Greek gov't bonds downgraded to junk status, Eurozone in trouble

I do not avoid any responsibilities Greek people carry for their "numbness".
You are giving me official rates and numbers when we previus accepted that our official numbers are "cooked".Well,the real economy it's totally different thing.The basic salary in Greece is 740.00 euros in private sector.And believe me,everyone is starting with that salary no matter how many univercity degrees you are carrying.

Examine,official rates for unemployment.That is the biggest joke of all.You can't believe the tricks you can create for "hiding" and "creating" numbers.
Here in Greece,we call it "creative accounting"!!!!

But you are right about some salaries,all in public services.The Olympic period was a most provoking era.There were people that gained in 2 months what i gain in 2 years.Sadly,we are to be blamed too.

But it's nothing compared to what the big "fishes" got.

Prime Junta said:

Worse, it was only able to do that because people were willing to look the other way. Greece was taken into the EU, and then the Eurozone, for political reasons. That meant bending the rules and looking the other way. If you're under real scrutiny, you can't get away with the shit Greece did.

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I don't know. Sure, it was wanted for political reasons, but the EU was and is first and foremost an economic endeavour, and Germany particularly had a very vital interest in the stability criteria. So I haven't seen any convincing evidence that the other states deliberately accepted this development, although of course one is never entirly wrong to say "its everybodies fault" when the shit hits the fan. I guess it is generally agreed that all countries try to look as good as possible when it comes to the maastricht criteria to avoid loss of face or sanctions - but that is slightly different from hiding what now seems to have been like 2/3rds of your real deficit.

Gorath's suggestions seem very sensible to me. Especially buying them out at a reasonable price since they seem to have tanked the group viability, but what is this veto referred to? Can one party veto anything it so chooses? That seems a bit unwieldy in terms of working for solutions.

Oh, and to illustrate my complete ignorance on financial topics, when Prime J mentioned banning shorts, I thought he meant this story:
http://slatest.slate.com/id/2252229/?wpisrc=newsletter

akarthis said:

I do not avoid any responsibilities Greek people carry for their "numbness".
You are giving me official rates and numbers when we previus accepted that our official numbers are "cooked".

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True, there is that. That's why these are going to have to be very rough estimates.

Well,the real economy it's totally different thing.The basic salary in Greece is 740.00 euros in private sector.And believe me,everyone is starting with that salary no matter how many univercity degrees you are carrying.

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That doesn't sound too far out of line with the official numbers, though (GDP per capita and GINI coefficient), when compared to, say, Finland. Our GDP per capita is a bit less than double yours, our starting salaries are perhaps a bit more than double yours, and our GINI coefficient is a good deal more equitable.

Examine,official rates for unemployment.That is the biggest joke of all.You can't believe the tricks you can create for "hiding" and "creating" numbers.
Here in Greece,we call it "creative accounting"!!!!

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That's for sure.

But you are right about some salaries,all in public services.The Olympic period was a most provoking era.There were people that gained in 2 months what i gain in 2 years.Sadly,we are to be blamed too.

But it's nothing compared to what the big "fishes" got.

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Of course the big fishes caught more. I can easily believe that some people walked off with billions. But the basic equation still holds -- if you borrowed 200 billion and somebody walked off with 20 billion, you still spread 180 billion all around the economy. It might be 40 billion and 160 billion, or 10 billion and 190 billion, but I'm pretty certain the ratio wasn't, say, 50-50 or more.

Spain just got downgraded. This is starting to look like a self-fulfilling prophesy.

Only to AA. If it falls much further than that, though... ouch.

Another consequence is that this is causing the euro to fall. This will help the troubled economies (and is great news for Finland, since we're such an export-driven economy), but Germany is already in danger of overheating, and we really don't need another bubble *there.*

Europe is badly out of balance internally, and we don't have too many good tools to get it back in balance. This is not unlike the China/USA imbalance, with the export-driven economies of Central and Northern Europe playing the part of China and the importing economies of the South playing the part of the USA, only without the massive economy to back it up. In the USA/China case, we have China refusing to let its currency float; in the North/South European case, we can't adjust the exchange rate because there isn't one. Bugger!

dteowner said:

Spain just got downgraded. This is starting to look like a self-fulfilling prophesy.

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I believe that, too.

Moreover, it is possible that the downgrading is part of the strategy of speculators. Don't forget that the companies responsible for such ratings are part of the industry, which caused the financial crises and on another track brought Greece into this situation by helping to fake their credentials.

So their calculus could be as follows: Since the other countries seem to hesitate with helping Greece, the downgrading puts pressure on them to do this fast and without thinking AND it causes a rise of interest rates for money lend to the affected countries, so speculators get more money back as soon as the other counties finally give the needed money.

Good analysis here:

[ http://news.bbc.co.uk/2/hi/business/8648456.stm ]

I say bail them out. Then sell them to Turkey.

Why do that? You can always exploit it.....
Or you can bail us now, and then bail us out again and again

Or, we could always make Greece the 52 State of the USA!! Their corrupt pollies would feel right at home!!!! lol

Ummm, I know you're getting a bit addled in your advanced age , but there's only 50 states now. How do you get to 52? Canadian exchange rate?

Maybe Australia is tired of that Rue Brittania thing and wants to consider itself 51? They speak English--sort of.

Actually, most already consider Canada the 51st State. Common conversation:- Hi, you're American aren't you? No, Canadian. Same thing!!

Looks like the bailout is coming together. We're talking about a lotta money here, especially considering that Greece is a pretty small country of 11 million people or so. It'll amount to about 120 billion euros over the next several years, in low-interest loans.

Greece's end of the bargain is to slash spending and increase taxation big-time. Public-sector retirement age will go up from 53(!) to a more normal 67 years, bonuses and salaries will be slashed, lots of committees will be disbanded. I would also expect that some of the most ridiculous features of the Greek system, such as people having the right to continue to draw government pensions of their deceased relatives, will go. Income tax — which is typically evaded — won't probably change much; however, sales tax (which is more difficult to evade) will likely go up to well over 20%.

What does this mean? Well, it sucks to be Greek, right now. Those policies are highly regressive — a high, uniform sales tax will hit the poor and lower middle-class hard, whereas the upper middle-class and rich will find ways to avoid it through various corporate arrangements as such. The downsizing of the public sector will kick lots of people into unemployment. Cutting of salaries and pensions will lower living standards across the board. Cutting of various social security provisions — which will have to be done, because there's no money — will make life even worse for those who have fallen between the cracks. Since there's no money for stimulus, all this structural change will have to work its own way through the system, which will take years. The human cost will be huge.

I'm interested to see what they'll do about their military spending, which is proportionately among the highest in the EU. Turkey is not going to invade, so it's that way mostly because of paranoia. Usually that's the last thing to go, though, although it has the scope for the biggest savings with the least general impact.

Yet I can't see any realistic alternative that would be any better. Greece is effectively bankrupt. That means stuff like no stimulus, no social safety net, no governance effective enough to collect progressive taxes, and so on and so forth. The hundred-billion-plus package is simply enough to stave off a complete collapse during the time the spending cuts are made; nowhere near enough to cushion the effects of the adjustments.

The alternatives would be worse.

(1) Quit the Eurozone and devalue. This would (a) trigger a massive bank run, as people grab their euro savings and stuff them in the mattress or zap them abroad, and (b) would leave the national debt still denominated in euros, which would make it an ever-heavier burden as the new drachma falls. Yet it wouldn't save any of the government programs that are being scrapped now, simply because there isn't any money.

(2) Default. This would lead to an involuntary exit from the eurozone, with the same consequences as above, only worse. Again, the same situation — the programs being cut now would go, and a lot more, because there isn't any money.

Despite everything, I would not have expected to see an Argentina-type scenario play out within the Eurozone. Oh well…

I just did a bit of arithmetic, and it looks like my share of the Greek bailout is about 700...1000€, depending on how you look at it. Parakalo, and don't spend it all at once, m'kay?

Interesting mess for you over there. I wonder if it can be used to exemplify what happens when the government is *unable* to bail out the economy due to sheer corruption and poor governance skills(which is the impression I'm getting from here.) A retirement age of 53--was that across the board in the public sector followed by a significant pension? Seems a bit predatory, unless the average worker also collects a government subsidy at 53, which would make things even more unbalanced.

I imagine the countries which have kept their stuff together are going to be severely unhappy with bailing out their fiddling grasshopper cousins in Greece. We're pretty inured to it here--and often the states needing the most propping up and taking the most government money are the first ones to carp about reducing the size of the federal government.... Welcome to our world

magerette said:

Interesting mess for you over there. I wonder if it can be used to exemplify what happens when the government is *unable* to bail out the economy due to sheer corruption and poor governance skills(which is the impression I'm getting from here.) A retirement age of 53—was that across the board in the public sector followed by a significant pension? Seems a bit predatory, unless the average worker also collects a government subsidy at 53, which would make things even more unbalanced.

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You'll have to ask the Greeks how it actually works in practice. I get the picture that public-sector jobs are structured with low base salaries, but ridiculously low retirement ages, lots of absurd bonuses (e.g. a bonus for state-employed lumberjacks for having to work outdoors, a bonus for showing up at the office on time, two months bonus salary per year, a bonus for office workers if they're able to use a computer, etc.), and lots of make-work committees (e.g. a committee for taking care of a lake that dried up in the 1930's), and so on.

And yeah, Greece is a good case of what happens if you have really lousy government, really profligate spending, and a population so turned-off to the whole thing that they don't care anymore, and instead just do their best to avoid paying taxes. (That's another major problem Greece has -- tax evasion is so rampant that the state is unable to collect taxes, even if it wanted to.)

I imagine the countries which have kept their stuff together are going to be severely unhappy with bailing out their fiddling grasshopper cousins in Greece. We're pretty inured to it here—and often the states needing the most propping up and taking the most government money are the first ones to carp about reducing the size of the federal government…. Welcome to our world

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Frankly... I am. It's hard not to be pissed off at the Greeks in general, not just the crooks who were -- and still are -- running the show. I know that the average Athenian hasn't had it too great lately, with price levels shooting up to among the highest in Europe, yet median wages trailing well below the average. (I would assume that those high prices went into the pockets of rentiers*-- whoever was lucky enough to own real estate or capital goods there. The had to go somewhere -- one person's high prices is another person's high wages.)

But the fact remains that Greece is a democracy, albeit a dysfunctional one. The levers are there to fire an incompetent government and hire a more competent one. Greeks chose not to do that, preferring instead to game the system, each at their level -- the regular Yannis or Maria to evade taxes and perhaps angle for a nice, safe government job with retirement at 53, the more cunning or ruthless to steal from the treasury and maneuver overpriced infrastructure jobs to the cousin with the construction company, and the top dogs to siphon away government-borrowed money into their Swiss bank accounts. And, of course, the rest of the EU for enabling it.

IOW, we're all responsible. Me, Yannis, Maria, Papandreou, the works. The worst crooks are most responsible, but the average Greek is a hell of a lot more responsible than the average German, Finn, or Frenchman now bailing him out. So no, I don't have a lot of sympathy for the rioters, even if I understand why they're pissed off. It won't make things any better. The only question is if the austerity measures are put in place in a somehow controlled fashion, or if the state collapses altogether.

Your anger seems justified to me, and I imagine a lot of the frustration is in being forced to do this bailing out against your will, because if you don't things will be worse. Very similar to a lot of the populist sentiments over here about Wall Street.

Don't know if you've seen this latest piece by Krugman on Greece and the Euro:
http://www.nytimes.com/2010/04/30/opinion/30krugman.html?src=me&ref=general
He makes things sound rather scary:

Then came the global financial crisis. Those inflows of capital dried up; revenues plunged and deficits soared; and membership in the euro, which had encouraged markets to love the crisis countries not wisely but too well, turned into a trap.

What’s the nature of the trap? During the years of easy money, wages and prices in the crisis countries rose much faster than in the rest of Europe. Now that the money is no longer rolling in, those countries need to get costs back in line.

But that’s a much harder thing to do now than it was when each European nation had its own currency. Back then, costs could be brought in line by adjusting exchange rates — e.g., Greece could cut its wages relative to German wages simply by reducing the value of the drachma in terms of Deutsche marks. Now that Greece and Germany share the same currency, however, the only way to reduce Greek relative costs is through some combination of German inflation and Greek deflation. And since Germany won’t accept inflation, deflation it is….

Hence the crisis. Greece’s fiscal woes would be serious but probably manageable if the Greek economy’s prospects for the next few years looked even moderately favorable. But they don’t. Earlier this week, when it downgraded Greek debt, Standard & Poor’s suggested that the euro value of Greek G.D.P. may not return to its 2008 level until 2017, meaning that Greece has no hope of growing out of its troubles.

All this is exactly what the euro-skeptics feared. Giving up the ability to adjust exchange rates, they warned, would invite future crises. And it has.

So what will happen to the euro? Until recently, most analysts, myself included, considered a euro breakup basically impossible, since any government that even hinted that it was considering leaving the euro would be inviting a catastrophic run on its banks. But if the crisis countries are forced into default, they’ll probably face severe bank runs anyway, forcing them into emergency measures like temporary restrictions on bank withdrawals. This would open the door to euro exit.

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Yup, I've read it. Compared to Dr. Doom (Nouriel Roubini), he's a positive Pollyanna, though.

I don't think the Euro is going anywhere. Ultimately, a currency represents value, and the core economies using the Euro are sound (and a common currency is, on balance, helping them). That doesn't mean that there won't be exits from it, though.

Another interesting thing is that this crisis has brought up front-and-center a fundamental philosophical difference about what the EU should be. One view is primarily political and, if you will, idealistic or ideological: they consider it a grand project uniting all European countries into a single whole greater than the sum of its parts, with perhaps even dreams of restoring European civilization to its rightful place at the center of things. The other view is a primarily pragmatic and economic one: they see Europe as a grouping of countries with roughly similar economic, political, and social structures, and who see immediate practical benefits about pooling resources, encouraging trade, harmonizing legislation, and so on. The French are usually associated with the former; the Germans, with the latter.

Following this mess, I have a feeling the ideological view of Europe will find itself somewhat out of favor, as it's a major structural reason for this shipwreck. Greece and Italy would never have been admitted into the Eurozone (and perhaps, in the case of Greece, not even the EU) without the pressure from the "idealists;" the same thing goes for many of the latest round of entrants.

(Where do I stand? Between the two, perhaps. I do think that the EU can and should be more than simply a pragmatic marriage of convenience; it has the potential to become a brand new way of transnational governance; a club for countries advanced enough to have discarded the stale trappings of nationalism. However, I also believe that this is only feasible if there are immediate practical benefits to it too. I do not think any country should be admitted if it's not ready for it -- but I believe any country *should* be admitted if it is. IOW, I have nothing in principle against Turkish, Russian, Canadian, Israeli, Iranian, Norwegian, or Congolese membership in the EU -- the only thing I care about is that they have diversified, prosperous economies, stable, functioning, reasonably non-corrupt governments, and societies and laws with a very high level of respect for human rights. Currently some of these countries do, while others don't, which is why I'd be delighted to have Canada on board, but would not be ready to admit Iran. But I would not deny any country membership simply because they didn't happen to be European.)

Interesting. So you don't feel a European-based union would require any cultural element, or historic congruence? I can understand that sort of follows rejecting a purely idealistic view and embracing a more pragmatic one, but wouldn't it be a much bigger stretch for an Iran to participate than an Israel, or an Asian entity than a Euro-derived one such as Canada? I would think that would be a very late development in the process, perhaps after such countries already have formed trans-national alliances of their own, in order to work. Otherwise the cultural differences seem to me to be too significant to over-ride the economic benefits, unless the economic benefits were truly formidable.