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Thread: Sights and Sounds: Greek Protests

  1. #21
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    Re: Sights and Sounds: Greek Protests

    Quote Originally Posted by German guy View Post
    As I said, leaving the euro would mean an immediate bankruptcy for Greece the moment the new drachma is on the market.



    Well, then you haven't paid attention.

    Germany

    Germany and France got through this plan for a debt brake. Of the 27 EU countries, 25 have signed it, including those EU members which don't even have the euro currency yet -- the only two countries to stay out are the United Kingdom and the Czech Republic. It was the event shortly before Christmas when there was bruohaha about Britain being isolated in the EU.



    If Greece goes bankrupt and drags others with them, such as Spain and/or Italy and many French and German banks, that would be the worst case. Probably a new banking crisis, this time worse than 2008. And I don't think the effect would be limited to the EU. You'd probably feel the shockwaves in America too.

    Of course, another remaining option would be "eurobonds".

    Eurobonds - Wikipedia, the free encyclopedia

    You in America have the benefit that you have "dollarbonds" already: The entire USA has one single common interest rate for your government bonds. If that wasn't the case, you'd probably be in the same situation as Europe is now, because the bankruptcy of a weak state such as Mississippi or Utah could drag down stronger states such as California and Texas into the abyss, much like Greece threatens to do with the eurozone.

    Eurobonds would result in a single interest rate for government papers, the same in Greece and Germany. That would mean for Greece a much, much lower interest rate than currently without eurobonds, and a higher interest rate for Germany. Basically, it would be a financial transfer from Germany to Greece.

    Many say it was a stupid idea to introduce a common currency on one side, but avoiding to harmonize the government bonds on the other side. It's like wanting to have the cake and eat it too.

    There are not few in Europe who support eurobonds. The French and most less prosperous EU countries did, before "Madame No" Merkel pushed through her debt brake idea. The French Socialists, including their Presidential candidate Francois Hollande, who is likely to win the election and replace Sarkozy in May, still support the idea. So do the German opposition parties.

    I'd say it's not a bad idea. Merkel is playing a risky game. It'd be better if we played it safe now, instead of waiting until it's too late and even eurobonds won't help anymore.


    Fiscal responsibility is good, and I wish we could write a balanced budget amendment in to our constitution here in the United States.

    The problem with Greek austerity measures is that they have not worked to restore confidence in Greece and stabilize the interest Greece owes on its debt:

    greekbonds.jpg

    So the Greek government is not any closer to being able to pay its own way.

    Austerity measures are working much better for the Italians, though, whose bond yeilds have fallen below 6%

    italianbonds.jpg

    For comparison's sake, here is the German bond yield.
    germanbond.jpg

    Germany can borrow money much more inexpensively than the Italians or Greeks, due to the perceived strength of the German economy. Do you really want to tie German bond rates to those of the Italians and Greeks? Germany with 6 or 7% interest payments is in worse shape than Italy.

    I can see why Merkel is unwilling to do this. The Germans risk more, and have much less to gain than the others do.

    I would not allow it, if I were Germany.

    Also, how in the world would a Eurobond be administered? Who decides how many bonds are sold? Who gets the proceeds from the bond sales? I can imagine the fighting. The difference between the United States Treasury selling bonds and some entity of the European Union is that the United States is one government, and Europe is many governments with their own interests.

    Eurobonds would inevitably lead to even more interdependence among Eurozone nations, and a loss of even more national sovereignty for member states.

    I could see an argument being made that pooling bond markets together could decrease borrowing costs for everybody. However, this may only be short term. Inevitably, the stronger nations like Germany would by tying their fate to nations like Spain and Greece. The debt brake is one safeguard, and certainly had to be implemented before a eurobond ever could.

    However, maybe it is my mistrust for politicians, but I don't see all 17 countries abiding by the debt brake for long. If they fail to do this, just consider that one nation such as Greece lying about their budget could have much bigger negative consequences for a nation like Germany under the Eurobond system than it currently does.
    Last edited by Peter Grimm; 02-24-12 at 05:31 AM.

  2. #22
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    Re: Sights and Sounds: Greek Protests

    Quote Originally Posted by Peter Grimm View Post
    I could see an argument being made that pooling bond markets together could decrease borrowing costs for everybody. However, this may only be short term. Inevitably, the stronger nations like Germany would by tying their fate to nations like Spain and Greece. The debt brake is one safeguard, and certainly had to be implemented before a eurobond ever could.

    However, maybe it is my mistrust for politicians, but I don't see all 17 countries abiding by the debt brake for long. If they fail to do this, just consider that one nation such as Greece lying about their budget could have much bigger negative consequences for a nation like Germany under the Eurobond system than it currently does.
    You're certainly right, much about it is uncertain and there is no perfect way out.

    IIRC, somewhere I read, experts estimate a Eurobond interest rate would be more like 3.5%, maximum 4.0%. That would make it much easier for Greece, although it's less comfortable for Germany, of course, than the 2% we currently have.

    But I believe in the European idea. The Greek are Europeans, just like I am. I don't want to give them up. Doesn't mean, of course, Greece should become a bottomless pit we throw more and more money in without effect -- but when there really are reforms and the Greek doing something about it, I'm all for making a few sacrifices here in Germany to help them out.
    "Not learning from mistakes is worse than committing mistakes. When you don't allow yourself to make mistakes, it is hard to be tolerant of others and it does not allow even God to be merciful."

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    Re: Sights and Sounds: Greek Protests

    Quote Originally Posted by Stopandthink View Post
    Years of government spending more than it takes in, people taking a privilege and thinking it is now a right, money runs out, people revolt. O yes, it is coming.
    Living off borrowed money is living off borrowed time. Socialism has caught up with Greece.
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    Re: Sights and Sounds: Greek Protests

    Greece could leave the Euro without going bankrupt. They simply pay back their current debts with Euros and switch over to the Drachma.
    My blog, where I talk latest news on economics and some other issues.

    http://hereticaldruthers.wordpress.com/

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