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Thread: Greek opposition sets demands as EU/IMF verdict nears

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    Greek opposition sets demands as EU/IMF verdict nears

    From Reuters:

    Greece's conservative opposition demanded tax cuts on Monday as the price for a consensus deal with the Socialist government on imposing yet more austerity, a major condition for getting further aid from the EU and IMF.

    Conservative leader Antonis Samaras called for a flat 15 percent corporate tax and rejected government plans for hiking taxes to tackle Greece's budget deficit and please fiscal inspectors mulling the next, key tranche of a 110 billion euro bailout.
    Greek opposition sets demands as EU/IMF verdict nears | Reuters

    This latest situation provides an example that labor unions are not always the only foes of fiscal consolidation in the midst of debt crises. Such crises, precisely because difficult terms are required to stabilize finances, require broad and often painful sacrifice. In the midst of the sacrifice, populists often sense an opportunity to exploit a country's situation for political gain.

    Were Greece not to meet the terms required to receive additional funding, the country would fall into default. Slashing tax revenue would only exacerbate the country's funding gap and make default even more likely. Such a default, could trigger a systemic banking crisis, wiping out the savings of many depositors. Such an outcome would not be a unique occurrence.

    At present, it is unclear that the Greek populists fully understand the gravity of the situation, though they might. What may be more clear is that they find the opportunity to pursue political advantage too tempting to pass up, even if it means cutting off Greece from further IMF/EU assistance and taking a chance on default.

    The assistance provides Greece with liquidity to avoid a liquidity crisis. Greece, itself, needs to address its solvency issues. To date, it has missed deficit reduction targets (by around 1% of GDP) and perhaps others, as well. The big risk has been whether the Greek government can sustain an austerity program in the face of strong popular opposition (very difficult in democratic states). That a populist party has now taken up the anti-austerity banner in pursuit of political advantage reflects the hazards of that course.

    It is possible that the Greek government might accept an EU or EU/IMF finance board that would have broad authority over Greek fiscal decisions e.g., it could veto revenue slashing measures proposed by the populists were they to gain power. However, the big problem with such an arrangement is that there would be no guarantees that a successor government, if it were elected, would accept or adhere to the Board's decision making. Hence, even if such a mechanism were adopted, there would be limits to its credibility. That's why the EU/IMF are seeking broad consensus among Greece's political parties.

    Ultimately, more fiscally responsible parties within Greece will need to build popular support for the measures required to address Greece's finances. At the same time, they will need to find a way to marginalize populists that wish to exploit the crisis for political gain, making abundantly clear to Greece's people that such populists offer "false solutions" and a readiness to trigger a default that would wipe out the savings of potentially a significant number of Greeks.

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    Re: Greek opposition sets demands as EU/IMF verdict nears

    Quote Originally Posted by donsutherland1 View Post
    From Reuters:

    Greek opposition sets demands as EU/IMF verdict nears | Reuters

    This latest situation provides an example that labor unions are not always the only foes of fiscal consolidation in the midst of debt crises. Such crises, precisely because difficult terms are required to stabilize finances, require broad and often painful sacrifice. In the midst of the sacrifice, populists often sense an opportunity to exploit a country's situation for political gain.
    Ahh yes blame the labour unions..... it is all the evil socialists fault ... pathetic attitude.

    Were Greece not to meet the terms required to receive additional funding, the country would fall into default. Slashing tax revenue would only exacerbate the country's funding gap and make default even more likely. Such a default, could trigger a systemic banking crisis, wiping out the savings of many depositors. Such an outcome would not be a unique occurrence.
    .... you again show a total lack of knowledge of the Greek problem. You do know that the problem with Greece is a LACK of tax revenue right? Their tax system is and has been the joke of the industrialized world for decades. The best description of the Greek Tax Collection system... a tip box in a corner of a room. Just like the US, you can not cut your way out of the Greek financial problem.

    At present, it is unclear that the Greek populists fully understand the gravity of the situation, though they might. What may be more clear is that they find the opportunity to pursue political advantage too tempting to pass up, even if it means cutting off Greece from further IMF/EU assistance and taking a chance on default.
    They understand it fully. On one side they have the opposition conservatives that created in large part the **** hole they are in now, and on the other side they have a socialist government that has been unable to convince the people with money, aka the private sector, to fix the massive structural problems in the Greek economy. People in Greece are fed up with the politicians on BOTH sides, who have screwed over the common man and made the rich richer.

    The assistance provides Greece with liquidity to avoid a liquidity crisis. Greece, itself, needs to address its solvency issues. To date, it has missed deficit reduction targets (by around 1% of GDP) and perhaps others, as well. The big risk has been whether the Greek government can sustain an austerity program in the face of strong popular opposition (very difficult in democratic states). That a populist party has now taken up the anti-austerity banner in pursuit of political advantage reflects the hazards of that course.
    LOL the populist party... they were the freaking party and people who in caused the bloody problem in the first place and the Greek people know this. That the western Anglo-American press could not see the truth in a story if it bit them on the pekker only makes it worse.

    It is possible that the Greek government might accept an EU or EU/IMF finance board that would have broad authority over Greek fiscal decisions e.g., it could veto revenue slashing measures proposed by the populists were they to gain power. However, the big problem with such an arrangement is that there would be no guarantees that a successor government, if it were elected, would accept or adhere to the Board's decision making. Hence, even if such a mechanism were adopted, there would be limits to its credibility. That's why the EU/IMF are seeking broad consensus among Greece's political parties.
    LOL do you even follow the situation? What the outside board/people want to do is fix the Greek tax collection system so they can raise more tax income, and sell off state owned companies. The Greek conservatives and "rich" are against this because it would mean that they would actually have to pay taxes! Instead these baffoons want to CUT taxes lol,... yea cut taxes on paper to claim a victory but work as always and still not pay your taxes... classic American conservative financial bs.

    Ultimately, more fiscally responsible parties within Greece will need to build popular support for the measures required to address Greece's finances.
    It is already in power. They just need the balls to go after the bankers and wealthy industrialists also, something they have not done so far and the IMF/EU are pressuring them to do by going after tax cheats.

    At the same time, they will need to find a way to marginalize populists that wish to exploit the crisis for political gain, making abundantly clear to Greece's people that such populists offer "false solutions" and a readiness to trigger a default that would wipe out the savings of potentially a significant number of Greeks.
    Oh you mean the right wing? Fine by me, they caused the problem in the first place by lying their asses of and having American bankers come help them in their criminal activities.
    PeteEU

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    Re: Greek opposition sets demands as EU/IMF verdict nears

    Quote Originally Posted by PeteEU View Post
    .... you again show a total lack of knowledge of the Greek problem. You do know that the problem with Greece is a LACK of tax revenue right? Their tax system is and has been the joke of the industrialized world for decades. The best description of the Greek Tax Collection system... a tip box in a corner of a room. Just like the US, you can not cut your way out of the Greek financial problem.
    If you read my whole message and considered the totality of what I posted, it would have been crystal clear that the populist group I was criticizing is the Greek opposition party, the conservatives who are demanding tax cuts. As no other party was cited in the article as deviating from supporting austerity, one could not have missed that it is the conservative party that is acting recklessly and irresponsibly.

    The reality remains that steep expenditures reductions and significant tax hikes will be required to address Greece's solvency challenges. There is opposition to both of those aspects, and those leading the opposition to the spending reductions and tax hikes are both putting narrow interests ahead of Greece's fiscal viability. Restoring Greece's fiscal viability should take priority over those narrow interests.
    Last edited by donsutherland1; 05-31-11 at 10:44 AM.

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    Re: Greek opposition sets demands as EU/IMF verdict nears

    Quote Originally Posted by donsutherland1 View Post
    If you read my whole message and considered the totality of what I posted, it would have been crystal clear that the populist group I was criticizing is the Greek opposition party, the conservatives who are demanding tax cuts. As no other party was cited in the article as deviating from the supporting austerity, one could not have missed that it is the conservative party that is acting recklessly and irresponsibly.

    The reality remains that steep expenditures reductions and significant tax hikes will be required to address Greece's solvency challenges. There is opposition to both of those aspects, and those leading the opposition to the spending reductions and tax hikes are both putting narrow interests ahead of Greece's fiscal viability. Restoring Greece's fiscal viability should take priority over those narrow interests.
    My bad, miss read it then. Guess my anger at CNBC over the same story got the better of me... talk about biased reporting.

    And yes, the conservatives in Greece are playing major politics with the future of Greece. Personally I think they want to leave the Euro, but do not realise what consequences that would have for the average man in Greece and the Greek banking system. They want to go back to the "good old days" of the Drachma where they just devalued to get out of the problems they were in, instead of dealing with the issues that caused the problems in the first place.

    Greeces problems are simple to fix... make the Greeks, and especially the rich and bankers pay their bloody taxes. That along with cuts and other changes would do wonders for the Greek economy. Tax cuts would make it much much worse since no one in their right mind wants to invest in Greece as long as they dont fix their structural problems.
    PeteEU

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    Re: Greek opposition sets demands as EU/IMF verdict nears

    Quote Originally Posted by PeteEU View Post
    My bad, miss read it then. Guess my anger at CNBC over the same story got the better of me... talk about biased reporting.
    No problem at all. Don't worry about it, Pete.

    And yes, the conservatives in Greece are playing major politics with the future of Greece. Personally I think they want to leave the Euro, but do not realise what consequences that would have for the average man in Greece and the Greek banking system. They want to go back to the "good old days" of the Drachma where they just devalued to get out of the problems they were in, instead of dealing with the issues that caused the problems in the first place.

    Greeces problems are simple to fix... make the Greeks, and especially the rich and bankers pay their bloody taxes. That along with cuts and other changes would do wonders for the Greek economy. Tax cuts would make it much much worse since no one in their right mind wants to invest in Greece as long as they dont fix their structural problems.
    You're probably right about the conservatives wanting a path out of the Euro. I don't believe it would be helpful for Greece. Also, I agree about the tax evasion problem in Greece. It is quite substantial and it should be addressed.

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    Re: Greek opposition sets demands as EU/IMF verdict nears

    Quote Originally Posted by PeteEU View Post
    My bad, miss read it then. Guess my anger at CNBC over the same story got the better of me... talk about biased reporting.

    And yes, the conservatives in Greece are playing major politics with the future of Greece. Personally I think they want to leave the Euro, but do not realise what consequences that would have for the average man in Greece and the Greek banking system. They want to go back to the "good old days" of the Drachma where they just devalued to get out of the problems they were in, instead of dealing with the issues that caused the problems in the first place.

    Greeces problems are simple to fix... make the Greeks, and especially the rich and bankers pay their bloody taxes. That along with cuts and other changes would do wonders for the Greek economy. Tax cuts would make it much much worse since no one in their right mind wants to invest in Greece as long as they dont fix their structural problems.
    Have either of you read the cover story in Barrons this weekend. It talks to the debt problem in Greece.

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    Re: Greek opposition sets demands as EU/IMF verdict nears

    Quote Originally Posted by washunut View Post
    Have either of you read the cover story in Barrons this weekend. It talks to the debt problem in Greece.
    I have. It should be noted that Barron's is among those calling for a significant restructuring of Greece's debt (50% of its debt). I suspect that a preemptive restructuring engineered by the IMF early on in the crisis might have had better prospects than a restructuring now in the face of growing expectations of a default among market participants, though even then a preemptive resturcturing would have had risks.

    My worry is that even if Greece has its debt restructured in the near-term, events have gotten so far down the road that there would be significant spillovers that could, in the global context, create a much larger problem than what Greece presents. Aside from Portugal and Ireland, there would be a risk that Italy and Spain could be adversely impacted by spillovers, even as their credit situation is nowhere comparable to that of Greece's. Irrationality could lead to a panic that ignores the superior credit status of Italy and Spain and increases the problem by magnitudes of order.

    Greece's banking system would also very likely need to be recapitalized, especially as its links to the ECB would be severed. Who would provide the funding (Greece would likely be shut off from international markets for an extended period of time) and what magnitude of funding would be required remains unclear. Such recapitalization could easily exceed the continuing loans that are envisioned for Greece under the austerity program. Moreover, some systemic banking crises have witnessed a 10% to 20% collapse in GDP. Even a contraction of the lower part of that range would exacerbate Greece's fiscal woes.

    Also, Russia's case of a significant restructuring is rather exceptional. Russia, unlike Greece, has vast oil and natural gas reserves. As a result, it possessed ample means for developing a large cash flow in the future that mitigated the risks associated with the bad outcome of its substantial restructuring. Argentina, on the other hand, lacked adequate means for developing large cash flows. Hence, even today, it remains cut off from international finance. Even as part of the EU, Greece would probably face a situation closer to that of Argentina than Russia were it to restructure along the lines of what the Barron's piece suggests.

    Given the above, I suspect that the EU-IMF, while finding some missed targets, will provide additional funding to Greece. Efforts to limit the conservative party's ability to derail Greece's finances might be part of the package e.g., an EU or joint EU-IMF Board with broad powers of major Greek fiscal decisions. Of course, as noted previously, such a Board's major limitation would be that it could not supersede the determination of a sovereign state to go its own way. Were the conservatives to gain a majority in the 2013 parliamentary election--and, in a classic example of putting political advantage against the national welfare, pursuit of that majority is almost certainly the overriding goal of their anti-austerity position--they could well reject the Board's authority. But that's a theoretical prospect that is still a few years away. In the meantime, the EU and IMF will likely take measures they believe can tide over Greece's current liquidity challenge, with the hope that it will buy time for Greece to make meaningful progress on its solvency issues.

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    Re: Greek opposition sets demands as EU/IMF verdict nears

    Quote Originally Posted by donsutherland1 View Post
    I have. It should be noted that Barron's is among those calling for a significant restructuring of Greece's debt (50% of its debt). I suspect that a preemptive restructuring engineered by the IMF early on in the crisis might have had better prospects than a restructuring now in the face of growing expectations of a default among market participants, though even then a preemptive resturcturing would have had risks.

    My worry is that even if Greece has its debt restructured in the near-term, events have gotten so far down the road that there would be significant spillovers that could, in the global context, create a much larger problem than what Greece presents. Aside from Portugal and Ireland, there would be a risk that Italy and Spain could be adversely impacted by spillovers, even as their credit situation is nowhere comparable to that of Greece's. Irrationality could lead to a panic that ignores the superior credit status of Italy and Spain and increases the problem by magnitudes of order.

    Greece's banking system would also very likely need to be recapitalized, especially as its links to the ECB would be severed. Who would provide the funding (Greece would likely be shut off from international markets for an extended period of time) and what magnitude of funding would be required remains unclear. Such recapitalization could easily exceed the continuing loans that are envisioned for Greece under the austerity program. Moreover, some systemic banking crises have witnessed a 10% to 20% collapse in GDP. Even a contraction of the lower part of that range would exacerbate Greece's fiscal woes.

    Also, Russia's case of a significant restructuring is rather exceptional. Russia, unlike Greece, has vast oil and natural gas reserves. As a result, it possessed ample means for developing a large cash flow in the future that mitigated the risks associated with the bad outcome of its substantial restructuring. Argentina, on the other hand, lacked adequate means for developing large cash flows. Hence, even today, it remains cut off from international finance. Even as part of the EU, Greece would probably face a situation closer to that of Argentina than Russia were it to restructure along the lines of what the Barron's piece suggests.

    Given the above, I suspect that the EU-IMF, while finding some missed targets, will provide additional funding to Greece. Efforts to limit the conservative party's ability to derail Greece's finances might be part of the package e.g., an EU or joint EU-IMF Board with broad powers of major Greek fiscal decisions. Of course, as noted previously, such a Board's major limitation would be that it could not supersede the determination of a sovereign state to go its own way. Were the conservatives to gain a majority in the 2013 parliamentary election--and, in a classic example of putting political advantage against the national welfare, pursuit of that majority is almost certainly the overriding goal of their anti-austerity position--they could well reject the Board's authority. But that's a theoretical prospect that is still a few years away. In the meantime, the EU and IMF will likely take measures they believe can tide over Greece's current liquidity challenge, with the hope that it will buy time for Greece to make meaningful progress on its solvency issues.
    I think you miss the point of the article. With Greek long term debt paying 16%, that means that it is selling well below face value today. That should mean that the hit banks would take is less than many might expect. I also disagree that this would mean that Greece wold be cut off from funding down the road. Just the opposite. Greece would then have a debt burden that would allow people to have a better sense that it can be paid. Interest rates could find a normalized number using Germany as Europe's equivalent to treasuries.

    Will there be pain for banks, yes. But like the U.S. it is less a matter if pain can be avoided than when to take the hit and how bad will it be.

    This is just my view but the ECB like the Fed wants to kick the can down the road. I see your concerns above and some are valid. But what would you suggest? The Greek public does not want to take all the burden and at the end of the day will not. Bondholders will have to take a haircut.

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    Re: Greek opposition sets demands as EU/IMF verdict nears

    Quote Originally Posted by washunut View Post
    I think you miss the point of the article. With Greek long term debt paying 16%, that means that it is selling well below face value today. That should mean that the hit banks would take is less than many might expect. I also disagree that this would mean that Greece wold be cut off from funding down the road. Just the opposite. Greece would then have a debt burden that would allow people to have a better sense that it can be paid. Interest rates could find a normalized number using Germany as Europe's equivalent to treasuries.

    Will there be pain for banks, yes. But like the U.S. it is less a matter if pain can be avoided than when to take the hit and how bad will it be.
    Well I some what agree and yet I do not. Greece is a small economy and its over all debt load is 400+ billion Euros out of an economy of 310 billion. Now in the grand scale of things this is peanuts if we are talking about big countries like France, Germany, US, Italy, Japan and so on. But the problem is that 400 billion is not small change for the real lenders, aka the banks in France and Germany and yes Switzerland. Could the banks deal with the loss, yes, but it would be very painful and could easily require a government "bail-out" of some kind.

    The next problem is of course Ireland who is worse of than Greece in many ways, and in some part Portugal. Let them have a haircut also? That would hit the UK hard when it comes to Ireland and Spain when it comes to Portugal (some what). Then that in turn would hurt yet again Germany and France and so on and so on. All this would hurt American companies big time and the American economy as well, and that in turn..

    remember the biggest elephant in the room is still the US and its massive debt-load and unsustainable budget problems and lack of political will to do anything what so ever at local, state or federal level.

    All in the while, the real problem with Greece would not have been solved by giving their debt a haircut, since their tax system is still a mess and their spending is far to high considering the pathetic tax system. That is where the IMF comes in, along with the EU.. they want to fix the tax system as a priority since without that fix any long term solutions will not work.

    This is just my view but the ECB like the Fed wants to kick the can down the road.
    They hope in part to let inflation take its toll, but also it is political. Many of the major countries (France, Germany, US) have elections next year or the year after that.. so it is the passing of the buck attitude since the sitting governments could easily loose power.

    I see your concerns above and some are valid. But what would you suggest? The Greek public does not want to take all the burden and at the end of the day will not. Bondholders will have to take a haircut.
    I agree a haricut is needed but not before Greece fixes their structural problems. I would rather give Ireland a haircut and even Portugal than Greece.

    In the end of a day, having a high debt load for a country is not the major problem as many think it is, as long there is no massive over spending and lack of revenue. And no, tax cuts is not the solution since it means less revenue. Structural changes to make an economy more efficient is key.
    Last edited by PeteEU; 05-31-11 at 01:18 PM.
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    Re: Greek opposition sets demands as EU/IMF verdict nears

    Quote Originally Posted by PeteEU View Post
    Well I some what agree and yet I do not. Greece is a small economy and its over all debt load is 400+ billion Euros out of an economy of 310 billion. Now in the grand scale of things this is peanuts if we are talking about big countries like France, Germany, US, Italy, Japan and so on. But the problem is that 400 billion is not small change for the real lenders, aka the banks in France and Germany and yes Switzerland. Could the banks deal with the loss, yes, but it would be very painful and could easily require a government "bail-out" of some kind.

    The next problem is of course Ireland who is worse of than Greece in many ways, and in some part Portugal. Let them have a haircut also? That would hit the UK hard when it comes to Ireland and Spain when it comes to Portugal (some what). Then that in turn would hurt yet again Germany and France and so on and so on. All this would hurt American companies big time and the American economy as well, and that in turn..

    remember the biggest elephant in the room is still the US and its massive debt-load and unsustainable budget problems and lack of political will to do anything what so ever at local, state or federal level.

    All in the while, the real problem with Greece would not have been solved by giving their debt a haircut, since their tax system is still a mess and their spending is far to high considering the pathetic tax system. That is where the IMF comes in, along with the EU.. they want to fix the tax system as a priority since without that fix any long term solutions will not work.



    They hope in part to let inflation take its toll, but also it is political. Many of the major countries (France, Germany, US) have elections next year or the year after that.. so it is the passing of the buck attitude since the sitting governments could easily loose power.



    I agree a haricut is needed but not before Greece fixes their structural problems. I would rather give Ireland a haircut and even Portugal than Greece.

    In the end of a day, having a high debt load for a country is not the major problem as many think it is, as long there is no massive over spending and lack of revenue. And no, tax cuts is not the solution since it means less revenue. Structural changes to make an economy more efficient is key.
    Let me start where you ended. I did not nor do I recommend any type of tax cut.

    I agree they need structural changes. My sense is that if Greece wants to get new financing they either will have to fix their problem of having too large a deficit or will have a hard time raising money in the capital markets at rates that are not destructive.

    The debt fix and restructuring will have to be hand in hand. I would not get hung up on which comes first, but that is just my take.

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