Exit Greece?

[Hazir]

Last night the Greek PM took the world by surprise; he has announced a referendum on the new help deal for Greece. Logic would tell us that given the choice between getting money and struggling along or getting no money and be hungry the Greeks can only vote yes. But, this is Greece and logic has no place there it seems. So it could very well be that the Greeks vote no. A Greek no vote would mean that there is no reason any longer for the other EU states to put any effort in saving Greece from default. It could mean that they push forward leaving Greece behind (which I would consider) the positive reaction to a Greek no. The alternative is of a sort that I can't really imagine, but includes the word 'Depression'.

For the Greeks the ensuing disorderly default would mean an immediate collapse of their banking system. Banks will run out of cash in a matter of hours. People will try to pull their money out of Greece as fast as they can in order to avoid a severe downgrading of the value of their property. Greece will need that money to stay in the country and probably will impose controls. That is against the basic rules of the EU and it means most likely that Greece can't stay a member (lest it will be dragged in front of court by people demanding damages for which the state would be liable). Then they'll HAVE to re-introduce a national currency that probably will start off on a 1:1 exchange rate, after which it will plummet to depths unknown.

Of course, what I wrote above may not come about because the majority of Greeks are mad as hell with the fact that Greek civil servants have tenure even when that means it drives the Greek economy into the ground. And a referendum could effectively put an end to that.

[Loki]

The impression I get is that all Greeks aspire to be civil servants, so they're unlikely to destroy an institution that they hope to make good use of themselves at some point in the future (kind of the way poor southerners in the US supported slavery).

[Hazir]

And what does that mean for a referendum ? Which I now understand is less likely than the end of the Papandreou administration tonight.

A Greek blogger described this as 'stepping off a cliff and then having to vote for falling down or not, so you can be blamed for hitting the water'.

[Loki]

I think the likelihood of Greece leaving/being forced to leave the euro-zone have gone up from a fairly small percentage to nearly one in two.

[Hazir]

I agree, it may drop dramatically again if they chuck out Papandreou tonight. He inflichted serious damage on his country and his own position today.

[Steely Glint]

Is there a mechanism for kicking someone out of the Euro-zone?

[Loki]

I agree, it may drop dramatically again if they chuck out Papandreou tonight. He inflichted serious damage on his country and his own position today.

Depends what happens as a result. The conservatives are running on a platform of renegotiating everything, which basically means declaring bankruptcy.

Is there a mechanism for kicking someone out of the Euro-zone?

Where there's a will, there's a way.

[Steely Glint]

Maybe France and Germany and anyone else expected to pay for it should hold a referendum on bailing Greece out.

[CitizenCain]

Maybe France and Germany and anyone else expected to pay for it should hold a referendum on bailing Greece out.

The bail out bit doesn't really matter a whole lot to Greece. They can't pay. Everyone knows they can't pay. The only question now is who foots the bill for their bad debt - the banking institutions that made those loans or some government bodies. (And the issue of how much of the debt they'll be able to get Greece to honor.)

The French and Germans can vote to fuck Greece all they want, but it's themselves they'll be fucking by pushing their banking institutions over the cliff along with the Greeks. Not that I much care either way, mind you, but it's just not as simple as flipping the Greeks the finger and walking away.

[Loki]

Only a portion of Greek debt is held by German and French banks. If they were only concerned about the latter, they'd simply make generous loans to those banks instead of attempting to keep the Greek government afloat.

[CitizenCain]

Because it's in their interest to keep Greece from imploding on itself in more ways than just Greek sovereign debt held by some banks, sure. They can't fuck Greece without taking it pretty badly themselves. (Haha!)

[Hazir]

Is there a mechanism for kicking someone out of the Euro-zone?

There isn't, but Greece will force itself out most likely if there is a disorderly default. They have to renege on some basic obligations to try to save themselves if the others remove the safety net.

The bail out bit doesn't really matter a whole lot to Greece. They can't pay. Everyone knows they can't pay. The only question now is who foots the bill for their bad debt - the banking institutions that made those loans or some government bodies. (And the issue of how much of the debt they'll be able to get Greece to honor.)

The French and Germans can vote to fuck Greece all they want, but it's themselves they'll be fucking by pushing their banking institutions over the cliff along with the Greeks. Not that I much care either way, mind you, but it's just not as simple as flipping the Greeks the finger and walking away.

You are missing an important point; for 'us' there is the issue of the Greek debt. And a disorderly default of Greece will hurt badly, but if that's the route Greece chooses there is very little we can do about it but bite the bullet and try to limit the damage to others (ourselves included).

The Greeks however are not out of trouble, not even if they renege on their debt for the full €300bn (which I still have to see them do, given who some of the debtors are). They could refer payment of interest for a while I presume, you can't pluck feathers from a frog as we say here in Holland. But that doesn't really solve their problems, they are not just insolvent, they are illiquid as we speak and a full default will not change that. They don't have money to pay their current bills, and who is going to borrow them anything if they are trying to do so immediately after they have shown themselves to not be good for their word? Or them trying to borrow in a - new - currency that will devaluate so fast that we have to look at Zimbabwe or the Weimar Republic to imagine what a Greek new Drachma will be worth.

Monetizing debt in such a situation is what a country that 'prints' the reserve currency of the world can get away with, such a country Greece is not. It's middle class will disappear, hunger will be a real prospect for the average Greek. (Some time ago the NZZ had figures that showed that they don't even produce enough food to feed themselves).

[Hazir]

Because it's in their interest to keep Greece from imploding on itself in more ways than just Greek sovereign debt held by some banks, sure. They can't fuck Greece without taking it pretty badly themselves. (Haha!)

The tide is turning; we're a long way down the road from where all debts of Greece were privately held. Recapitalizing EU banks, especially if we simply let the Greek banks collapse is a possible plan B. Especially if they combine it with eurobonds. Not to mention that a lot of the pain will be transferred to other places through the CDS's on Greek debts.

You'd be mistaken by the way if you exclude yourself from the 'they' that the Greeks think they've got by the balls.

In new; IMF president Lagarde calls in doubt the disbursement of the next trance of €8bn for Greece. That means that in the unlikely case Papandreou gets this referendum through parliament (which he won't) the Greeks won't have the money to actually organise it

[Hazir]

According to Bloomberg Papandreou wants it to be a vote on in or out of the euro

[Hazir]

It seems Bloomberg was wrong but now the tables have been turned; Greece is being told that their referendum is an 'in' or 'out' referendum, and the question be damned. If this is really what is being forced upon Greece it may create a very interesting precedent for the future. If that would be the case this is a good thing in my eyes. Europe has been suffering too long under the bane of murky referenda that didn't really solve anything. Every single referendum we have seen so far has only caused general crises, and nothing but crisis.

[Dreadnaught]

I agree, at this point what's needed is some clarity. I haven't looked at the numbers carefully, but I imagine backstopping the commercial paper or equity of a few French and German banks is cheaper than propping-up a failed Mediterranean state crumbling under the weight of bad debt and particularly insane public sector unions.

[earthJoker]

I can understand where Papandreou is comming from. He can pass the responibility to the people. But they way he set up the whole referendum and the timing doesn't seem to be well though through. I don't think it's a good idea to let the executive decide wether to make a referendum and when at all.

[CitizenCain]

So, what... there should be a referendum on when to hold the referendum?

Though, I do rather like the idea of the referendum... kind of a "you dumbasses got yourselves into this mess, you get to be responsible to pick which horribly painful way out of it [raise middle finger]" thing.

[Hazir]

I agree, at this point what's needed is some clarity. I haven't looked at the numbers carefully, but I imagine backstopping the commercial paper or equity of a few French and German banks is cheaper than propping-up a failed Mediterranean state crumbling under the weight of bad debt and particularly insane public sector unions.

Yesterday there was an item on dutch tv about the Greek rail system, renovated into a very nice shiny system with EU money already. It is heavily underused and heavily overstaffed; on the random train they chose there was 1 passenger, 1 driver (earning €100.000 a year in one of the poorest countries of Europe) and 4 ticket controllers.

[Hazir]

I can understand where Papandreou is comming from. He can pass the responibility to the people. But they way he set up the whole referendum and the timing doesn't seem to be well though through. I don't think it's a good idea to let the executive decide wether to make a referendum and when at all.

Technically it's parliament deciding on a referendum, which doesn't seem like such a bad forum to make the decision. I know you come from a different background, but Switzerland is but one example of a democracy with citizen initiatives and even though it seems to work for you reasonably, we outsiders also see the horrifying example of California.

[Ziggy Stardust]

http://www.luckymedia.nl/luckytv/201...ou-papandreou/

[Dreadnaught]

Though sadly the problem may actually be his constituents more than himself personally.

[earthJoker]

So, what... there should be a referendum on when to hold the referendum?

We collect signatures. You need 50,000 within a defined period to collect them. And after that the referendum will take place in the next voting date, which are defined in advance. It's not like the goverment can wait until the polls look good. For initiatives this is still a problem as the parlament is allowed to make a counter proposal, but that's a whole different story.

Technically it's parliament deciding on a referendum, which doesn't seem like such a bad forum to make the decision. I know you come from a different background, but Switzerland is but one example of a democracy with citizen initiatives and even though it seems to work for you reasonably, we outsiders also see the horrifying example of California.

The parliament seems better indeed. Making a referendum randomly at when you like it seems like you only want to go the half way to me. But with all the protests going on, and the unions blocking stuff, this is a good time to get a wider support for your politics.

[Hazir]

Hehe, now that was an interesting day. Seems like there will be no referendum and a supermajority in parliament demanded for the austerity package. Seems like really nobody who mattered wanted a referendum that other countries would interpret as 'euro or out' no matter what the question. At least ND has been whipped into some semblance of responsability now. With a little bit of luck and a lot of tough love Greece may disappear from the radar now, sort of like Portugal and Ireland.

[Dreadnaught]

And Italy's bailout-in-waiting?

[earthJoker]

There will never be an Italy bailout. Too big to save.

[Loki]

Sell it to Carthage.

[earthJoker]

Do you think they still want it?

[CitizenCain]

Technically it's parliament deciding on a referendum, which doesn't seem like such a bad forum to make the decision. I know you come from a different background, but Switzerland is but one example of a democracy with citizen initiatives and even though it seems to work for you reasonably, we outsiders also see the horrifying example of California.

Not that Switzerland's exactly a shining example of democracy either, granting women the right to vote in 1970... as if listening to a woman's opinion has ever lead to anything good in the entire history of the world.

[Hazir]

Not that Switzerland's exactly a shining example of democracy either, granting women the right to vote in 1970... as if listening to a woman's opinion has ever lead to anything good in the entire history of the world.

I am confused here, are you slamming the Swiss for not granting women voting rights untill the seventies of last year or saying that their democratic system went down the crapper in the seventies?