Breaking Greece

[ksen]

http://krugman.blogs.nytimes.com/2015/06/25/breaking-greece/?_r=0

I’ve been staying fairly quiet on Greece, not wanting to shout Grexit in a crowded theater. But given reports from the negotiations in Brussels, something must be said — namely, what do the creditors, and in particular the IMF, think they’re doing?

This ought to be a negotiation about targets for the primary surplus, and then about debt relief that heads off endless future crises. And the Greek government has agreed to what are actually fairly high surplus targets, especially given the fact that the budget would be in huge primary surplus if the economy weren’t so depressed. But the creditors keep rejecting Greek proposals on the grounds that they rely too much on taxes and not enough on spending cuts. So we’re still in the business of dictating domestic policy.

Some in the comments section mention that the real goal of these negotiations is not so much to break Greece but to break Syriza. The power brokers cannot afford for Syriza to be successful. That would lead to all sorts of problems for them in other countries.

Also what business is it of the creditors if Greece gets the money to make their debt payments through tax hikes or spending cuts?

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eta: oh, and is this a taste of what the TPP trade deal is going to bring us? Corporate superpowers able to dictate sovereign national policies?

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eta2: And here is another example of the capitalist world trying to make it impossible for a fledgling socialist government to succeed.

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eta3: ok, I think I'm done now

 

[Derec]

Why should Greece be allowed not to pay back their debts?
Why should Greece be given more money if they refuse to enact any of the necessary reforms especially to their entitlement system?

 

[ksen]

Why should Greece be allowed not to pay back their debts?

When did Greece suggest they shouldn't pay back their debts?

Why should Greece be given more money if they refuse to enact any of the necessary reforms especially to their entitlement system?

"Necessary" according to whom? Why should creditors get to dictate internal greek policy?

 

[Nice Squirrel]

Why should creditors get to dictate internal greek policy?

Oh silly ksen...
https://en.wikipedia.org/wiki/Banana_Wars

https://en.wikipedia.org/wiki/History_of_Nicaragua#Somoza_Dynasty_.281936.E2.80.931979.29

 

[Derec]

When did Greece sugget they shouldn't pay back their debts?

They want their creditors to accept another ""haircut" on the debts.

"Necessary" according to whom? Why should creditors get to dictate internal greek policy?

Because Greece wants concessions from these creditors.

 

[ksen]

They want their creditors to accept another ""haircut" on the debts.

Not on paper.

http://www.bloombergview.com/articles/2015-02-03/greece-s-debt-plan-is-a-hidden-haircut

"Necessary" according to whom? Why should creditors get to dictate internal greek policy?

Because Greece wants concessions from these creditors.

So what? Why should it matter to creditors if the money used to make debt payments comes from increased tax collections or reduced pension payments? Does the money from cut pensions just smell better than money from increased tax collections?

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The cancellation of German debt in 1953 versus the attitude to the Third World and Greece

I guess Germany only thinks debt forgiveness is good when it's them needing the forgiveness.

 

[Togo]

http://krugman.blogs.nytimes.com/2015/06/25/breaking-greece/?_r=0

I’ve been staying fairly quiet on Greece, not wanting to shout Grexit in a crowded theater. But given reports from the negotiations in Brussels, something must be said — namely, what do the creditors, and in particular the IMF, think they’re doing?

This ought to be a negotiation about targets for the primary surplus, and then about debt relief that heads off endless future crises. And the Greek government has agreed to what are actually fairly high surplus targets, especially given the fact that the budget would be in huge primary surplus if the economy weren’t so depressed. But the creditors keep rejecting Greek proposals on the grounds that they rely too much on taxes and not enough on spending cuts. So we’re still in the business of dictating domestic policy.

Some in the comments section mention that the real goal of these negotiations is not so much to break Greece but to break Syriza. The power brokers cannot afford for Syriza to be successful. That would lead to all sorts of problems for them in other countries.

That seems plausible. Remember these are the same creditors who demanded that spending be slashed, and then saw demand plummet such that they're even less likely to get their money back than they were before. To change tack now would be to admit that they were wrong, neatly sidestepping the question of why they're in charge at all. Ideology about economics may be genuinely more important to them than the money, which isn't their own money, after all. And Syriza being seen as a success is more dangerous to the EU than not getting the money back.

Also what business is it of the creditors if Greece gets the money to make their debt payments through tax hikes or spending cuts?

The taxes would be levied primarily on the rich, which would include a few of the creditors, and but more importantly people they know personally. Greece is a bit like Florida - it's a sunny place for millionaires to retire to, although Cyprus, as a tax haven, gets more play than the mainland.

 

[dismal]

http://krugman.blogs.nytimes.com/2015/06/25/breaking-greece/?_r=0

I’ve been staying fairly quiet on Greece, not wanting to shout Grexit in a crowded theater. But given reports from the negotiations in Brussels, something must be said — namely, what do the creditors, and in particular the IMF, think they’re doing?

This ought to be a negotiation about targets for the primary surplus, and then about debt relief that heads off endless future crises. And the Greek government has agreed to what are actually fairly high surplus targets, especially given the fact that the budget would be in huge primary surplus if the economy weren’t so depressed. But the creditors keep rejecting Greek proposals on the grounds that they rely too much on taxes and not enough on spending cuts. So we’re still in the business of dictating domestic policy.

Some in the comments section mention that the real goal of these negotiations is not so much to break Greece but to break Syriza. The power brokers cannot afford for Syriza to be successful. That would lead to all sorts of problems for them in other countries.

Also what business is it of the creditors if Greece gets the money to make their debt payments through tax hikes or spending cuts?

- - - Updated - - -

eta: oh, and is this a taste of what the TPP trade deal is going to bring us? Corporate superpowers able to dictate sovereign national policies?

- - - Updated - - -

eta2: And here is another example of the capitalist world trying to make it impossible for a fledgling socialist government to succeed.

- - - Updated - - -

eta3: ok, I think I'm done now

eta4: Greece is asking for more money while giving the middle finger to the people who lent it money in the past.

eta5: Who happen to be the same people Greece is asking money from now

 

[Loren Pechtel]

Given the rampant tax evasion in Greece I think the creditors are not putting credence in the actual take from the proposed taxes.

 

[arkirk]

Given the rampant tax evasion in Greece I think the creditors are not putting credence in the actual take from the proposed taxes.

Not every location is a great place to open a payday loan office. If I were to have my way, these things would disappear. Not every location is ideal for investing and in some locations investment must exceed returns for a long time. The IMF has a penchant for investing in places like this. It is possible that Greek society is not compatible with IMF type investment...and they never should have been admitted to the common currency. It does not mean they cannot work out social issues for themselves. There possibly are no innocents here on either side, but there are a lot of people who are idled and can go nowhere with their life till this impasse is out of the way.

So what will happen? Will it be just and fair? Of course not! Governance is more than just setting up a market and loaning money.

 

[Loren Pechtel]

Given the rampant tax evasion in Greece I think the creditors are not putting credence in the actual take from the proposed taxes.

Not every location is a great place to open a payday loan office. If I were to have my way, these things would disappear. Not every location is ideal for investing and in some locations investment must exceed returns for a long time. The IMF has a penchant for investing in places like this. It is possible that Greek society is not compatible with IMF type investment...and they never should have been admitted to the common currency. It does not mean they cannot work out social issues for themselves. There possibly are no innocents here on either side, but there are a lot of people who are idled and can go nowhere with their life till this impasse is out of the way.

So what will happen? Will it be just and fair? Of course not! Governance is more than just setting up a market and loaning money.

The problem with leaving them to work out the issues themselves is that they want money in the meantime. It's quite reasonable to expect them to resolve their internal issues first.

 

[TV and credit cards]

Not every location is a great place to open a payday loan office. If I were to have my way, these things would disappear. Not every location is ideal for investing and in some locations investment must exceed returns for a long time. The IMF has a penchant for investing in places like this. It is possible that Greek society is not compatible with IMF type investment...and they never should have been admitted to the common currency. It does not mean they cannot work out social issues for themselves. There possibly are no innocents here on either side, but there are a lot of people who are idled and can go nowhere with their life till this impasse is out of the way.

So what will happen? Will it be just and fair? Of course not! Governance is more than just setting up a market and loaning money.

The problem with leaving them to work out the issues themselves is that they want money in the meantime. It's quite reasonable to expect them to resolve their internal issues first.

And to the satisfaction of your creditor so the issue is not revisited. After all, who wants to throw good money after bad?

 

[Jokodo]

Why should Greece be allowed not to pay back their debts?
Why should Greece be given more money if they refuse to enact any of the necessary reforms especially to their entitlement system?

If Greece goes broke, the money's gone. All of it.
If Greece recovers as a consequence of a 75% debt cut, 25% of the money goes back to the creditors.
If Greece sort-of recovers as a consequence of a 25% debt cut, 75% of the money might eventually go back to the creditors
Playing hardline is the most stupid possible move to make from a creditors perspective.

The decision to "not let Greece get away with not paying its debts" is, at this point, an economically irrational decision.

As for "entitlement system", Greece is second only to Mexico in the OECD's list of Average annual hours actually worked per worker (latest figures from 2013).

 

[boneyard bill]

Krugman says that Greece would have a large surplus if the economy were to recover, but how would tax increases help the economy to recover? Logically, you should expect the reverse. It seems to me that the EU very likely disagrees with the Greek government on the ultimate effects of their plan.

The EU does not want to grant Greece any concessions on the debt itself because they know that Italy and Spain are not much better off than Greece and would want the same concessions Greece gets, but their debt is far greater than Greece's.

 

[Harry Bosch]

When did Greece suggest they shouldn't pay back their debts?

Why should Greece be given more money if they refuse to enact any of the necessary reforms especially to their entitlement system?

"Necessary" according to whom? Why should creditors get to dictate internal greek policy?

Lenders often dictate when they lend. Usually the riskier the loan, the more "conditions". For example, when I lend an LOC to an manufacturer, I often require monthly financial reporting, a certain amount of minimum liquidity, no additional loans without my permission, and etc.

 

[Axulus]

Why should Greece be allowed not to pay back their debts?
Why should Greece be given more money if they refuse to enact any of the necessary reforms especially to their entitlement system?

If Greece goes broke, the money's gone. All of it.
If Greece recovers as a consequence of a 75% debt cut, 25% of the money goes back to the creditors.
If Greece sort-of recovers as a consequence of a 25% debt cut, 75% of the money might eventually go back to the creditors
Playing hardline is the most stupid possible move to make from a creditors perspective.

The decision to "not let Greece get away with not paying its debts" is, at this point, an economically irrational decision.

As for "entitlement system", Greece is second only to Mexico in the OECD's list of Average annual hours actually worked per worker (latest figures from 2013).

You didn't take into account the ramifications for Italy and Spain creditors. 0% collection from greece is a small hit to take if it means not much or no hit from those two.

 

[laughing dog]

If Greece goes broke, the money's gone. All of it.
If Greece recovers as a consequence of a 75% debt cut, 25% of the money goes back to the creditors.
If Greece sort-of recovers as a consequence of a 25% debt cut, 75% of the money might eventually go back to the creditors
Playing hardline is the most stupid possible move to make from a creditors perspective.

The decision to "not let Greece get away with not paying its debts" is, at this point, an economically irrational decision.

As for "entitlement system", Greece is second only to Mexico in the OECD's list of Average annual hours actually worked per worker (latest figures from 2013).

You didn't take into account the ramifications for Italy and Spain creditors. 0% collection from greece is a small hit to take if it means not much or no hit from those two.

In my experience, the slippery slope argument is usually one of desperation. If Italy and Spain learn anything from Greek situation is that the European Union is really a sham.

 

[Axulus]

You didn't take into account the ramifications for Italy and Spain creditors. 0% collection from greece is a small hit to take if it means not much or no hit from those two.

In my experience, the slippery slope argument is usually one of desperation. If Italy and Spain learn anything from Greek situation is that the European Union is really a sham.

It's the moral hazard argument. Why is that a sign of desparation? To not take it into account from the creditors POV would be irrational.

What makes the EU a sham for not always providing bailouts?

 

[laughing dog]

In my experience, the slippery slope argument is usually one of desperation. If Italy and Spain learn anything from Greek situation is that the European Union is really a sham.

It's the moral hazard argument. Why is that a sign of desparation?

Because it ignores the actual current situation.

What makes the EU a sham for not always providing bailouts?

What kind of union forces a member to go under? The EU is playing hardball - Greece cannot repay its loans now. Forcing a deeper recession will not give Greece more resource to repay its loans.

 

[Jokodo]

If Greece goes broke, the money's gone. All of it.
If Greece recovers as a consequence of a 75% debt cut, 25% of the money goes back to the creditors.
If Greece sort-of recovers as a consequence of a 25% debt cut, 75% of the money might eventually go back to the creditors
Playing hardline is the most stupid possible move to make from a creditors perspective.

The decision to "not let Greece get away with not paying its debts" is, at this point, an economically irrational decision.

As for "entitlement system", Greece is second only to Mexico in the OECD's list of Average annual hours actually worked per worker (latest figures from 2013).

You didn't take into account the ramifications for Italy and Spain creditors. 0% collection from greece is a small hit to take if it means not much or no hit from those two.

So you basically admit that forcing down Greece is economically unsound political grandstanding and yet try to rationalise it. WTF?

As far as I know, forcing a debtor to default in order to make a point towards other debtors is not something that happens in the private sector credit market precisely because it is economically unsound. I may be wrong about that, though - could you provide example? Does it have a name?