Greece will need 110 billion Euros, an amount nearly equal to its bailout package last year, to make it through this one.
The admission, after weeks of speculation over the size of the package, highlighted the parlous state of the country’s economy despite receiving regular cash injections from the €110bn rescue agreed last May, the biggest bailout in western history. Athens’s debt, which stood at €340bn in December, was estimated to have exceeded €355bn, the equivalent of 150% of GDP, in April. By comparison, the government’s annual income is almost one-tenth of that, at around €40bn. …
In an attempt to placate voters, who increasingly have come to identify Greece’s politicians with corruption, he pledged to call a referendum on changes to the “political system” later this year. Reforms would include an overhaul of the constitution and abolishing practices such as the immunity enjoyed by MPs, a source of the discontent that has prompted protestors to scream “thieves” outside parliament as the debt drama has unfolded. The conservative opposition leader, Antonis Samaras, called for Papandreou to step down to pave the way for elections and a renegotiation of the bailout. But Papandreou called for the opposition to “stop fighting in these critical times, stop sending the image that the country is being torn apart”.
The alternative to not lending Greece money might be “disorderly financial and sovereign defaults” according to IMF chief economist Olivier Blanchard. Germany has not closed the door on more taxpayer funded bailouts for Greece to prevent the “unraveling of the euro, which it still sees as the centerpiece of European unification”.
Germany would be a “massive loser” in a Greek default, but it is unclear whether the bailout package now being negotiated will be adequate to the purpose. A third bailout, perhaps in a year’s time may be further necessary in addition to some kind of political union, if the Euro is to be saved.
Irwin Stelzer says that short term European aid will mean that Athens will be liquid, but insolvent; that even if Greek bondholders accept a voluntary rollover of debt, that is a “de facto default” according to Standard & Poor’s. But the larger problem is that many economies are in equally dire straits. It is the fragile state of the world that magnifies the consequentiality of events in Athens. By itself it would be a match sputtering in an ashtray. In today’s world it is a match lit in a power magazine. Now the powder kegs must come to the rescue of the match without allowing the spark to jump. The sole credibility of its rescuers lies not in their relative strength, but because they are perceived as “too big to fail”. They can’t fail not because they are safe but because their explosion would be too horrible to contemplate.
Outside of the zone both the U.K. and the U.S. have deficit:GDP ratios every bit as high as Greece’s. Britain’s plan to reduce its deficit is threatened by the slowdown in its economy induced by its spending cuts, while the U.S. has no plan at all.
Portugal and Ireland are only avoiding default because of a flow of bailout cash, but have no prospect of repaying their outstanding loans—and would not have even if Greece sovereign debt were triple-A rated: shrinking economies do not produce a robust flow of tax revenues.
Spain, the euro zone’s fourth largest economy, is struggling with an unemployment rate in excess of 20%, undercapitalized regional banks, and an economy that at best barely ekes out a tiny bit of growth. Italy, the zone’s third largest economy has already been warned by Moody’s that its no-growth economy, deficits, and political chaos might lead to a down-rating.
Throw in what appears to be an economic slowdown in America and in Europe, not to mention China, the end of QE2 in the U.S., and worst of all a sudden realization that “too big to fail” might be less of a problem than “too interconnected to fail”—Lehman Brothers was, after all, small potatoes as financial institutions go—and there is ample reason for worry.
The preference for taxpayer bailouts over taking the banks to the cleaners is the notion that in the last analysis, countries can print their own money. “The U.S. situation is most analogous to Japan 20 years ago,” David Wyss, former chief economist at Standard & Poors explained. “We downgraded Japan as well, but bond yields didn’t rise. As long as a country can issue debt in its own currency, the threat of default is remote because it is cheaper to print money than default.”
But there are limits to what even sovereign governments can do. Zimbabwe and Hungary are two post-war examples of hyperinflation. In order to favor his political cronies, Robert Mugabe collapsed real economic production. At the same time, in order to pay his minions and conduct war abroad, Zimbabwe printed money with reckless abandon. While nobody expects such a thing to happen on an international scale, it does suggest that there is no such thing as “too big to fail.”
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All of these bailouts, of countries and companies, without implementing controls is simply feeding the alligator your friends hoping he eats you last. Individuals understand this notion, like cutting up credit cards to make further debt impossible. But the people who created the debt will not be taking the beating when it all falls apart. That is the appeal of ropes and lamp posts, making sure those responsible pay the penalty for thinking they were above it all. Most people are peaceful by nature but just wait until starvation is rampant.
ROME (Reuters) – Europe risks wasting more money for nothing if it keeps pumping billions into the ailing Greek economy, the head of Pimco, the world’s largest bond fund, said in an interview published on Sunday.
El-Erian is head of the biggest bond fund in the world. I think they should listen to him. Greece is going to default sooner or later as it cannot function with a first world currency and a second world economy. The economic pain and dislocation are not politically sustainable for any democratic government. They must default or have a civil upheaval and then default. The Eurozone is caput.
So how long will it be before the EU elites actually accept reality? It is anyone’s guess since they mostly only talk to one another they collectively live in an asylum run by the inmates. And things are not much different in Washington, DC. I expect come August we wil raise the debt ceiling with no realistic spending cuts. In fact I will guarantee that the White House and Reid will not agree to anything except defense cuts and tax increases and far out year alleged cuts that never materialize.
Ther is a game of musical chairs going on to see who is sitting in the White House when the stuff ultimately hits the fan. The problem is events are going to spin totally out of control at some point and what comes after that is the unthinkable. if the powers that be think that the banks collapsing is the worst thing that can befall a country they simply lack imagination.
Cracking, flaking, and running for shelter everywhere you look.
http://www.telegraph.co.uk/finance/financialcrisis/8584442/UK-banks-abandon-eurozone-over-Greek-default-fears.html
Russia is reducing its US financial paper holdings. The Financial Times has an article about it would be a “good idea” for Germany to leave the Euro. I think so to but not for the reasons stated. Only recently a Chinese agency claims the US is already in default because they inflating their currency. There has been an increase in the number of US Citizens renouncing their citizenship to escape iron claw of asset confiscation. You could fill up pages of stuff like this.
Some think we’d get riots like they’ve been having in Greece or Spain. I think in the US you’d have a bunch of well armed and experienced ex middle class individuals getting real specific.
the thing that confuses me is the repetition of these bailouts.if they can’t bring themselves to live within their means,what good will extending their credit do? all this will do is make sure the hole will be deeper for the next annual bailout festivities.the same foolishness is being played out in the US with the debt ceiling drama. If the US is to run trillion dollar deficits as far as the eye can see, why worry about debt limits? the big concern i expect is to raise the limit enough to get them into 2013.
If i could have a wish , it would be that all politicians pensions not be indexed to inflation.that way the mess they are kicking down the road would in time engulf them as well as the rest of us.
TBTF or…
Too Big To Fault?
By removing accountability, in stages, our government has put pennies in the fuse box.
Time was that Wall Street = partnerships, only.
Time was that a NYSE seat could be held in natural name, only.
What steroids did to MLB…
Gearing did to Wall Street.
—–
Not much mentioned now that it’s imploding:
Wall Street and the City competed for whoredom.
Both were massively involved in assisting the too important to pay income taxes in their eternal quest.
——
Rome famously fell apart… and a big contributor to the collapse were those lucky few who were wealthy yet still entirely exempt from taxation. Think of them as welfare princes. They sold to the state, this and that, at firm prices, crony prices, and took home the bacon in magnum style.
We’re seeing that exact same dynamic with GE… and others.
It matters not exactly how they’re able to tip toe around the tax — it only matters that they do.
Of course, the Federal government is mandating the purchase of countless GE products, big and small.
Like the forever corrupt light-bulb business. No single industry has lost as many anti-trust lawsuits across time. They just can’t stop themselves.
And should one pull back the historical covers, GE was a leading light ( along with Citicorp ) in advancing JPMorgan’s monopolistic gambits in Germany circa the late twenties. Yeap, a whole lot of back-scratching and market cartelization.
—–
Greece and Spain are polities that don’t pay taxes. In that, they resemble Argentina.
Spain’s story is that of eminence by way of enslavement and theft, circa the 16th Century. For a brief moment in time, one nation could drastically out spend all others — and in solid money — and without taxes!
Spain has never recovered from that success.
Greece also got by by shifting taxation onto ‘externals’ — her trading partners in Hellenic times — and Darius III’s massive gold horde in Alexander’s day.
And like Spain, she’s never recovered.
Right now the one nation that can export taxation is America. Unless she self-corrects, her future is unlikely to be different than Spain or Greece.
What happens is that the entire society becomes addicted to cost displacement/ indirect looting.
While on top, everything seems so reasonable. Each society, in turn, thinks that its standard of living is entirely merited and can be sustained.
Between their own self-deluding accounting/ records / estimates and the optimism of dictating terms of trade… even the finest minds fail to realize just how touchy their hegemony can be.
Mighty Pharaoh suffered a loss in placer gold discoveries. Next thing you know his economy tanks and the Jews flee to Sinai. Peak pyramid had been reached! Who knew?
The end of the Space Shuttle may be more omen than economics.
Peak complexity. It’s here.
If Nathan Detroit’s Permanemt Floating Crap Game in New York was to change its name to a bank it would surely get a government guarantee.
I have a long time (early 90′s) pen pal who is Greek. He is living there now, having graduated from King’s Collage in London a few years ago. Masters in Economics (or what passes for that in Europe, their system of higher education being slightly different). Granted, his Family is rich, so they might be isolated but I don’t think so. Papa keeps them on a short leash.
Anyway I finally got around to asking him how the riots were going and if he had a chance at any looting, Not that his Porche will hold much.
He told me it’s 99% media hype. Greece is an ancient civilization. His plumbing is 5,000 years old. Think about that. Greece has been thru just about everything. The people are NOT STOOOOPID! They know that they have been screwing the Germans ( with gusto and great pleasure) and the Germans are figuring it out. The ride is over, time to start walking.
The “Riots” are actually small groups of less then 100, half of which are secret police, the other half are paid agitators (actors). The media shoots the riot from several angles, processes the data and presto! you have a cast of thousands.
The burned out grocer, who is the 30th generation owner, is going under. He made sure his insurance was paid before he called the rioters. That burning store is then GIMPed into a burning city.
The Greeks want the same thing Egypt and Tunisia got. Regime change. Just like Syria and Libya.
Just like America. The Greeks figured out a while back that the name of the Party in power changes but the Party doesn’t. The same group of sleazy buttholes, just with a different front man. Sorta like America.
You have the (D) wing of the Establishment practicing crony Socialism and the (R) wing of the establishment practicing crony Capitalism. The cronys get fat the taxpayer gets foooked.
That in a rather large nutshell is the problem. No Silver bullets. While trees and ropes (Lampposts in the city) would be fun, I suspect all it would accomplish is replace the fat cronies with skinny cronies wanting to get fat. So we citizens stick to our polling booths and keep voting the BAS-tards out.
Or we hold another Consitutional convention and change the rules on them.
The elites have been using democracy to stick it to citizens ever since the French Revolution. The surviving elites. Now thanks the miracle of modern communications, the citizens have the tools to stick it to the elites. How about a flash mob at Soro’s house? Or a million man march in Gore’s back yard.
Booo hoo ooh, c’est la cata… strophe, for the WS jerks !
chi sene frega of the fiat money ! we still are people, with a long history, unlike WS !
The sooner the industrialized countries take their bitter medicine the better. Greece should be let to default. There is no other way out in the end. To answer Reg’s question, Greece is in what is called a debt trap; additional lending to it only digs a deeper hole. Without major restructuring, Greece will never be able to fund that new debt. Never.
We will be in the same trap soon if we are not careful. It’s time to cut the crap, and take down the insolvent TBTF banks. Bring back Glass–Steagall, – 12/1 reserve ratios, limit banking to one state only, and make it a crime to ever bail out a bank again. We also need to restructure, cut our deficits and reform our punitive/ fascist overwrought Nanny Police State regulatory system so our economy will grow again.
Any of our political class, ( and that includes a lot of pubs, too) that continues the maintain that we can save our TBTF banks will some sleight of hand bailout scheme should be called out as a liar and a corrupt bought and paid for thief. There is no big government bailout plan at this point that will cure the situation. None. Only a return to old school sound banking and small government will work.
Do banks have feelings? Of course we do. We have tellers who tell you every day how difficult it is to be too big to fail, how difficult it is to always be at the beck and call of politicians who think nothing of putting our shareholders and our officers on the line for their political gain. I am fed up with the whole rotten business. I have a good mind to toss it all and show them I am NOT too big to fail. That’ll teach ‘em.
They said I was too big to fail
Too big to just go under
While politicians not in jail
Make blunder after blunder
Oh yes I’m at my master’s beck
I lend to those unable
To pay it back but what the heck
There’s stuff under the table
And so I go my merry way
Defaults are much too messy
We know the taxpayer will pay
So long’s the corpse still dressy
I’ve always wagged the big dog’s tail
For many years I hid it
And yes they say too big to fail
But I went ahead and did it
t
Maybe longer maturities with a balloon payment would work. Say a thousand year bond at 10%, interest and principal payable in 3011.
After all, this all started with paying for today with promises of payment tomorrow.
Mathematically you can do this forever, including in 3011, though you will need a 10,000 year bond maturity then. There are plenty of real numbers and lots of room up there so there’s no logical end.
It seems like everyone is in debt, some (such as Greece) to a crippling degree. Who, precisely, are the holders of this debt? Sometimes I wonder if this is just some global IOU scheme, and there isn’t enough money in any form of currency to cover all the debts.
#2 Joe Hill
I expect come August we wil raise the debt ceiling with no realistic spending cuts. In fact I will guarantee that the White House and Reid will not agree to anything except defense cuts and tax increases and far out year alleged cuts that never materialize.
It looks like we are not going to wait till August. Right after Boehner had his “golf summit” with Buraq Hussein, Mitch McConnell started talking up a “short term” increase in the debt limit with no budget cuts, so that they would have time to negotiate. Just like the supposed cuts in the last “budget” that turned out to not only be non-existent, but also allowed for 3 years of spending increases before the putative cuts took effect; we have been stabbed in the back again by the Institutional Republicans.
Time to negotiate!!??!! Liu2 kou3shui3 de5 biao3zi5 he2 hou2zi5 de5 ben4 er2zi5men5. [NSFW in mainland China]
Separate mention has been made in this thread of ropes, lamp posts, and flash mobs. Also specificity.
Subotai Bahadur
Jeffrey R. Immelt:
In 2010, Jeffrey R. Immelt received $21,428,765 in total compensation. By comparison, the median worker made $33,190 in 2010. Jeffrey R. Immelt made 645 times the median worker’s pay.
The Greek economy really is imploding and the more austerity the faster the implosion, and the more they need to borrow to support less and less. They are borrowing money at loansharking rates and really are in a hopeless situation. That is not to say they did not put themselves in their current position only that now they are in it there is no way out but default. And really the lenders deserve to be burned. It takes two greedy entities to create debts of this magnitude, a borrower and an unrealistic lender. in this case the lenders. Quasi state owned banks, believe they are too big to fail and that French and German taxpayers will bail them out in the end.
PASOK leaders are part and parcel of the same EU elites that refuse to wake up and smell the coffee and admit that a single currency for nations with very different states of development did not make sense. They wanted the dream of a new Roman Empire that ignored the reality of economic facts on the ground. It was al a massive self-delusion.
YBR@14 $21 Mil does seem like a lot but let’s face it, that is a small price to pay for a guy who could swap off $140 billion in worthless asserts for $140 billion in good for able debts public and private greenbacks from the Fed. think about that for a minute, pretty impressive. heck the Greeks are only asking for $110 billion and there are doubtless some real assets somewhere in Greece I.e. Stuff that could be privatized.
I feel your indignation. imelt belongs in jail rather than snickering on the dais when Obomber jokes about shovel ready jobs not being as shovel ready as he though – like his pampered little ass has any idea which end of a shovel goes in the hole.
JH@16: that coupled with the zero tax payments on $5.1 billion USA profit:
The truth about GE’s tax bill
Too failed to be big.
What is a 50 year old Greek barber worth? What is a 70 year old Alabama retired fire inspector worth? What is the mother of a defective child worth? What is Jeffrey Immelt worth?
In each case the answer is nothing, if by worth you mean some intrinsic value tied to their dignity as a human being or member of a community. The only intrinsic worth they have is based on their savings from wealth they created in the past and the market’s current estimate of their abilities to create new wealth.
Any time that somene attempts to gain wealth outside of the market’s estimation of their efforts they are resorting to politics. In politics wealth is extracted from one group, often through threatened or actual violence, and transferred to others.
“In politics wealth is extracted from one group, often through threatened or actual violence, and transferred to others.”
The whole point of politics is dividing the loot. Splitting the swag. Deciding who gets what. Been that way since the first walled city was built 8,000 or so years ago. Remember, to be a city and not a village, there has to be a significant part of the population engaged in non-farm labor. Food has to be brought into the city to feed those non-farmers and somebody has to decide how that food is allocated. Politics is the Greek word for that process. While some things have changed over the last 8,000 years, politics isn’t one of them.
YET.
How long will it take Germany to finally go with its gut feeling that shoveling its hard-earned money into that bottomless pit, a.k.a. Greece, is not a gut thing to do?
Once fooled shame on them. Twice fooled, shame on me. A second bailout is pretty good indication that the first was a waste of money. I doubt Greece has done anything in the last year to increase its tax revenue by going after all the unreported income in Greece.
The lines from the song keep running through my head – I think it’s kind of funny, I think it’s kind of sad …. when people run in circles it’s a really really Mad World.
Why does Greece agree to borrow at loan shark rates? Not simply because they need it, although that is debatable; the money being borrowed is simply being transferred back to the German, French, and ECB banks in the form of interest payments. But it makes perfect sense to borrow on loan shark terms if you believe that the loan “shark” is really a loan guppy – if you don’t believe he has the will or ability to ever actually make you pay up.
DEBTOR LOGIC EXPLAINED:
A debtor is afraid of a *real* loan shark because he’ll get his knees broken; but if the “shark” is just some doddering fool with no idea how to collect, it makes sense to take as much money as you can under any terms he wants – who cares? Say whatever makes him feel good, you’re not going to live up to the deal, you know that from the start and if the lender doesn’t, then he’s too stupid to deserve to survive. The worst he can do is cut you off, and since he’s already threatened that, you’ve got nothing to lose by playing the game til the end.
As long as the fools are shoveling out cash, it makes sense to stand by with a wheelbarrow and grab as much as you can. When the fools finally stop shoveling, then it will be time to do something else.
That’s how debtors think, and there’s actually a hell of a lot more logic here than there is with the lenders who are stoking these flames. Wait, does someone want to bring up morality? HA! Anyone who thinks “morality” has any meaning to any of the parties on EITHER side of these transactions is living in the most outrageous dreamworld of us all!!!
Nice, a Tears for Fears reference on Belmont Club.
Executive compensation is not completely market-driven – never was and never will be. Corporate boardrooms should be exercising better judgment. Another example of passive boardroom behavior. There is value is voluntarily keeping spreads until control.
A contribution from The Mighty Mighty Bosstones: Go Big.
“As long as a country can issue debt in its own currency, the threat of default is remote because it is cheaper to print money than default.”
The Chinese are right, inflation is a form of defaulting, and America is already defaulting on it debts.
Inflation is just an attempt by a currency issuer to scam its creditors.
There’s a tendency to focus on only one end of the trade/ swap … the debtor.
The reason for the entire dynamic is the German and French voter. They are the unwitting lenders in this farce.
Early in the bezzle the optics are brilliant: German/French exports are ramping! Profits are strong as is hiring.
As for the debtors, it’s all good. The Euro functioned as a massive credit line at a drastically reduced nominal and real interest rate.
So Greece and Portugal could spend large on German imports, doing deals that otherwise would never happen.
One example, from Spain: they bought German/Austrian tunnel boring machines in a quest to install a state-of-the-art subway system under Madrid. It was and is a showpiece. And of course, it was entirely politically driven.
Similar crazed imports from Germany are arrayed all over Spain: PV was Zapo’s mantra.
Cutting off Greece, et. al. means cutting off the exporters that were the source of the trade imbalance.
Such a move is a vote killer in Berlin.
——–
The same twin crazies dynamic afflicts China and America. China is so enamored with hard exports and ramping manufacture that she takes everything too far — hurting herself and her trade partner. Red China pays no attention to micro economic facts of life.
It’s the disconnect between action and control that fosters spastic economics.
http://www.defpro.com/daily/details/835/?SID=b5614e1203a1474c349517ca04aa1cc9
Turkish-German Armaments Cooperation
hehe, some old traditions never dies
Blert, you got the deal !
the euro was ment to extend the german Lebensraum (to a lesser point the french’s too)for exportations !, now that the toy is broken, better get rid of the canards boiteux, and watch for better partners, Turks come at the right moment, and Iran, and Russia, and… for Germany, but we won’t tell Chinese to not buy our wines too !
“The European Union superstate is revealed as a front for a sinister conspiracy, one rooted in the last days of the Second World War.”
http://www.dailymail.co.uk/news/article-1179902/Revealed-The-secret-report-shows-Nazis-planned-Fourth-Reich–EU.html#ixzz1PrSY2526
So, the EU was a Nazi idea, the Germans must be fearing that Greece’s Gods will fall on their heads (cuz the Greeks don’t embrace their austerity plan) for abandoning such a big plan !
bizarre this austerity plan, that was also what Germany implemented in 1940, while pushing to inflation the occupied countries (the franc value vs the Deutsh Mark was divised by 2, and only in service in France, Germans could buy whatever they wanted), though, that couldn’t refinance on external markets, that had almost 25% of GDP as charges in disdomagement for the german army occupation costs
why the banks don’t fear a greek default
http://www.latribune.fr/actualites/economie/international/20110617trib000630210/ce-que-couterait-aux-banques-une-faillite-de-la-grece.html
interesting article in french
the notation agencies can shout what they want, the banks have their inner acounting (banking book) and that that only counts for exchanges and trades
Our dear Marie Claude,
I’m surprised this is a headline in the UK Daily Mail. The EU as the 4th Reich has been written about since its inception (but with strong participation from the French political class as well). Back in the 1990s Rodney Atkinson (better known as the older brother of Mr. Bean Rowan Atkinson) wrote a book called Europe’s Full Circle citing the eerie parallels between some European project founders statements and those of Hitler, Mussolini et al. He followed up with the book Fascist Europe Rising after the war against Serbia and NATO occupation of Kosovo. Both books of course discussed Prince Bernhard of the Netherlands status as an SS officer during WWII and his going on to co-found Bildeberg.
Unfortunately, while I wish I could say the attacks on the Euro as a cy originated from a sincere desire and love for the liberties of all European nations, I do think some of it is a desire to push the Euro down in the short run to buy a few more precious months for the U.S. dollar as the world’s reserve currency. Because ultimately if the Euro fails it would be hard to see the dollar suddenly emerging stronger rather than all fiat currencies hastening their decay.
Mr x
I am afraid that your Russians friends were in the EU prodject too !
I now feel how much we were cheated from the origin !
Anyway still our surviving instinct will diktate our next behaviour !
put apart the British BS, and you’ll get the point
http://www.policestateplanning.com/eu_and_globalism__facts_denied_to_the_public.htm
Merkel needs a vote of “no confidence” to end this charade.
If the german’s pull out of the EURO, what will be left will be the “value” the PIIGS can muster. With the french stomping on the grapes. And, the Brussels LOONS losing the value of their world courts as well.
Good news when the “EURO” finds its value the old-fashioned way. In the hands of the greeks, and the others … all the debt will look like “small potatoes” … because everyone will have enough worthless EURO’s to pay off the toxic steaming pile.