Greece, the gloves are off

[Hazir]

It's a promise, but one that is likely to be used if Tuesday's Greek debt auction goes terribly. Obviously, this is meant to make the rates on that auction fall bu I think there's a decent chance that may not work at all. In which case this is a de-facto bailout.

It worked last year for Hungary.

[Dreadnaught]

Was the Hungarian crisis anything like the Greek crisis? Hungary has about the same population, with less than 50% the debt that Greece has. And they haven't had people setting the streets ablaze over the need to cut the cute benefits.

[Loki]

Hungarians generally invade other countries, not their own.

[Hazir]

Was the Hungarian crisis anything like the Greek crisis? Hungary has about the same population, with less than 50% the debt that Greece has. And they haven't had people setting the streets ablaze over the need to cut the cute benefits.

Actually I don't hear too much about Greek demonstrations either. And yes, Hungary was close to defaulting on its sovereign debt. Then the market got a slap by offering extremely generous lending and things went back to normal.

[Hazir]

So, now that we've got Greece out of the way; what about the UK? And who is going to bail them out ?

[Dreadnaught]

The Greek auction is tomorrow, gotta see if there are any surprises.

[Lewkowski]

I'm wondering if Greece will seriously change its ways or not. Its easy to say (err well not so easy to even say it based on the protests and rioting) we will cut costs. But will they stick to it?

[Hazir]

I'm wondering if Greece will seriously change its ways or not. Its easy to say (err well not so easy to even say it based on the protests and rioting) we will cut costs. But will they stick to it?

Well that's what everybody is talking about. But the risks of the bail out falling apart if they don't is too big for them not to start restructuring.

[wiggin]

A great topical piece on this was in Free Exchange yesterday (note the FT article linked - it's definitely got a slant but is worth reading). Do you guys think that Greek reforms of a permanent and substantive nature are unlikely to occur prior to a default? Is this aid package just allowing some time for the private bondholders to exit the Greek market?

http://www.economist.com/blogs/freee.../04/greek_debt

[CitizenCain]

Do you guys think that Greek reforms of a permanent and substantive nature are unlikely to occur prior to a default? Is this aid package just allowing some time for the private bondholders to exit the Greek market?

http://www.economist.com/blogs/freee.../04/greek_debt

Like they say, nothing is close to immortality as government legislation... and it seems doubly true when the legislation in question gives someone "free" shit. So no, I don't think any permanent, substantive reforms will take place in Greece (or any other country) until there's absolutely no alternative.

[RandBlade]

So, now that we've got Greece out of the way; what about the UK? And who is going to bail them out ?

The electorate, on the 6th May hopefully.

[Wraith]

LONDON - Europe's government debt crisis worsened ominously Tuesday when two financially troubled countries — Greece and Portugal — saw their credit ratings downgraded as markets sold off their debt. Stocks slid on the news.

Greece was downgraded to junk status by Standard & Poor's, which lowered Portugal's rating as well. The downgrades come as Greece is appealing for 45 billion euros in bailout loans from other eurozone governments and the International Monetary Fund.

Source

[Hazir]

Source

It seems like investors think the whole bail out for Greece is simply not going to happen.

[Loki]

Or are being overly risk-averse to make up for being too risk-acceptant earlier.

[Dreadnaught]

It seems like investors think the whole bail out for Greece is simply not going to happen.

More specifically, I think it suggests that investors are being told to stay away, because the rates required to justify the risk won't pan out. This is firmly in bail-out zone.

Semi-coincidentally, a Greek co-worker quizzed everyone about how many Greek millionaires there are. I guess seven. The right answer was four, because none of them declare their taxes. Can't find a source, but meh.

[Being]

More specifically, I think it suggests that investors are being told to stay away, because the rates required to justify the risk won't pan out. This is firmly in bail-out zone.

Semi-coincidentally, a Greek co-worker quizzed everyone about how many Greek millionaires there are. I guess seven. The right answer was four, because none of them declare their taxes. Can't find a source, but meh.

Right. American banks aren't going to take a risk like that when they can borrow money from the Fed at 0.5% and invest it in US Bonds that pay 3%.

[Hazir]

More specifically, I think it suggests that investors are being told to stay away, because the rates required to justify the risk won't pan out. This is firmly in bail-out zone.

Semi-coincidentally, a Greek co-worker quizzed everyone about how many Greek millionaires there are. I guess seven. The right answer was four, because none of them declare their taxes. Can't find a source, but meh.

To be honest, I think the Germans are behaving wildly irresponsable in this matter. I am all for a severe beating up of everybody who ever was employed by the Greek MoF, but the fact of the matter is simply that they themselves were the ones that flaunted the rules they now insist on enforcing. If they hadn't overshot the Maastricht targets together with their French buddies, then maybe the EC would have been less timid in enforcing them and Greece would not have been in this sorry situation for the simple reason that they would have been under closer scrutiny for much longer. As would have been any of the other PIGS. Also, if the Greece situation really explodes it could have a follow up in Portugal, Spain and Italy. Possibly leading to an implosion of the EMU. Nobody is going to like it when that happens, but most likely the Germans will like it least of all; their post-euro currency may very well mean they are going to be priced out of all their export markets by their direct competitors (the countries surrounding them).

[GGT]

Also, if the Greece situation really explodes it could have a follow up in Portugal, Spain and Italy. Possibly leading to an implosion of the EMU. Nobody is going to like it when that happens, but most likely the Germans will like it least of all; their post-euro currency may very well mean they are going to be priced out of all their export markets by their direct competitors (the countries surrounding them).

Isn't it happening already? As far as "contagion" goes, even though everyone's debt and deficit has been bad for a long while, as soon as the rating agencies start downgrading, the domino effect kicked in.

[Being]

Governments should not be allowed to borrow money. From here on out let's work with realized revenue.

[Hazir]

Isn't it happening already? As far as "contagion" goes, even though everyone's debt and deficit has been bad for a long while, as soon as the rating agencies start downgrading, the domino effect kicked in.

Not really, none of it is really necessary as from a EMU perspective the Greek debt is mostly internal. That's also why it's stupid of the Germans not wanting to help Greece. If Greece defaults, its not Greece that loses its money, but Germany.

[Dreadnaught]

To be honest, I think the Germans are behaving wildly irresponsable in this matter. I am all for a severe beating up of everybody who ever was employed by the Greek MoF, but the fact of the matter is simply that they themselves were the ones that flaunted the rules they now insist on enforcing. If they hadn't overshot the Maastricht targets together with their French buddies, then maybe the EC would have been less timid in enforcing them and Greece would not have been in this sorry situation for the simple reason that they would have been under closer scrutiny for much longer. As would have been any of the other PIGS. Also, if the Greece situation really explodes it could have a follow up in Portugal, Spain and Italy. Possibly leading to an implosion of the EMU. Nobody is going to like it when that happens, but most likely the Germans will like it least of all; their post-euro currency may very well mean they are going to be priced out of all their export markets by their direct competitors (the countries surrounding them).

Am I crazy or is this a pretty big about-face for you on this? You didn't seem as worried before that other countries would also choke on debt in the wake of this?

I think we've now seen that investors can and will push government debt yields to suddenly-high levels. It's a nice lesson for everyone.

[Lewkowski]

This talk of 'contagion' is silly. Why should the EU bail out such a tiny country? The euro can stand on the backs of the major powers of the EU. Spain or Italy may be an issue but not Greece.

[Loki]

This talk of 'contagion' is silly. Why should the EU bail out such a tiny country? The euro can stand on the backs of the major powers of the EU. Spain or Italy may be an issue but not Greece.

[CitizenCain]

Graphs and statistics are elitist.

Knock it off, you ivory tower dingbat.

[Lewkowski]

So again Greece makes up what 3% of the GDP of Euroland? It is tiny. Something else is moving the market, possibly Greece is shining the light on other countries failure to balance budgets. I don't know but it seems silly to worry so much over one tiny country.

[Hazir]

Am I crazy or is this a pretty big about-face for you on this? You didn't seem as worried before that other countries would also choke on debt in the wake of this?

I think we've now seen that investors can and will push government debt yields to suddenly-high levels. It's a nice lesson for everyone.

No, you are not entirely crazy. I couldn't imagine that they would let this get out of hand so dramatically.

This talk of 'contagion' is silly. Why should the EU bail out such a tiny country? The euro can stand on the backs of the major powers of the EU. Spain or Italy may be an issue but not Greece.

It is not silly; nobody cares about Greece so much (besides the Greeks I presume), but their creditors are not Greek and that's where the problem lies. If we weren't in the aftermath of the first financial crisis probably swallowing a problem like a Greek default would be nasty but not insurmountable. Now it could put a bunch of major banks in a tailspin, including a bunch German and Dutch banks. The situation would be very grim indeed.

And in that state we'd have to face a situation where Portugal, Spain, Italy, Ireland and the UK are up for grabs. I think complete breakdown wouldn't even start to describe it.

[GGT]

Lewk doesn't believe any of the financial crisis was real. He's said it's a normal business cycle, a regular recession, overblown.

And it is a change of your view Hazir, since you were telling me weeks ago that Greece was no problem. Everyone is interconnected globally. Whether it's an Icelandic volcano affecting travel and commerce, or sovereign debt that's owned by other countries, or a currency.

Butterflies....

[Hazir]

Lewk doesn't believe any of the financial crisis was real. He's said it's a normal business cycle, a regular recession, overblown.

And it is a change of your view Hazir, since you were telling me weeks ago that Greece was no problem. Everyone is interconnected globally. Whether it's an Icelandic volcano affecting travel and commerce, or sovereign debt that's owned by other countries, or a currency.

Butterflies....

It wasn't my view so much as the reality that changed; by not acting for too long in a convincing way (by the EMU) the Greek situation got out of hand altogether. I couldn't imagine the leaders of Germany being stupid enough to fire up rhetoric against a rescue package for Greece, where mere doubt about that package materializing pushed us from a potential crisis into a real crisis.

[GGT]

Rhetoric huh. Germany already loaned them a lot. I imagine this isn't just politics as usual. What amazes me more is the attitude of Greece, and another planned strike by private and public workers.

[CitizenCain]

and another planned strike by private and public workers.

"We don't have enough money to sustain our economy - whatever can we do?!?!?"

"I know, let's not go to work anymore!"

"Brilliant!"


Dumbass Greeks.