that never ever had a loan before, while the prime minister talks about the &quot;powerful (economically) greece&quot;. They also thought that the world &quot;stock markedt&quot; was some kind of chinese recipe. Greeks, with &quot;free money&quot;, buy BMWs. BMW is happy. Profits. Eventually, of course, TSHTF.<p>And then, would you expect that?<p>THE PRIVATE DEBTS BECOME PUBLIC.<p>That means the bad loans of DB become the burden of all the taxpayers of europe. Germans pay, greeks pay (decimated basically, with ~-20+% GDP, +5x taxation, etc), italians pay, french pay, etc. The TAXPAYERS.<p>To put it simply:<p>BWM: Happy. DB: Happy. Europe&#x27;s taxpayers: F*cked.<p>The billions that greece &quot;got&quot; as &quot;help&quot;, it never saw. They went ~98% back to foreign creditors.<p>Basically:<p>The politicians (cue, under the table payments for Mrs. Merkel, Mr. Schauble, Mr. who-was-PM-of-greece-then), took money from all european taxpayers, and gave profits to BMW and DB. (With their cut.) Now, they sell a nationalistic &quot;those southern states are lazy&quot;.<p>PS: It was german and french private banks, and german and french industries. It&#x27;s just that DB was the biggest, and BMW is big and symbolic.

this would be much nicer if word spacing was like 5px!

&quot;Greece is a remarkable country full of wonderful people, but along dimensions of development and governance, the place is plainly pretty fucked up&quot;<p>Rehash of what we already know + strong words != Great analysis