Is Greece going to set off the long feared next wave of the Great Recession?

@cicerone imposter,

For the Greeks, as well as other Europeans, weaning themselves off no longer sustainable governmeent spending programs they can no longer afford will be a painful process.

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@georgeob1,

Yes it will. But relying on increased productivity in the hope of avoiding the painful process might be even worse.

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@spendius,

I'm not sure I follow your point. If productivity increases enough to compensate for the continuing demographic change, then restoring the social programs is merely a political choice. I agree that's a tall order, one very unlikely to occur. Perhaps something like belling Aesop's cat. The two may be mutually incompatable, in that risk and uncertainty may be required to stimulate that much effort.

If by "relying on it" yoou mean just waiting agound for the transformation to occur on its own, then I agree. One will wait a long time.

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Quote:

In hindsight, it's clear now that the 2010 target was unreachable: Greece was supposed to be able to stand on its own feet by 2014.
But the current target - to get the mountain of Greek debt down to bearable levels by 2020 - is just as impossible. How can a country pick itself up if it has no economic strength and no means - a country in which virtually nothing functions as it should?
How can structures be created in a matter of years that would normally take decades? The bitter truth is that the times can only get worse for Greece, not better.
According to German Interior Minister Hans-Peter Friedrich, Greece would have more chance to regenerate if it left the currency union. Everyone in the government knows that, even if no one is allowed to say it out loud. Which begs the question: how can you justify a rescue package for a country you've given up hope on?

http://www.dw.de/dw/article/0,,15772162,00.html

Now that is a damn good question. Another is what will the masses think of "leaders" who do this sort of thing? It looks to me like the EU leadership is slitting its own throat...there will be hell to pay down the road.

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@hawkeye10,

Greece is a basket case, and Spain, Portugal, and Italy is not far behind, although Italy has a stronger economy that actually exports goods around the world. It's just the simple fact that Germany cannot by itself rescue all of them and remain viable. France has too many economic handicaps themselves to help the others in the Euro union.

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@cicerone imposter,

cicerone imposter wrote:

Greece is a basket case, and Spain, Portugal, and Italy is not far behind, although Italy has a stronger economy that actually exports goods around the world. It's just the simple fact that Germany cannot by itself rescue all of them and remain viable. France has too many economic handicaps themselves to help the others in the Euro union.

this does not explain the dithering though does it? Are you saying that "delay and pray" is their only option because there is no chance of saving the situation? I am not understanding why the political leaders stand and tell lies rather than launch a Hail Mary pass.....there has to be something that has a small chance of success in saving the EU, so why arnt they doing that?

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@hawkeye10,

The citizens of Germany are angry at all the money being spent to save Greece and the weaker Euro countries. The central bank and the IMF, and even China and Japan, are offering support, because the Euro zone is an economic necessity for the world economy to function.

If the Euro zone goes under, it's going to impact everybody.

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@hawkeye10,

hawkeye10 wrote:

this does not explain the dithering though does it? Are you saying that "delay and pray" is their only option because there is no chance of saving the situation? I am not understanding why the political leaders stand and tell lies rather than launch a Hail Mary pass.....there has to be something that has a small chance of success in saving the EU, so why arnt they doing that?

Well the "dithering" as you call it has probably given Germany and France time and space with which to save their national banks, which were and are heavily exposed to Greek government debt. It is a safe assumption that this, and not bailing out the Greeks, was the main motivation of the European powers fearing a spreading contaigon and more widespread bank failures - including their own.

The prolongued dialogue with Greece has focused mainly on the requirement for non government holders of Greek bonds to exchange them for new instruments with a reduced face value - the much touted "haircut". The interesting central issue here is that this haircut will not apply to the French and German banks holding Greek public debt. Remarkably the obvious inequity here has seen little comment in the international media.

Thus, with respect to this goal, it does appear that the German and French sponsors have succeeded, at least for now. Whether they ever thought the Greek government and people would be willing to directly face and deal with their prolongued economic profligacy is another question, and it is impossible for us to know the answer to it. For myself - I wouldn't bet on the proposition that the Greeks will gladly do what is required.

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@georgeob1,

The haircut will apply to all private holders. Public institutions (IMF, ECB, EU, etc) get repaid in full. But it all hinges on whether the private holders will agree, and that's still up in the air. Yesterday S+P labelled the bonds SD (selective default) so today the ECB stopped accepting them at its discount window.

http://s.wsj.net/public/resources/images/OB-RX636_BNPGre_K_20120222114426.jpg

The Greek politicians have taken all their money out of the local banks - not exactly a measure of confidence - but people of limited means are suffering.

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@High Seas,

I'm just wondering what the real haircut is going to look like when Greece actually starts paying pennies on the Euro.

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@georgeob1,

Somebody a few weeks ago I was reading siad that the gameplan is to delay admitting greek default until the EU is better prepared to deal with it.....that it is already a done deal that greece will leave the Euro. The problem with this theory is that I don't see the EU getting ready to deal with greek default.

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@hawkeye10,

hawkeye10 wrote:

Quote:
That's up to Greece, the EU and the IMF.

What a cop-out. American firms were instrumental in assisting Greece perpetrate this fraud. We have obligations as a result. Not to mention that our long running "special" relationship with Europe obligates us.

Our long running relationship with Europe cost us 50,000 plus lives in WWI, and 500,000 lives in WWII. The giving seems to be one-sided. America in my opinion owes Europe nada!

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@hawkeye10,

hawkeye10 wrote:

Somebody a few weeks ago I was reading siad that the gameplan is to delay admitting greek default until the EU is better prepared to deal with it.....that it is already a done deal that greece will leave the Euro. The problem with this theory is that I don't see the EU getting ready to deal with greek default.

That you don't see it doesn't mean it isn't there. The main effect of a Greek default on the rest of Europe will be to Europeans holding Greek bonds, particularly European banks. As I and others here have been trying to explain to you, it is very clear that the European Leaders are indeed doing a great deal to protect their banks.

The Greeks did this to themselves. Years of low economic productivity; a grossly inflated government payroll (a result of political patronage by populist governments); widespread tax chiseling and corruption; combined with deliberately fraudulent government accounting and reporting to EU authorities - all combined to do the deed. Since joining the EU, Greece has received very large wealth transfers from other members in the form of infrastructure development funds for bridge and highway construction, etc. During the good economic times it was easy for the other EU states to quiet their likely suspicions of Greek financial reports, but once the economic tide turned all the lies and falsified accounts became instantly visible.

Greece will have to produce more and consume less. Default and the reinstatement of their national currency will accomplish that very quickly.

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@georgeob1,

"Global banking body rules there has been no "credit event" in Greece."

Sky News mobile strap tape. This minute.

Anybody knows what it means?

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@spendius,

Not me, but I vaguely recall reports in yesterday's news of declarations from some European banking source of an effective default as implicit in the current "haircut" negotiations. Perhaps the two are related.

There is indeed an interesting dance going on in the current organized effort to selectively force private owners of Greek Debt to accept less than is owed to them, while national banks get to preserve the illusion that there has been no failure to meet its debt obligations on the part of the Greek government. It has taken constant repitition of this strategy over several months to get us to unquestioningly accept the implicit contradiction without recognizing it for what it really is.

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@spendius,

spendius wrote:

"Global banking body rules there has been no "credit event" in Greece."

Sky News mobile strap tape. This minute.

Anybody knows what it means?

Here's your answer - from a Wall Street Journal news alert on my e-mail this morning;

Quote:

Greece's latest bailout deal won't trigger payouts on credit-default swaps as no credit event has occurred, the International Swaps and Derivatives Association ruled.

The impact of the decision could reverberate beyond the narrow confines of the Greek debt market and could affect investors across other European bond markets and the holders of $2.9 trillion in CDS on government debt around the world.

On Monday, Standard & Poor's declared Greece to be in selective default because of recent moves under its restructuring, which asks investors to accept losses of roughly 75% on the face value of their bonds. That was cemented after Greece's parliament passed a law that could force investors to accept the restructuring, under so-called collective-action clauses.

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@georgeob1,

Which I assume means that "investors" are under caveat emptor rules and should take the hit on the chin or else embrace communism.

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@spendius,

Something like that. Our governments are overleveraged, burdened with debts they can't pay or honestly acknowledge to their citizens, and it is they who regulate the banks. When one government goes under (in this case Greece) the others rally around their banks to "protect" them while they continue their "borrowing" from them.

Communism is a dead alternative, but the belief in authoritarian, organized solutions apparently persists. Aesop was right on the mark with his story about the mice belling the cat.

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@georgeob1,

Just wondering what took Moody so long?

Quote:

Moody's cuts Greece to lowest rating

SAN FRANCISCO (MarketWatch) -- Moody's Investor Service downgraded Greece's bond ratings to a C from Ca because of massive losses to bondholders expected under a debt restructuring. "Moody's decision not to assign an outlook to the rating is based on the very high likelihood of a default by the Greek government on its bonds and the fact that C is the lowest rating on Moody's rating scale," the ratings agency said in a statement. Moody's expects an investor haircut in excess of 70% as a result of the restructuring. On Monday, Standard & Poor's downgraded the sovereign credit ratings of Greece to selective default.

From C to Ca is a joke; they can't pay on their bonds (period).

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@georgeob1,

georgeob1 wrote:

Something like that. Our governments are overleveraged, burdened with debts they can't pay or honestly acknowledge to their citizens....

That's all true but I don't see anyone in DC even noticing that Greece was the canary in the mine.

Overall in the eurozone government deficit (total) is still about 3.3% of GDP (total), in the US it's running at 10%. Long as interest rates stay low the pain is limited but this borrowing to finance deficits can't go on forever - especially if foreigners stop buying Treasury securities:

http://baselinescenario.files.wordpress.com/2012/03/screen-shot-2012-03-20-at-4-33-19-am.png?w=700

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Is Greece going to set off the long feared next wave of the Great Recession?

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