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

dteowner · May 9, 2010

Prime Junta said:
Er, I wasn't entirely serious about the German administration.

It's the second time you've included it in your gameplans. That's a trend. Seems pretty serious to me.

Gorath · May 9, 2010

dteowner said:
Seriously, folks, I'm not being obnoxious here (at least no more than usual ). With the combined economies of the EU, 8 billion Euro is chump change.

I still wonder where your 8B€ are coming from. We're talking about 110B€ and counting. That's almost 10000€ per Greek citizen.

Prime Junta · May 9, 2010

dteowner said:
It's the second time you've included it in your gameplans. That's a trend. Seems pretty serious to me.

Trend or not, I wasn't. There's just a kernel of serious in it, though.

The kernel of serious is that a stabilization fund needs a mechanism to deal with moral hazard -- if governments think they can spend like drunken sailors and the fund will always rescue them, they *will* spend like drunken sailors.

If the fund operated independently of national governments, and had the right to step in at its discretion providing that certain crisis conditions apply, *and* stepping in automatically caused a country to lose control over its budget and fiscal policy, that would be a fairly effective deterrent to irresponsible government. There could still be a recourse for countries that really don't want it -- exit the EU. No government wants to be in that situation.

dteowner · May 9, 2010

Gorath said:
Banks and politics are heavily connected in Germany. So this means politics sneaked another 8B€ to Greece and the banking sector will have their accountants handle this in the legally correct way, which means including a "risk" worth 8B€ in their books and making preparations for the worst case. Ergo: a tax write-off.

From here, Gorath. I missed the "another". My error.

100bil is a much bigger number, but still not untouchable. Our bank bailout was $700bil, so it would seem 100bil is still something the EU should be able to come up with by lunchtime or so.

akarthis · May 9, 2010

I would agree with you Dteowner, 110B might not be such a big number if success was guaranteed. But,honestly, i can't see any signs here that this amount of money will offer Greece something,besides some little extra time.

I may be pessimist, but i am watching with surprize things unfolding here, totally to the wrong direction

Gorath · May 9, 2010

dteowner said:
100bil is a much bigger number, but still not untouchable. Our bank bailout was $700bil, so it would seem 100bil is still something the EU should be able to come up with by lunchtime or so.

It's hard to assess the number without talking about the evaluation context. If we scale the 110B€ to the population size of the USA the sum would be ca. 4400B$. With uncertain positive longterm effects and with more problems in other countries in the pipeline.
Just to put into perspective what an insane amount of money the EU is throwing at the problem.

Sir Markus · May 9, 2010

None of this even matters. The whole concept of a unified currency for Europe went boom, IMO. They tried it but it was a bad idea from the start.

Prime Junta · May 9, 2010

Sir Markus said:
None of this even matters. The whole concept of a unified currency for Europe went boom, IMO. They tried it but it was a bad idea from the start.

That's a bit premature, methinks. I'd be very surprised if the euro unravels completely, although it's pretty much even money whether some or all of the PIIGS will leave it.

As to whether it's a bad idea, that's another story. There's a good case to be made that the idea is good, but the execution was deeply flawed; specifically, we never set up the institutional support a currency really needs, and we admitted countries that should not have been admitted.

It's also worth pointing out that the currency alone isn't behind the crisis -- the SE Asian crisis that started with Thailand was very similar, and also caused massive global contagion, without a currency union among the countries where it begun.

Prime Junta · May 10, 2010

Okay, looks like there's an agreement about the stabilization package. Total 750 G€; 60 G€ from the European Commission, 440 G€ in loan guarantees from the EU member states, and 250 G€ from the IMF. That seems to be in roughly the right order of magnitude.

For the record, I think it's morally wrong that the IMF carries such a big chunk of the burden, and if it's ever used, IMO the EU countries should be obliged to pay back the money ASAP. We're rich, and we should not have to use mechanisms set up for stabilizing countries that can't afford to do so themselves. (However, I do think IMF technical expertise is invaluable; just not the money.)

Siran · May 10, 2010

Why? The IMF is there to help countries that get financial problems which they can't solve on their own. If that package is used, the country is in dire straits. So why shouldn't the IMF pay, too?

Sir Markus · May 10, 2010

Prime Junta said:
That's a bit premature, methinks. I'd be very surprised if the euro unravels completely, although it's pretty much even money whether some or all of the PIIGS will leave it.

As to whether it's a bad idea, that's another story. There's a good case to be made that the idea is good, but the execution was deeply flawed; specifically, we never set up the institutional support a currency really needs, and we admitted countries that should not have been admitted.

It's also worth pointing out that the currency alone isn't behind the crisis — the SE Asian crisis that started with Thailand was very similar, and also caused massive global contagion, without a currency union among the countries where it begun.

I thought it was a bad idea at the time, nevermind the issue of national sovereignty getting tossed out the window for most of Europe that bought into this cooked up bank scam. Nothing that's happened since the introduction of the Euro has changed my opinion on this issue.

Prime Junta · May 10, 2010

Siran said:
Why? The IMF is there to help countries that get financial problems which they can't solve on their own. If that package is used, the country is in dire straits. So why shouldn't the IMF pay, too?

It's a matter of responsibility. The EU should be smart and rich enough to be able to handle this sort of thing on its own.

Sir Markus · May 10, 2010

Prime Junta said:
It's a matter of responsibility. The EU should be smart and rich enough to be able to handle this sort of thing on its own.

Bailing out businesses is bad enough, and enough of a drain on nations, now we are going to bail out countries? Lol. What a horrible idea that should be dead on arrival, IMO.

akarthis · May 10, 2010

"There are two ways to conquer and enslave a nation. The first is by the sword. The second is through debt"
John Adams 1735-1826

There are two reasons for bailing out a falling country. Being afraid of taking you with it or by gaining something

Prime Junta · May 10, 2010

Sir Markus said:
Bailing out businesses is bad enough, and enough of a drain on nations, now we are going to bail out countries? Lol. What a horrible idea that should be dead on arrival, IMO.

It is rather horrible, yes. Unfortunately, the alternatives are even worse. We're now paying for the mistakes that were made when setting up the Eurozone -- i.e., not having this kind of institutional support for it in the first place, and being too sloppy with the entrance criteria.

Then again, the euro is only ten years old. The US dollar went through far worse crises during its youth -- not least an entire split into Union and Confederate currencies, during the Civil War.

And as for "nations," the sooner we see the last of them, the better. If there are two political structures I'd like to see disappear, they're the nation-state and the state religion.

Siran · May 10, 2010

Prime Junta said:
It's a matter of responsibility. The EU should be smart and rich enough to be able to handle this sort of thing on its own.

Why? If other countries stumble, we have to put our money in via IMF, if one of us stumbles, we have to handle it on our own? What kind of fairness is that?

Gorath · May 10, 2010

This discussion is nonsense. Greece gets money from both the IMF and the EU.

Gorath · May 10, 2010

Sir Markus said:
I thought it was a bad idea at the time, nevermind the issue of national sovereignty getting tossed out the window for most of Europe that bought into this cooked up bank scam. Nothing that's happened since the introduction of the Euro has changed my opinion on this issue.

So does this tell us something about the Euro or something about you?

The advantages for the citizens and companies of the involved countries and even tourists travelling more than one of these countries are absolutely trivial to see.
The idea was great. The EU only should have been much more careful in chosing the participants.

Prime Junta · May 10, 2010

Siran said:
Why? If other countries stumble, we have to put our money in via IMF, if one of us stumbles, we have to handle it on our own? What kind of fairness is that?

Because we should be smart enough not to get into that sort of trouble in the first place, and if we do, we deserve to clean up our own messes. Europe isn't South America.

It's the same reason I want US troops out of Europe -- we should be grown-up enough to take care of our own security, instead of hiding behind Uncle Sam's back.

Rithrandil · May 10, 2010

Prime Junta said:
And as for "nations," the sooner we see the last of them, the better. If there are two political structures I'd like to see disappear, they're the nation-state and the state religion.

But then I'd be out of a career!

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

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