In Greece, austerity kindles deep discontent, breakdown in rule of law

[Martinus]

Why was greece allowed into the EU in the first place? Weren't they always a teetering economy with huge corruption issues?

I don't know how much truth is in the anecdote but apparently they actually cooked the books. 

[Sheilbh]

Why was greece allowed into the EU in the first place? Weren't they always a teetering economy with huge corruption issues?

They were let into the Euro for political reasons.  Their national statistics are now being done by the EU because the national body's methodology was so shoddy and everyone knew their figures were dodgy at best.  And everyone thought given how small their economy is they couldn't really cause any trouble...

[HVC]

Why was greece allowed into the EU in the first place? Weren't they always a teetering economy with huge corruption issues?

I don't know how much truth is in the anecdote but apparently they actually cooked the books. 

If that's the case you'd think the EU would have some accountants checking out the books before allowing admission if they did i hope they all got into trouble.

[HVC]

Why was greece allowed into the EU in the first place? Weren't they always a teetering economy with huge corruption issues?

They were let into the Euro for political reasons. 

"Screw you turkey"?

Their national statistics are now being done by the EU because the national body's methodology was so shoddy and everyone knew their figures were dodgy at best.  And everyone thought given how small their economy is they couldn't really cause any trouble...

stupid economists.

[Admiral Yi]

I think that Europe needs to provide them with long-term debt support while they actually push through the reforms necessary, rather than simply demanding more and more austerity - I think that's starting to happen.

What's the moral principle behind the belief that a country which has been living beyond its means deserves subsidization of its lifestyle?

[The Minsky Moment]

Is there actually any hope for Greece?

I suspect not.  Had I been in the Greek Parliament, I would have been strongly tempted to vote no.

Seems to me there are one of two ways out the mess.  Number 1 is to leave the Euro and devalue, and reorganize the government debt with some sort of Brady Bond scheme involving a cut in principal or below market interest.  But this is politically impaltable for most European nations and institutions.

Number 2 is that Eurozone holders of Greek obligations write them off - i.e. in effect transfer funds to Greece.  Then on a going forward basis institute an aid program conditioned on various economic reforms like the old IMF system.  But since this would involve the Bundesbank eating a multibillion euro loss, it is unlikely to happen.

What is being proposed now - a de facto rollover of debt that extends repayment without reducing principal and interest combined with a brutal austerity program that will continue to drag growth down, while at the same time keeping Greece trapped in an uncompetitive exchange rate -- seems like a clear recipe for disaster down the road.

[Neil]

I think that Europe needs to provide them with long-term debt support while they actually push through the reforms necessary, rather than simply demanding more and more austerity - I think that's starting to happen.

What's the moral principle behind the belief that a country which has been living beyond its means deserves subsidization of its lifestyle?

That's what the EU does for shitty members.

[grumbler]

stupid economists.

To be fair, I don't think a single economist had a real voice in the political decision to allow Greece into the Euro zone without actually qualifying. 

[grumbler]

Is there actually any hope for Greece?

I suspect not.  Had I been in the Greek Parliament, I would have been strongly tempted to vote no.

Seems to me there are one of two ways out the mess.  Number 1 is to leave the Euro and devalue, and reorganize the government debt with some sort of Brady Bond scheme involving a cut in principal or below market interest.  But this is politically impaltable for most European nations and institutions.

Number 2 is that Eurozone holders of Greek obligations write them off - i.e. in effect transfer funds to Greece.  Then on a going forward basis institute an aid program conditioned on various economic reforms like the old IMF system.  But since this would involve the Bundesbank eating a multibillion euro loss, it is unlikely to happen.

What is being proposed now - a de facto rollover of debt that extends repayment without reducing principal and interest combined with a brutal austerity program that will continue to drag growth down, while at the same time keeping Greece trapped in an uncompetitive exchange rate -- seems like a clear recipe for disaster down the road.

Is it possible to create an unofficial but effective Greek-only currency, something like the BitCoin (but produced with anti-counterfeiting technology) to help them deal with what is going to be a shortage of Euros (because no one will be buying overpriced Greek goods and services)?  The Greek government could pay salaries partly in Euros and partly in these "New Drachmas" and accept the NDs for perhaps some taxes or whatnot, so at least the Greeks could afford Greek goods and services, even if the ND held no value outside Greece.

[Iormlund]

The result of austerity measures in Spain for the first five months is a 20+% fall in deficit (to 1.23% of GDP).

That looks quite good at a first glance. However, corporate tax revenue fell 11%, which speaks of the consequences of these measures for employment and growth ...

[The Minsky Moment]

Is it possible to create an unofficial but effective Greek-only currency, something like the BitCoin (but produced with anti-counterfeiting technology) to help them deal with what is going to be a shortage of Euros (because no one will be buying overpriced Greek goods and services)?  The Greek government could pay salaries partly in Euros and partly in these "New Drachmas" and accept the NDs for perhaps some taxes or whatnot, so at least the Greeks could afford Greek goods and services, even if the ND held no value outside Greece.

It wouldn't address the Greece's external competitiveness problem (ie the lack thereof).  And it probably would be viewed as an unacceptable precedent to set from the POV of the Eurozone mandarins. 

[Ed Anger]

I'll give them 200 dollars for Laconia.

[alfred russel]

Is there actually any hope for Greece?

I suspect not.  Had I been in the Greek Parliament, I would have been strongly tempted to vote no.

Seems to me there are one of two ways out the mess.  Number 1 is to leave the Euro and devalue, and reorganize the government debt with some sort of Brady Bond scheme involving a cut in principal or below market interest.  But this is politically impaltable for most European nations and institutions.

Number 2 is that Eurozone holders of Greek obligations write them off - i.e. in effect transfer funds to Greece.  Then on a going forward basis institute an aid program conditioned on various economic reforms like the old IMF system.  But since this would involve the Bundesbank eating a multibillion euro loss, it is unlikely to happen.

What is being proposed now - a de facto rollover of debt that extends repayment without reducing principal and interest combined with a brutal austerity program that will continue to drag growth down, while at the same time keeping Greece trapped in an uncompetitive exchange rate -- seems like a clear recipe for disaster down the road.

I'm not disagreeing with you, but option number 1 has the probable disadvantage of nuking Greek banks and insurance companies. With the loss of support from Europe, that may be difficult for an insolvent Greece to deal with.

From a Greek point of view, option number 2 is the best. And it seems to become more likely the longer the can is kicked down the road, with debt holdings increasingly being transferred to the eurozone members and IMF.

The status quo is obviously gross, but it seems unavoidable. I understand that even after all the cuts they have done, Greece still has a primary budget defiicit. The EU/IMF demand the cuts, and if you tell them to take a hike you lose your access to credit markets and have to balance the budget immediately (unless you want to leave the euro and just print the money to fund your government, which doesn't seem like a good strategy). A new exchange rate would help, but not in the very short term.

[alfred russel]

Why was greece allowed into the EU in the first place? Weren't they always a teetering economy with huge corruption issues?

I don't know how much truth is in the anecdote but apparently they actually cooked the books. 

Which was revealed to the shock and horror of other EU members, even though it was an open secret for a long time. You may not want to kick the tires of Italy too hard either...

[Richard Hakluyt]

It's not just Greece when it comes to financial incompetence; the European Court of Auditors has failed the EU's accounts every year for........well...........living memory.