Sovereign debt bubble thread

[Crazy_Ivan80]

If Greece were to run a surplus of 20% of GDP, surely Germany would accept.

Greece has been implementing austerity that is too mild for Germany and doesn't even balance the budget. Tax revenues have plummeted. To actually get a surplus that big on more than just paper, government spending would be cut to the point they would have to consider things such as abandoning a western style school system, abolishing the military, replacing the police with community based watch volunteer efforts, etc.

greece is theoretically implementig austerity. In practice they have hardly implemented anything, or have only implemented it half-assed.

[Sheilbh]

There are countries with a fraction of Greece's budget which provide those things.  Cut everyone's wages.  Sell off state owned enterprises.  Collect some taxes.

They've been cutting the wages.

They've also been trying to privatise lots of things.  There are no buyers because no-one knows if the Greeks will still be in the Euro next year, or when the economy'll recover.  No sane investor's going to put their money into Greece right now so privatisation won't work without restoring confidence.

On tax there's a similar problem.  The Economist suggested that revenue collection is down particularly sharply because people don't want to give up potentially valuable Euros when there's reason to suspect the Drachma's coming back.  Aside from that the Greeks have made progress in improving revenue collection.  One problem is the revenue department's severely underfunded, so they've done things like rolling property tax into your electricity bill, the electricity company passes it onto the revenue and if you fail to pay they cut you off.

The purpose of austerity is not to generate growth.

No.  But I think without a floating currency it's essential or countries just end up in a debt trap, as Greece has.  In addition I think the conditions imposed on Greece were motivated by a desire to deter other Eurozone states (and to an extent to punish for the deceit) than any analysis of how to get Greece back to the markets.  That's why the IMF's suggested program was rejected and why the IMF's support of Greece defaulting was opposed.

The subtext of "will work" of course is if austerity doesn't generate growth quickly, then it's "not working."

I think that's to an extent true in a currency union.  The other point is that 'will work' could mean would address market confidence in the Eurozone, while 'acceptable to Germany' is something that's frankly rather moralist.

It's a Venn diagram Yi, I thought it summed things up pretty well.

It came out in 2010.  Still true now, but the problems are bigger.

[Sheilbh]

greece is theoretically implementig austerity. In practice they have hardly implemented anything, or have only implemented it half-assed.

Bullshit.  All data from the IMF:


This one's the same source but includes more countries:


In fact the Greek government's managed to exceed IMF targets on their spending in nominal terms, problem is the economy's shrunk more and faster than expected.  In terms of previous internal devaluations the only example of one going on this long without a return to some semblance of growth is Argentina 1998-end of convertibility.

Your argument's true of Britain, incidentally, where we've record low interest on gilts. 

Edit:  And the Greek bailout program is based on a scenario where Greece has 0% growth in GDP in 2013 and returns to around 3% growth in 2014.  I'd suggest that doesn't really deal with reality.

[Zanza]

so they've done things like rolling property tax into your electricity bill, the electricity company passes it onto the revenue and if you fail to pay they cut you off.

We would be much more impressed with that, if the government hadn't postponed the payments until after the election, then a court decided that you can't be cut off even if you don't pay and now after the election it was removed from the power bills completely.

[Sheilbh]

We would be much more impressed with that, if the government hadn't postponed the payments until after the election, then a court decided that you can't be cut off even if you don't pay and now after the election it was removed from the power bills completely.

Why would you find a de facto return to tax farming impressive?  It's a dreadful idea.

The Court's ruling does make sense by the way.  It's based on EU regulations which would make it illegal for your electricity company to cut you off for something unrelated like not paying your tax.

You know what confidence crisis means here? We have no confidence that the Greek government has either ability or will to actually do anything.

But I think, with respect, that's the German equivalent of British media hysteria, German media self-righteousness or something

Even if that's the case though, why not do more to help the Irish and Portuguese who, everyone has said, have been exemplary in this.

[Syt]

http://www.guardian.co.uk/world/2012/may/25/payback-time-lagarde-greeks

The International Monetary Fund has ratcheted up the pressure on crisis-hit Greece after its managing director, Christine Lagarde, said she has more sympathy for children deprived of decent schooling in sub-Saharan Africa than for many of those facing poverty in Athens.

In an uncompromising interview with the Guardian, Lagarde insists it is payback time for Greece and makes it clear that the IMF has no intention of softening the terms of the country's austerity package.

Using some of the bluntest language of the two-and-a-half-year debt crisis, she says Greek parents have to take responsibility if their children are being affected by spending cuts. "Parents have to pay their tax," she says.

Greece, which has seen its economy shrink by a fifth since the recession began, has been told to cut wages, pensions and public spending in return for financial help from the IMF, the European Union and the European Central Bank.

Asked whether she is able to block out of her mind the mothers unable to get access to midwives or patients unable to obtain life-saving drugs, Lagarde replies: "I think more of the little kids from a school in a little village in Niger who get teaching two hours a day, sharing one chair for three of them, and who are very keen to get an education. I have them in my mind all the time. Because I think they need even more help than the people in Athens."

Lagarde, predicting that the debt crisis has yet to run its course, adds: "Do you know what? As far as Athens is concerned, I also think about all those people who are trying to escape tax all the time. All these people in Greece who are trying to escape tax." She says she thinks "equally" about Greeks deprived of public services and Greek citizens not paying their tax.

"I think they should also help themselves collectively." Asked how, she replies: "By all paying their tax."

Asked if she is essentially saying to the Greeks and others in Europe that they have had a nice time and it is now payback time, she responds: "That's right."

The intervention by Lagarde comes after the caretaker Greek government met to discuss a sharp fall in tax revenues – down by a third in a year. Under the terms of the country's bailout, Athens has agreed to improve Greece's poor record for tax collection in order to reduce its budget deficit, and Lagarde's remarks are evidence of a growing impatience in the international community. Reports surfaced in Germany and France of preparations being made to cope with Greece's possible departure from the single currency after its election on 17 June.

Belgium's deputy prime minister, Didier Reynders, said it would be a "serious professional error" if central banks and companies did not prepare for an exit.

The euro came under fresh attack on the foreign exchanges, dropping below €1.25 at one point on Friday, as the Spanish government was in talks to pump up to €19bn of rescue finance into Bankia, one of the country's biggest banks, and the Catalan regional government sought financial help from Madrid to deal with its debts.

Signs emerged of a widening gulf between Germany and France over whether common eurobonds should be issued to help those countries, such as Greece and Spain, with high interest rates on their debt.

Jens Weidmann, president of the Bundesbank, poured cold water on the idea – which is strongly backed by the French president, François Hollande – and also said financial aid to Greece should be cut off if it failed to keep to the bailout deal.

Jürgen Fitschen, joint head of Germany's biggest bank, Deutsche, described Greece as "a failed state ... a corrupt state". Separately, however, there were reports suggesting that the chancellor, Angela Merkel, was dusting down the economic modernisation plan used to revive East Germany after the fall of communism in the belief that similar measures could be applied to Greece and other struggling eurozone countries. Today's Der Spiegel magazine says Merkel will present a six-point plan based on the East German blueprint as a growth strategy. It includes measures such as privatisation, looser employment law and lower tax rates.

Opinion polls are pointing to a close race between parties backing and opposing the terms of Greece's €130bn bailout, but neither Germany nor the IMF has demonstrated any willingness to water down Greece's austerity programme.

In her interview Lagarde says Greece is not getting softer treatment than a poor country in the developing world, and that the IMF does not find it harder to impose strong conditions on a rich nation.

"No, it's not harder. No. Because it's the mission of the fund, and it's my job to say the truth, whoever it is across the table. And I tell you something: it's sometimes harder to tell the government of low-income countries, where people live on $3,000, $4,000 or $5,000 per capita per year, to actually strengthen the budget and reduce the deficit. Because I know what it means in terms of welfare programmes and support for the poor. It has much bigger ramifications."

(Interview article here: http://www.guardian.co.uk/world/2012/may/25/christine-lagarde-imf-euro )

[Crazy_Ivan80]

given the past experiences about greece statitistics about the country are to be taken as bullshit indeed.

[Razgovory]

In fact the Greek government's managed to exceed IMF targets on their spending in nominal terms, problem is the economy's shrunk more and faster than expected.

Who would have thought, cutting pay and firing people doesn't grow the economy.

[Iormlund]

But I think, with respect, that's the German equivalent of British media hysteria, German media self-righteousness or something

Even if that's the case though, why not do more to help the Irish and Portuguese who, everyone has said, have been exemplary in this.

Nah, they are perfectly right to distrust the Greek politicians. The question for German leadership is: how to deal with that? You shut down financing and set up an orderly exit mechanism, and risk others to follow suit? Or you let Greece burn but close the door to your own clean exit if it became necessary?

As for Portuguese and Irish, http://www.youtube.com/watch?v=R9gKfOJpk6I. I love Schäuble's rolleyes.

[PJL]

There's rumours going roiund that Greece may leave the Euro as early as next weekend. I think we certainly have weeks rather than months left of this now. Once enough people think Greece is going to leave the Euro, then it will be forced to do so by events.

[Admiral Yi]

Why would you find a de facto return to tax farming impressive?  It's a dreadful idea.

Where in the world do you get tax farming from?

[Sheilbh]

given the past experiences about greece statitistics about the country are to be taken as bullshit indeed.

Greece doesn't produce her own statistics any more, because of that.  Those are by Eurostat and IMF bods.

Where in the world do you get tax farming from?

What's the key difference?

[Zanza]

Maybe it's different in Britain, but over here, the biggest source of revenue for the government are taxes on consumption and those are generally levied not by state bodies but rather by private companies. The best-known examples are VAT (more revenue than income tax) and taxes on stuff like fuel or cigarettes. Is that tax farming too? If so, I don't really see anything wrong with that.

[Sheilbh]

Clearly not.  The coercive element and risk of tax evasion rests with the state, as it should.

[Admiral Yi]

What's the key difference?

The electricity company didn't bid for the right to collect taxes.  It's not incentivized to collect more than is due. 

Do you maybe have some Latin blood in you Shelf?