Problem of large national debts threatening the Euro?

Predictable   4 votes - 100 %
Unpredictable   0 votes - 0 %
 
4 Total Votes
Fair point by Breaker (4.00 / 1) #1 Fri Jul 01, 2011 at 04:56:04 PM EST
it's in the interest of every borrower to borrow at the lowest rates possible. It's the lender who should really be responsible for ensuring the interest rate is high enough to cover the risk of the default.

I'd have happily written that and stood by it.  I'm not too sure though, having the ECB owning lots of Greek debt, but in part being funded by French and Cherman banks.  Which also hold quite a lot of Greek debt.

Hellenic financeologists must be looking at Iceland with envious eyes right now.

I do wonder where this one will end though; central EU has a lot vested in not letting Greece go bust but those that fund them want the uncertainty to end. 


Ooops, forgot to say: by Breaker (4.00 / 1) #2 Fri Jul 01, 2011 at 05:00:31 PM EST
Good luck with the ear problem, BTW.  I hope they can sort it out. 

This isn't the sort of thing you can put off, either, get them checked and checked often.  Relative of mine has diminished hearing because he didn't get medical intervention until too late.

 


[ Parent ]
I'm inclined to think Greece will have to devalue. by ambrosen (4.00 / 3) #6 Fri Jul 01, 2011 at 07:05:44 PM EST
Well, that's what I would imagine having to happen. I think that, as Theophile said, it's a car crash, and that the best thing that can happen (quick metaphor switch) to prevent the balloon going down is that the heaviest burdens are jettisoned overboard. And if the balloon starts to float after the heaviest one's overboard and trying its best to parachute to a safe landing, then (switch metaphors back), they can coast for a bit while they fix the brakes and now they know why the engineers put them there in the first place.

So that's what I'd hope for.

As a general lesson, it's worth realising that even though Greece sounds like a country that's been around for ever, it really has much less history of being a modern country than pretty much anywhere else in Europe. It was just about barely pulled together in time for the beginning of the 20th century, then after WWI, had to absorb 1 million refugees totally new to the country following a fairly disastrously prosecuted war in Anatolia/Antalya at the time of the creation of Turkey, followed fairly shortly by occupation in WWII and then having alternating puppet governments installed until the early 70s from the protagonists on either side of the cold war, and finally it got a bit of stability.

But there's no history of taxation by consent (as opposed to by a ruling empire) or government services, and since the 1950s, civil service jobs have historically effectively been sinecures given to sympathisers of the recently deposed governments in order to keep the peace.

So yeah, Greece has a lot of structural and cultural things which make running a straightforward national organisation rather trickier than in those countries which, forgive me for being provocative, laid the true foundations of modern democracy.

[ Parent ]
Greece as a modern state by Scrymarch (4.00 / 1) #9 Sat Jul 02, 2011 at 09:36:20 AM EST
That's an excellent point.

Misha Glenny spends a chunk of time in his fairly well regarded history of the Balkans on Greece. He makes some aside along the lines of "if you don't think a nation historically part of the Ottoman empire and located at the end of the Balkan peninsula is part of the Balkans, then nothing is".

I don't bring it up to suggest the Balkans are doomed to poverty and being a toyshop for the great powers forever (though that latter part isn't exactly abating). It's just to reset expectations a bit: like you say, the history is very, very old, but the government institutions are pretty new. I would disagree that it's unique in this regard though. Apart from its Balkan neighbours, what about Belarus? Even Italy has only been together as a country for 150 years. Nationalism is such a useful principle that it's easy to extend it retrospectively.

Iambic Web Certified

[ Parent ]
Devalue? by dmg (4.00 / 1) #12 Sat Jul 02, 2011 at 12:51:08 PM EST
Explain how that would work in the context of Euro membership.
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dmg - HuSi's most dimwitted overprivileged user.
[ Parent ]
It wouldn't by ambrosen (4.00 / 1) #14 Sat Jul 02, 2011 at 03:31:46 PM EST
I tried to introduce that with the jettisoning metaphor.

[ Parent ]
I see by dmg (4.00 / 1) #15 Sat Jul 02, 2011 at 05:03:37 PM EST
So the whole concept of European 'solidarity' goes out of the window at the first sign of trouble.

Don't get me wrong, I'd like nothing more than for the Euro project to be exposed for what it is, but its a bit tough on the poor Germans who got guilted into the whole ill-advised adventure. They not only get to bail out the Greeks, but also the East Germans. If I were a German pensioner I'd be livid!

I believe that the planners of the Euro completely foresaw this outcome, and so it will be very interesting to watch the proposed 'solutions'. Fiscal transfer of some kind is the only way the Euro can work, but that is electorally unpopular. Expect to see it introduced via very convoluted mechanisms, so that the public are not alerted to the true nature of the subsidies they are going to be tricked into paying.

I never thought I would have a good word to say about Gordon 'sold the gold at rock bottom prices, raided your pension fund, and drove the economy into the ground' Brown, but at least he didn't sign up for the Euro. Even so, the UK taxpayer is still getting screwed over due to treaty commitments.
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dmg - HuSi's most dimwitted overprivileged user.

[ Parent ]
German taxpayers by MillMan (4.00 / 2) #16 Sat Jul 02, 2011 at 05:47:22 PM EST
are bailing out the German and French banks, not Greece. Greece is going to get sold for pennies on the dollar as a bonus.

"Just as there are no atheists in foxholes, there are no libertarians in financial crises." -Krugman

[ Parent ]
Right by dmg (4.00 / 1) #17 Sat Jul 02, 2011 at 07:16:37 PM EST
In other words, they are being robbed by corporate interests. I'm fully aware what is going on here.
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dmg - HuSi's most dimwitted overprivileged user.
[ Parent ]
If you were a German pensioner, by ambrosen (4.00 / 1) #18 Sat Jul 02, 2011 at 08:27:34 PM EST
you'd be glad that the Irish government had bailed out its banks which were only larger than Irish GDP because of the amount German pension funds had in them.

My feeling is that the Euro would work if the original deficit criteria were stuck to.

[ Parent ]
depends how economically literate by dmg (4.00 / 1) #19 Sat Jul 02, 2011 at 11:38:00 PM EST
a pensioner I was.

I might be worried about the moral hazard of bailouts. I might even believe that perhaps I don't want a pension portfolio consisting of banks that make really bad lending decisions.

It's market failure on a grand scale, and the public seem to be lapping it up! 'too big to fail' my ass.
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dmg - HuSi's most dimwitted overprivileged user.

[ Parent ]
Optimal tax rates by riceowlguy (4.00 / 2) #3 Fri Jul 01, 2011 at 05:23:41 PM EST
It's completely implicit in the article about "optimal" German top marginal tax rates that the more money that governments can siphon away from their subjectscitizens, the better. If you take that as a given, then yes, if you can get away with taxing your high earners more, then I guess you should.

Personally I think if you can't run the country when you're already taking away nearly half of what some people earn in income, you might need to re-examine some things.

Personally, by ambrosen (4.00 / 3) #4 Fri Jul 01, 2011 at 05:57:27 PM EST
I think that if you're running a country well enough that a lot of people can earn well inexcess of €100,000 a year, and live an exceedingly comfortable life on it, then you're running it pretty well. And I suspect that a lot of those Germans are pretty well aware that that 50% tax rate buys them a lot of things money can't buy.

Like the knowledge that they can look any given fellow citizen in the eye and know that that person is unlikely to be going hungry or unable to look after their health or unable to get home safely. And knowing that they couldn't live in a gated community even if they wanted to, because such things don't exist. And being able to get a tram [trolley] home from a concert in the city centre without having to worry when it goes through the rough side of town. And not having to worry about spending the national median annual median income to put their kids through a year in the best university in the country, because there aren't any good universities in the country (but everyone still manages pretty well, and there's still lots of smart people).

But yeah, I don't know how much of that's due to high marginal tax rates on the rich, and of the effect that's due to taxation, how much can be attributed to additional social welfare spending and how much to progressive taxation creating a more egalitarian society.

Germany: don't knock it.

[ Parent ]
I spent fifteen minutes by riceowlguy (4.00 / 1) #5 Fri Jul 01, 2011 at 06:58:22 PM EST
writing a big long emotional screed about why I'm fiscally conservative, and before posting I thought better of it.  I got it out of my system anyway.

We obviously come from very different perspectives on this and no amount of impassioned defense of economic freedom on my part is going to change anybody's mind. 

[ Parent ]
I wasn't saying there was anything wrong with by ambrosen (4.00 / 2) #7 Fri Jul 01, 2011 at 07:25:02 PM EST
being fiscally conservative. I can point out masses of things wrong with a dirigiste tax and spend government. I mean, I read The Economist in full every week, as my only newspaper.

But apart from the numbers, I don't see what Germany's doing wrong. And if it's providing conveniences that aren't fungible, like peace of mind, then perhaps that value is worth 50% of income once you're rich enough to be able to afford skiing and sailing holidays every year.

[ Parent ]
Skiing and sailing by Oberon (4.00 / 1) #10 Sat Jul 02, 2011 at 12:49:19 PM EST
I just thought of a way to greatly simplify the tax forms ....

How now, mad spirit?
[ Parent ]
Profitable, but wageless recovery by jimgon (4.00 / 1) #8 Sat Jul 02, 2011 at 09:20:07 AM EST
Really to understand US corporate business you have to understand the ownership structure of US corporations.  The pirmary shareholders of pretty much every public company are institutional investors: hedge funds, mutual funds, government pension systems, and huge trusts.  What are they looking for?  Profits.  They aren't looking for increased expenses in the form of wages.  They're looking for reduced expenses and increased profits.  Their opinions count for more than anything.  They own these corporations or at least a big enough stake that the executives have to listen when they speak.  Want 10% of your shares to hit the market and drive down prices?  The executives are rewarded for holding down expenses and not hiring through higher share prices and a pretty strong bottom.  If you are lucky you work for a company which is private and part of a conglomoration where they care more about milking the cash cow than a rising star of a stock price. 

Part of this thing with the hedge funds and mutual funds is that the managers of those funds get paid by a percentage of total assets owned.  Forcing up stock prices increases their paycheck.  Pension fund managers are likewise judged by assets under management since the pension funds are judged for stability based on assets vs obligations and being fully funded against obligations.  So there's so much pressure on increase stock prices.  Thirty years ago you wanted cash cows in your portfolio which produced regular dividends which you could cash out or reinvest.  Then it switched to focusing entirely on growth stocks and even the cash cows had to play.  Part of it likely has to do with the tax system in the US with capital gains vs income.  Stock increases being capital gains only taxed when cashed out.  Dividends being income taxable when received.  So you get to defer income and taxation, and it's a cash like equivalent under the current process. 

Seriously, the US financial system is totally screwed. 




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Technician - "We can't even get decent physical health care. Mental health is like witchcraft here."
Screwed by dmg (4.00 / 2) #13 Sat Jul 02, 2011 at 12:54:31 PM EST
And you've barely scratched the surface!
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dmg - HuSi's most dimwitted overprivileged user.
[ Parent ]
Growth and stability pact was always a joke. by dmg (4.00 / 1) #11 Sat Jul 02, 2011 at 12:49:36 PM EST
You might want to investigate the Greek use of SPVs and derivatives to fudge their accounts in order to meet the entry conditions for the Euro. Aided and abetted by some of the usa's top investment banks.

The issue of irresponsible lending seems largely ignored by the press.

Having said that, Greece is a sideshow.
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dmg - HuSi's most dimwitted overprivileged user.