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Thread: Greece Debt Woes

  1. #1

    Default Greece Debt Woes

    Been hearing bit and pieces about this and now apparently they may end up getting $40 billion from the IMF as well as a massive bailout package from the European Union. Curious what peoples thoughts are on this?

    Not really sure what I think about it to be honest, though it seems like it could be a sign of more problems to come throughout Europe as (i believe) they are starting to stagnant and with the amount of countries with high debt it will be hard to "Grow out of it." Though not much of a background in these types of things xD.

    Worse part seemed that the speculation is that Spain, Portugal, and i think, Italy may be the next major debt crisis. So (to give some direction) when do you think a country has too much debt, what countries do you feel need to cut their debt, and how can they achieve it? (also can say what your country should do if you wish)

    (Hopefully this is the right place, seemed like the area politics should be posted in)

  2. #2


    This is mostly a delayed effect of the 2008 financial crisis, which isn't over yet. Two of the biggest industries in the country are tourism and shipping, both of which were seriously hurt in the past couple years. Combine that with some of the larger investment firms exploiting the Greek faltering economy for profit, and you have a recipe for disaster.

  3. #3


    The Greek Government is not totally blameless here. They are the ones that spent way more money than they should have, and being in the Eurozone only exacerbated the situation.

  4. #4


    Quote Originally Posted by dcviper View Post
    The Greek Government is not totally blameless here. They are the ones that spent way more money than they should have, and being in the Eurozone only exacerbated the situation.
    True dat. I more meant it was a mix of really shitty situations all rolled in to one that made things as bad as they are.

  5. #5


    I understand that the EU made a big mistake by changing countries like Greece's currency to Euros. Now they're stuck with trying to justify monetary worth. As an example, the U.S. dollar grows or shrinks according to economic conditions and thus is either valued up or down against the Euro, Pound, Yen, etc. But what happens when a number of countries all use the Euro, but have their own, different economies? This is one of the problems they are facing. Obviously, countries like Greece and Spain have devalued monetary units, but they are equated in Euros, equal to Germany's, or other more stable countrie's Euros. I don't think the U.S. can or should attempt to bail them out of this mess. They will have to find their own solution, and we will have to take a hit on our stocks and investments.

  6. #6


    ADD moment:

    The Euro ruined Prague

    Ok back to the topic

  7. #7


    This is what happens when you combine a massive welfare state with the inability/unwillingness to collect taxes.

    Its just going to get worse, though. The Greeks are pissed about these "austerity measures" that were conditions of the loan. So this government is probably going to be tossed out of office and replaced with an even more leftist one who will tell the IMF and Europe to go screw itself. Bad time to own greek debt.

    One wonders how French and German voters are going to feel about having to pay for Greek hairdressers to retire at 55. Perhaps they will make their views known during the next elections?
    Last edited by MysteriousVisitor; 05-May-2010 at 04:52.

  8. #8


    Personally, the biggest problem I see (Though this s from an american perspective so may be wrong) is anymore you either have the people that want to spend with low taxes or spend and cut taxes. No-one really saves money anymore so they have money to spend when times like the financial crash hit (though it depends on your economic beliefs).

  9. #9


    Greece is in a "death spiral" right now - austerity measures are indisputably necessary to avoid default, but cutting government spending in a recession drags the economy down (with a multiplier effect), which makes it even harder to raise revenue requiring even greater austerity measures and so on and so forth. All the while, interest rates on new Greek debt continue to rise without end in sight; the deficit spending well in order to institute Keynesian stimulus is dry. There isn't any realistic means by which Greece can avoid default without a bailout. (Of note: even with the bailout, Greece has a few really bad economic years ahead of it, the difference being that there's actually a light at the end of the tunnel.)

    The whole issue bears out pretty much all of the fundamental economic problems with a unified currency: Greece's balance sheet relative to GDP isn't all that different from the UK's (half the debt, but similar deficits), but the UK has the ability to use monetary policy to devalue a bit and grow it's way out of its debt problems. Greece can't - the Euro is too valuable relative to goods and services and Greece is staring at deflation. Since a member nation's default would be catastrophic for the currency, the rest of Eurozone is better off bailing out a default than letting it happen - which costs money and introduces moral hazard.

    A single currency works across the United States because the United States is one country, where if California has budget problems, the federal government keeps paying social security, medicare, interstate highway funding, defense spending, and so on and so forth. Plus, without the language or citizenship barriers, out-of-staters are much more easily able to react to a devaluing of goods by traveling to or moving into the state to purchase them, a stabilizing effect. Californians are still in a tough spot, but these stabilizing effects mitigate much of the pain. The European Union isn't one country with one central government continually ensuring a constant stream of spending across all members, and strong barriers to movement exist.

  10. #10


    Quote Originally Posted by sparkmaster View Post
    One wonders how French and German voters are going to feel about having to pay for Greek hairdressers to retire at 55.
    2/3s were against helping Greece with money at all. Hardly surprising when you consider that debt is piling up left and right in our own country, and you can't go anywhere without screwing up your car in the numerous potholes. Plus we just 'bought' another country 19 years ago, and now we will have to pay for another one.

    There's several problems involved here:
    The Greeks (along with other countries) have spent way too much money that they didn't have or earn. It's one thing to spend tax money frivorously if you're running a surplus and giving state employees 14 monthly salaries. That's a luxury my country phased out decades ago, and we're on a significantly higher level of economic development than Greece, Spain, POrtugal, or Italy. I can't blame countries for being jealous of the more developed nations and trying to introduce similar perks, but realistically, it doesn't work. Back in the old days of national currencies, it wasn't a problem. The nation's currency would lose value, thus removing the money from the rich people who've benefited from the spending in the past, and things would go on as before. Greek products would get cheaper for other nations and exports would go up, thus creating more jobs and tax revenue in Greece. Obviously, with a common currency, that's no longer possible. Greek Euros can't suddenly be worth only 0.80 German Euros!
    This problem, by the way, isn't just a Greek problem. Most countries keep spending more money than they generate in tax revenue. The U.S. and especially the UK are going the same way sooner or later, but both countries have their own currency and can handle things without support from other countries.
    Those countries, along with Spain, have gained their recent wealth almost exclusively from intangible business. In Spain, massive housing speculation made house prices sky rocket without actually creating any value, so once the bubble burst, people awoke to the same old crappy country. Same in the UK - they barely produce anything tangible any more, which isn't a problem as long as the financial industry is in a stable condition. The financial crises showed that it mostly operates with bubbles that don't last forever, and when the financial industry is in bad health, there's no econmic alternatives to fill in.
    The U.S. is in a similar boat, just not as bad as the UK, as the U.S. are way too large to concentrate on a single business. Yet the huge-ass American balance of trade deficit is wrecking havoc on the country's stability and gives outside forces (read: China, which bought a significant amount of U.S. government debt) a lot of influence.
    My own country works the completely opposite way. We heavily rely on exports, so we don't really have a problem with having to deal with economic bubbles and intangible business, but often get accused to sucking other countries dry. While we don't have to worry about outside influence taking over our country, the disadvantage of this business model is the fact that we have the economic and moral obligation to help those country who bought our products out. It's just bad business practice to sit at the bar sipping an expensive drink and counting your Euro bills while the person you just got all the money from over an awesome sale is starving to death.
    Greece constitutes a whopping 3% of the total economic value of the Euro zone (not the EU, mind you!). That's peanuts and merely a scratch on the surface of a Euro. Part of the problem is the speculation on the capital markets, that's trying to make money off Greece's problems. They're making it too expensive for Greece (and other countries like Spain or Portugal) to raise sell debt titles on the capital markets. Unfortunately, no government has currently attempted to sanction speculation and thus trying to bring some sort of fair value back to the capital markets.
    (4) The Euro contract didn't allow for any help when countries get into financial trouble. As such, it's simply missing any kind of instrument to deal with the Greece problem, and the whole Eurozone economy is caught in a trap: If they help Greece, they break the Euro contract, and capital markets will assume that this will be done in the future too and thus consider the Euro a weak currency. Sticking to the contract on the other hand and not helping Greece would set off a chain reaction and eventually make Spain, Portugal and maybe Italy go bankrupt too. Doesn't take an Einstein to figure out what that would mean for the Euro currency and the EU! And kicking Greece out of the Euro? That's a logistical nightmare and bring about decades of legal battles over what currency Greece debt is denominated in!


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