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

Bank of England Governor Mark Carney warned about a Greek bailout in front of the Treasury select committee of British Parliament on Tuesday. It was the first time the committee had convened since Prime Minister David Cameron's Conservative Party won the general elections in May.

Carney's meeting with British Parliament followed on the heels of a new bailout deal for Greece reached on Monday that included pension cuts and higher taxes in exchange for $96 billion, or 86 billion euros, in bailout money. Greek Prime Minister Alexis Tsipras still needs his own parliament to approve the deal, but if the bailout is approved, Carney feared what the consequences would be for the U.K. and the eurozone more broadly.

Carney said in his financial stability report on July 1 that while British banks and businesses had limited exposure to Greece, "[the nation's] economic and financial exposure to the euro area is considerable."

In his conversation with parliament Tuesday, he highlighted the risk that both the debtors and creditors will be taking on if the bailout is approved. "There are big execution risks on all sides, including execution risk around the profile of the debt which in the judgement of the IMF and I believe other authorities, and we would share those judgements, is not sustainable in its current form,"

Given the current bailout plan on the table, Carney said Greece would not easily be able to rebuild and develop its economy without debt relief, pointing out that a solution to the Greek crisis would require “herculean efforts from all sides.”

“The process by which this agreement was struck … underscores the scale of institutional shortcomings that still exist within the European Monetary Union and that’s something that’s no just my own opinion and that of colleagues at the Bank but the opinion of the five presidents including the president of the European Central Bank,”

Analysts said the Greek stand-off also highlighted another worrying development -- a clear split between hardline Germany and a France which took a much more sympathetic line towards Athens and insisted from the start that everything should be done to keep Greece in the single currency.

"Greece was a pawn in the game between France and Germany over the future direction of the eurozone," said Pawel Tokarski at the German Institute for International Relations and Security Affairs (SWP) in Berlin.

Nielsen at UniCredit agreed, describing how with the former eurozone "power-couple" were parting company.

"This is now about what type of Europe we'll have in the future, and (its) relative powers -– and this, ultimately, is a battle between Germany and France," he said.

The two have increasingly different views of what the future should look like, reflecting their different circumstances.

I dont think it is a coincidence that the IMF is run by a French woman as it is trashing bailout

hawkeye10 wrote:

I dont think it is a coincidence that the IMF is run by a French woman as it is trashing bailout

So you had preferred the Mexican Agustín Carstens?

There's been a steady pattern of immigration for something like 130/150 years now. I'm hearing more recently about how some families have been supporting their home villages for many decades. They never used to talk about it - now they're pissed off.

I think it is more likely that the French want merely to limit German influence in the EU and to restore their former position as one of two dominant partners - with Germany in leading the EU, not a battle between them

..If so picking on Greece is a massive act of misdirected anger, which is in fact abuse.

Greek Lawmakers Approve Terms of Bailout Plan

ATHENS — After a marathon session that stretched into the early hours of Thursday, Greek lawmakers narrowly approved a package of harsh austerity measures and economic policy changes that were required by its creditors as the terms of a $94 billion bailout package.

In Greece’s through-the-looking-glass politics, the vote was seen as a victory for the country’s prime minister, Alexis Tsipras. He was elected on an anti-austerity platform but strongly urged lawmakers to approve the bailout, even after Greeks voted down a similar deal just over a week ago in a referendum he called for.

That left only the International Monetary Fund’s insistence on debt relief for Greece as the last hurdle to the package, which would head off insolvency, the collapse of the banking system and the country’s exit from the euro.

How is giving Greece 240 billion euros and then, when they squander it, giving them 85 billion more picking on them?

which is that they're doing Greece a huge favor

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How is giving Greece 240 billion euros and then, when they squander it, giving them 85 billion more picking on them?

Are you next going to insist that you dont know that loan sharks and payday lenders are predatory?

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which is that they're doing Greece a huge favor

A five year depression is quite the huge favor....

they can just let Greece deal with its problems all by itself like everyone else has to. Greece has caused its own problems by spending more than it possesses for many years.

Would Grexit have been a better deal?
By Andrew Walker

What about the economics of departure?

There are widely divergent views.

The optimistic view is that it's exactly what Greece needs. It would, in this view, put right the two principal dangers involved in a currency union: the loss of an independent monetary policy and the loss of the exchange rate as a mechanism for adjusting to economic shocks. (Actually it's debateable to what extent they are really different things, but let's just park that question.)



Greece with its own currency would be able to print as much as it wanted.
Given that there's deflation, it might be helpful. It would also be necessary to refloat the banks.

The new currency would in all likelihood lose value against the euro, improving the country's competitiveness. Cheaper holidays might bring in the tourists in greater numbers.

But there is another view of how events might unfold and it's not pretty. A rapidly depreciating currency making imports more expensive could lead to rapidly accelerating inflation. Debts in foreign currency would become more onerous.


The introduction of a national currency would also be disruptive, with a chance of severe shortages of hard cash during a transitional period. Greece would not have the advantage of the long planning period that went with the introduction of the euro.


There is also a question about whether the government could finance its spending. Last year and the year before Greece had a "primary surplus" in the government's finances. That means if you take out interest payments, it spent less than it received in revenue. So you might think it could simply carry on spending. Well actually the primary surplus has now probably gone as the economy has weakened again which hits tax revenue.

So even if there were no further contraction in the economy, Greece with its own currency would probably either have to cut spending or borrow the money to finance a deficit - not an easy proposition if you have just defaulted, but some borrowing might be possible.



There's also a question about whether EU spending - not bailout related - would continue. There is a legal view that leaving the euro is not compatible with staying in the EU. Perhaps a way of avoiding that would be found. If Greece did leave the EU, there might be humanitarian help from the EU, but the regular agricultural and regional spending would presumably stop. Total EU spending in Greece was 4% of national income in 2013, according to official European figures.


Eurozone exit would also create uncertainty and do some damage to consumer and business confidence, which might be severe.

So leaving the eurozone would undoubtedly have been possible and it is possible to see it as an opportunity. But it would have been a path fraught with uncertainty and a danger of some serious economic damage.

they can just let Greece deal with its problems all by itself like everyone else has to

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they can just let Greece deal with its problems all by itself like everyone else has to

Nobody or almost nobody has to deal with financial calamity themselves, there is WB, IMF, national loan forgiveness and strategic investment by international players just to name a portion of the assistance. And both the IMF and ECB are like financial illness doctors, and the greeks over 5 years have done not all but much of what the doctors ordered, and it is now completely clear that the doctors committed malpractice. You cant put all the blame on the patient, and for the doctors to cut and run now would be an extreme act of moral sin. At the very least the doctors need to keep the patient alive and find new doctors to take over.