Monday, June 20, 2011

If Greece Defaults, What Happens to Portugal and Ireland—and Spain?

So it looks like Greece is about to go down the toilet.

What the Eurocrats Think of Greece
Last year, Greece got a bailout—so this year (wouldn’t you know it), they want another.

But it’s looking like France, Germany, Holland and the UK are all balking at the reality of having to save the Greek’s hide once again. Boris Johnson, the flamboyant Mayor of London, openly called for Greece to exit the euro in an op-ed in the Telegraph. Several of the participants in the negotiations are asking for Greece to make deeper austerity cuts first, before getting more bailout money—

—and of course, the Greeks won’t do that: Their population won’t stand for any more austerity measures, as they believe (correctly) that the reason Greece is in the hole it’s in is because rich people shirk their obligation to pay taxes. Also, the Greek people are getting handouts left and right from their government—paid for with deficits and debt.

So no European bailout, no money for Greece to continue funding its government.

So like I said, Greece is about to go down the toilet.

So now that we can, we have to step back, look up, and figure out what’s coming up next on the horizon, once Greece defaults.

The answer is obvious: Portugal, Ireland and Spain are coming up—and coming up fast.

Specifically, Portuguese and Irish debt: As of this writing, the 10-year Greek bond is yielding a staggering 17.34%. But the Irish 10-year bond? Safe as houses, you ask?

No! Irish 10-year debt is yielding 11.54% , while the Portuguese 10-year is at 11.15%.

So regardless of whether or not the Greek situation is somehow fixed and smoothed over with more money—“stabilized”, in that wonderfully bloodless turn of phrase—Ireland and Portugal are soon enough going to be needing another bailout of their own.

Just like Greece, Portugal and Ireland are spending way more than they’re bringing in via taxation. The reasons for this are different, but the result is the same: They both need boatloads of cash. So they have to go out and borrow this cash, in order to pay for their government.

In other words, Portugal and Ireland need relatively cheap debt.

However, what happens if there is an outright Greek default?

Obvious: No one would want to lend money to Ireland and Portugal. Irish and Portuguese debt yields would shoot the moon—easily reaching Greek levels, if not superceding them. (Remember: Debt yields are the inverse of debt price. The lower the price of a bond goes, the higher the yield.)

The reason this would happen is because the debt markets would all be running for cover after a Greek default—rushing to a safe haven, or at least not rushing to buy the “P” and the “I” part of the PIIGS’s debt, after the “G” defaulted.

So if Greece goes down the tubes, Ireland and Portugal would almost immediately need a bailout: They would not be able to borrow on the open markets the money they need in order to continue funding their governments.

That is, if Greece defaults, the Irish and the Portuguese would suddenly find themselves without the money to fund elementary schools, ambulances, sewer systems, power grids, etc.

So! What is the European leadership doing?

Dithering! They are not approving a Greek bailout—and they are not giving a clear signal that Greece will be booted out of the eurozone, but Ireland and Portugal will be protected. In other words, the European finance ministers who are supposed to “stabilize the markets” are creating the conditions of uncertainty in the markets—

—which only hurts Ireland and Portugal.

Now, why is defending (financially speaking) Ireland and Portugla essential?

In a word, Spain.

Spanish 10-year debt is yielding 5.6%—nowhere near as bad as Greece, or Ireland or Portugal, and just a shade over German 10-year of 3.5% or so.

However: Spain is just as bankrupt as Ireland or Portugal or Greece, with a massive 20% unemployment and—unbelievably—a 50% youth-unemployment rate. Why do you think all those Spanish kids are protesting at the Puerta del Sol: They got no place else to go!

And if that massive unemployment wasn’t bad enough, the Spanish banking sector is teetering like Humpty Dumpty before his Great Fall—scratch that: Teetering like a drunk Humpty Dumpty sitting high up on his wall.

So what’s obvious is, if Greece goes, Ireland and Portugal are sure to follow—and if they go, then Spain is next—

—and Spain can’t be saved.

It’s as simple as that. Spain is too big—roughly half the size of Germany. If Spain goes, it will drag down all of the European continent with it—that is, bank failures (on both sides of the pond), a crash of the eurozone as a currency, massive unemployment, a European economy that would grind to a halt—

—basically, the worst parts of the Great Depression.

So you see why Greece matters?

The European leadership have got to quite dicking around! They have got to make up their minds once and for all: Either save Greece, or let it die.

But this prolonged agony—even if at the end of it they save Greece—helps no one, and hurts everyone.

And it brings Ireland and Portugal—and Spain—that much closer to the edge.

At The Strategic Planning Group, I’ve just released a full-scale Scenario discussing what happens if and when Greece and the other PIIGS default and then exit the eurozone. Do check it out here, if you’re interested.

43 comments:

  1. What are you talking about, Ireland nor Portugal do not use capital markets to finance their Ponzi for a while now, do they? They were both bailed out this year, so the bonds only show their value in the secondary market and, thus, rising yields would have no impact on Portuguese and Irish financing costs. This is how I understand the situation, at least

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  2. GL,

    I enjoy reading your website.. While I don’t always agree with your conclusions, I do enjoy /value your perspectives!.Keep up the good work!
    You said :
    “The Greeks won’t do that: Their population won’t stand for any more austerity measures, as they believe (correctly) that the reason Greece is in the hole it’s in is because rich people shirk their obligation to pay taxes. Also, the Greek people are getting handouts left and right from their government—paid for with deficits and debt.”
    I think you only got it half correct.. The simple reality of all this is .. Over bloated, oversized government sector IS THE PROBLEM.. Government NEVER produces anything of value..It is a parasite to the real economy.. Once again we are witnessing ANOTHER failed experiment in a doomed, unsustainable economic theory of the nanny state. Centrally planned, socialistic economic systems are unsustainable. There is no such thing as a free lunch.. never was and never will be.. Taxing the ‘rich’, to redistribute wealth to the ‘poor’ is nothing more than theft from the producing sector of society, by the ruling class.. in order to purchase votes from the ‘masses’..
    As far as the ‘rich’ not paying their fair share is ridiculous (especially here in the USA) A fair tax system , one that taxes consumption (sales tax/VAT)and NOT capital formation and investment(income taxes and capital gains tax), is the only real solution. Minimalistic governments , and NOT the huge larges of centralized power are the only way to encourage sustainable economic growth .

    Vic M

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  3. Jonas I do believe that this is the case. But the original plan for Greece, Ireland and Portugal was to give them a "bridge loan" to get them to 2012 or 2013, by which time they will have sorted their own messes out and would be able to return to the private markets. That's not going to happen. The solution to a problem of debt is not more of it.

    Ultimately those who cannot repay their debt will not repay their debt. The only real question is whether this is an organized default or a replay of the French Revolution. If it's the latter (and it's my guess this will be the case-- I can see the unemployed storming the Parliament building) the peoples of Portugal and possibly Spain will begin protests en masse against the foreign bankers. When these happen, you should be looking to exit whats left of your 401k and hope you can purchase some good ole fashioned Midwest farm land.

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  4. Do you have an idea how much assets has the greek State?

    Why cant greek politicans sell the assets and bring down the public debt?

    Do you really believe that protesters in the streets are the real people?

    Mi amigo, usted tien capacidad para ler en castellano y los periodicos de Espana. Venga, empeze a ler los periodicos de Espana y talvez lo entienda mejor lo que pasa en Europa.

    Una sugerência: http://www.leap2020.eu/GEAB-N-56-Special-Summer-2011-is-available-Global-systemic-crisis-Last-warning-before-the-Autumn-2011-shock-when-15_a6679.html

    Saludos.

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  5. The only thing that is terrifying Greek citizens ... is the prospect that soon everyone will need to roll up their shirt sleeves and get some REAL WORK done !!! It is not possible to run any type of national economy when half the people (or more) in the system are scamming their existence.

    Europe has a unified currency ... but no real way of handling unified debts, or of deciding proper debt restructuring. Why should hard-working German families bail out Greek doctors who own a swimming pool in their backyard but pay no taxes??

    It is likely that the European Union will crumble. And crumble it should.

    PeteCA

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  6. Now Im lookinh that youre selling advice. Nice one. Let me tell you a couple of things about this problem.

    Let me start with your idea that Spain will follow Greece because is in the same conditions of Greece. That isnt true and, no matter what some say, Spain is in better shape than even... USA. Dont be fooled with the unemployment numbers because theyre erroneous.

    Even with a lot of protesters have you check who won the regional elections in Spain? Not the protesters, right?

    But let me talk about another cowntry. Portugal. A few days ago, in 5 juine, portuguese people voted in general elections. After knowing the austeriry measures, portuguese people choose to lead the government the party who said: if we will win we will take more measures and deeply than MFI and EC agreed with the former government. Guess waht. This party won the elections and the two parties who oposed to autesrity measures lost representative seat in national Chamber. amazing, right? The two parties who opposed the agreement with MFI and EC lost seats in the national chmaber.

    In fact what happens in Portugal is simple. Who is against austerity measures to fix the fiscal deficit and public debt looses popularity and political strenght. Even when those elections is coincidental with a deep economic recession as in Portugal.

    And in Spain something happens in the same way. Who is against austeriry measures looses seats in national Chamber and try to use the street to gain what they cant do it by the peoples vote.

    So, maybe it is time to you learn morea about Europe and why almost all europeans governments are in conservative hands. The europeans dont want to have the same problem as americans and british: deeply in debt and without solutions to fix their economic problems.

    We can say, today, the political tide in Europe is very conservative, monetarist and agaisnt more public debt. Thats what anglo-saxonic press doesnt understand and why wall Street banksters try to atack Europe and the euro. However they lost the war even before the first battle.

    I wish good luck to americans and their funy political system. And I wish you, mi amigo Lira, lo mejor en tu negocio pero tiens que estudiar mas y mejor la situacion europea. Mira esto, amigo, al euro solo le queda más un poco para ganar la guerra contra el "peso" verdito. ;) Mira las cotizacions, si?

    Best regards.

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  7. Man, I agree with so much of what GH says, though I can't always see the same outcomes, but the comments above are all off the mark, some right things in a comment do not make your conclusions correct.

    But what pisses me off more than anything is blaming poor people, unemployed people, young people who have no chance at work and life, family, education. Those above who write such rubbish are akin to the Boyars that year after year would simply not accept reality in Russia and their intransigence gave the world it's first communist revolution which sparked many more. Bloody revolution done wrong, worse than the French revolution, tens of millions died because a few masters refused to accept the truth or change.

    What is going on in the EU, though nobody with money or power will admit it is a class war, and it does not help matters that the euro is not a universal legal tender, nor that participation is great when the economy is humming and doing what Germany wants it to do, but is a failure when transfers have to be made because not all economies are German, one size does not fit all.

    Greeks had their share of faults, but they were inducted willingly or not into a bankster conspiracy managed between New York and Frankfurt. Ditto the other PIIGS, Ireland was the Celtic Tiger and for a time had the highest growth rate in the EU as well as highest per capita income, they had virtually no government debt and little external debt, all the debt was bank/real estate related and they would not have had that if markets determined interest rates rather than the Fed and the ECB/IMF. Same with Spain and Portugal. They were handed a financial system that was inappropriate for their circumstances and I for one am really mad that you or anyone would portray them as parasites of leeches, it is the bankers that are the foul bloodsuckers not the good people of Ireland or Greece.

    At this point I say anyone with a net worth under 50,000 dollars should participate in the protests, strike, if force is used against you fight back with more force in numbers. Outlaw deficits, outlaw for profit banks, and I mean really allow them no role other than as a way to clear transactions, no lending, no interest, no profits. If a banker says anything about it let he be the first to climb the gallows steps.

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  8. The problem is the world Banking system is broke.
    Germany U.S.A, Japan remember the 1.5 quadrillion in Derivatives The G.D.P of the world is 60 Trillion, They are in the hole for 1.5 quadrillion. Do the math

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  9. The problem requires draconian cutting of the public sector and the end of overpaid paper shufflers so they have to go out and compete in the private sector. Millions of people employed by government are just receiving a form of social security, and it is not fair on those who hold proper jobs and actually have to work for a living. It is also true that many in Greece do not pay tax. Greece will not be able to admit, let alone achieve, what is necessary, so default is inevitable, and the effect will cascade throughout Europe, and eventually the U.S. The choices then are massive printing of Euros to kick the can down the road, and inevitable hyperinflation; or booting the recalcitrants out of the Euro, and then the remaining countries reforming their socialist systems. The choice seems clear, but will take many years to unfold. The world landscape will be a very different place 10 years from now.

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  10. The euro situation is indeed a conundrum. An even bigger conundrum is the dollar situation.

    Last week for the first time a western debt rating agency downgraded its rating of US debt. This incredibly significant move is not being reported in the American press, even the financial press.

    The CEO of the German rating agency Bad Homburg Feri EuroRating & Research AG stated - "The U.S. government has fought the effects of the financial market crisis primarily by an increase in government debt. We do not see that there is sufficient attention being paid to other measures...We would reconsider the rating when the U.S. government creates a long-term sustainable budget."

    America's chickens are coming home to roost. The pile of guano will grow very fast. I have my shit kickers on.

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  11. Greece is in ''hole'' because of FRAUD by Greek PM George Papandreou the traitor who conspired with Goldman Sachs(JEWS) to rape Greece of it riches, don't think for one second that this ''debt'' is all on greece, 90 percent of it is FRAUD, just like ICELAND when they told IMF(JEWS) to Fak off they opened the books and found the same thing, FRAUD!!! Get all facts before you spew out your disinfo, IF you're a real journalist write all facts!!!!!

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  12. Yes I do agree with all of the "above"
    But I just learn that China is diversifying their dollars and buying european-debts.

    Not long ago i read China will be buying Spain's debt.

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  13. GL. Good stuff. I wish you were updating your site as often as you used to. The Greeks aren't any lazier than anybody else. Predatory capitalism has failed. We're all going to be in the same boat with the Greeks. They are just a little ahead of everybody else.

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  14. Europe will collapse, both politically and economically; and it will not take long. There is no answer to this issue other than to allow member states to go back to being individual nations with their own currencies.
    To say that no country can withdraw from the eurozone is a myth. A country can....if it wants to....do exactly what it likes and stick two fingers up to Brussels. The European Union is a beast, trying to bind everyone together like Tolkien's Ringwraiths. It is a scheme that is bound to fail, since the diversity of Nature (which includes all Man's activities) cannot be compressed into a homogenous blob.

    As for the Chinese; my parents said fifty years ago that one day the Chinese would over-run the world. Well, they're making a good start in America and, unless people stop them, that country will be communist before five years have passed. There is no time to lose.

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  15. So its the governments that are to blame and the people who work for them. Say, if you don't like governments move to Somalia or Haiti, I hear there is not a lot of government there. The governments are to blame, but for being taken over by the banks. When was that last time the US passed a law that benefited just the working man. The last time the elected officials wrote a bill, passed the bill in both the house and senate and was signed into law that only benefited working people was over 40 years ago if not longer. Governments have been taken over by special interest, by money, by the banks and by corporate greed. Don't be bitching about people getting free hand outs when banks and corporations are getting the hand outs 1,000 and millions of times more then the people. There is no such thing as free markets. Talk first about ending the monopolies, ending the bail outs. Let them fail if they can not compete.

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  16. GL,

    The problem is that Greece is bankrupt, will never be able to repay its debt anf probably will have extreme difficulty in making interest payments.

    Next, who is bailing out Greece? Countries that could need a bailout for the most part. Let's take France for a minute: officially its sovereign debt is already beyond 80% of GDP, and that does not comprehend off balance items and future liabilities. Its total domestic debt is equal to 325% of GDP. And they should be bailing out Greece? This is a joke!
    For 20 years, I have been repeating that GDP growth through debt was unsustainable in Europe, that reforms to the pension system and social security should be an absolute priority. For France, I, even, remember talking to French businessmen and telling them that in 1995 (Chirac's first presidential successful bid) it was france's last chance to fix these problems. I was laughed at. I heard that France could never go bankrupt! By the way, these people still don't believe me.
    Greece, Ireland, Portugal, Spain, Italy and France... They will all go bankrupt because none of them want to face the naked truth. They have lived far beyond their means for decades. They thought that growth through spending and consumption was a legitimate way of becoming richer (i.e. see GDP breakdown).
    Well the jigg is up. I don't know how long it will take for them to go officially bankrupt (Hyperinflation is a form of bankruptcy, namely the currency's), but they will inevitably.
    Who will suffer? Allways the same modest people!

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  17. As yesterday, as asked this:

    "Do you have an idea how much assets has the greek State?

    Why cant greek politicans sell the assets and bring down the public debt?"

    Of course nobody in the anglo-saxonic world wants to hear this: a lot of greek state assets could be sold to lower the public debt.

    However what is annoying is the ignorance of the guys who talk about Greece and pretende to know about Greece and theyre ignorant. Like this last one:

    "The problem is that Greece is bankrupt, will never be able to repay its debt anf probably will have extreme difficulty in making interest payments."

    No, Greece isnt bankrupt. Greece has an communist economy who refuses to change the economic model. A lot of greek politicans refuse to live in an open and free market.

    And those people who are ignorant cant blame that information is hide:

    "Greek officials are getting the message that any new deal would mean the slow pace of selling government property and other assets would need to pick up. The government is unhappy with suggestions that the privatization process be put under external management.

    "We are resisting this along with proposals that some assets should be 100% privatized," the official said.

    While the government has targeted €50 billion in sales of state assets by 2015—mainly by exploiting state property holdings—the process has been impeded by labor protests, a raft of legal issues and opposition inside Prime Minister George Papandreou's own government.

    The government says that by the end of this year, it hopes to raise between €2 billion and €4 billion from its first privatizations. These would include the listing of a first portfolio of real-estate holdings.

    The government also plans to reduce its 20% stake in former telephone monopoly Hellenic Telecommunications SA this year, and sell a 17% stake in incumbent power company Public Power Corp. SA next year.

    Other privatizations or stake sales involve gambling monopoly OPAP SA, natural gas monopoly DEPA SA and companies ranging from state-owned casinos to local waterworks companies.

    But there have been divisions within the Greek cabinet, including a public spat between Finance Minister George Papaconstantinou and Energy Minister Tina Birbili over whether the state would continue to control 51% of Public Power Corp., which has a virtual monopoly on electric power generation and distribution.

    Where the finance minister wants to privatize the big utility, Ms. Birbili wants to retain state control as an asset of national importance, and to keep power bills down.

    Also resisting the move is PPC's powerful labor union, Genop, which has warned it will stage rolling 48-hour strikes if the government proceeds with further privatizing the monopoly."

    WSJ ( http://online.wsj.com/article/SB10001424052748703509104576327123377297888.html )

    So if the anglo-saxonic ignorants pretend to talk about the bankrupty they should first study a little. maybe those ignorants should come to Europe to learn in our schools. Theyre much better than americans, as the Siemens CEO teached us last days.

    Perhaps in an european school they could learn how can Greece pay his debt selling the public assets and atract investors. And they could learn the difference beetween a crisis of liquidity and one bankruptcy.

    Best Regards

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  18. This is an eye popping article about bailing out European banks with QE2 printed dollars. This Keynesian experiment has to stop.

    http://lonerangersilver.wordpress.com/2011/06/14/exclusive-the-feds-600-billion-stealth-bailout-of-foreign-banks-continues-at-the-expense-of-the-domestic-economy-or-explaining-where-all-the-qe2-money-went/

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  19. Hey Gonzalo, there's an acronym that refers to the PIIGS which precisely predicts the order in which they will default:
    GIPSY

    Greece
    Ireland
    Portugal
    Spain
    ItalY

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  20. Greece will need to restructure this is a no brainer! However, unlike the US, Greece is not printing money and buying its own bonds. Neither is Spain or Italy
    Europe as whole is not in good position but still in a better position than the US. First, just look at the EUR/USD it is trading at 1.4300 against a low of 0.8000 and a high of 1.6000. Therefore, I would say that the EUR is close to its high against the USD. When reading you Blog, I would tend to think it should trade close to the low. Then, just put in perspective the US deficit. FY2011, is projected with a deficit of $1.5T, interest paid on the debt will be close to 400B. If you deduct, interest you still have a deficit of 1.1T. Just think that Italy has a primary surplus (without the cost of debt) the US is still deep in red by $1.1T. In addition, the US will not benefit anymore of Social security since they are going to give out more than they will receive in the next year.
    Collection of corporate Taxes in the USD is expected to give the US around $130b. So even if you tax corporate America at 100% you still have a deficit in the US. You can add, that in the US we are just speaking about federal government not about states or municipalities and the all the rest) Europe has not federal deficit.
    However, the US has no choice and will continue to print money and the value of the dollar will continue to erode. The US dollar has already lost 97% of its value against gold and 80% of its value against the Swiss Franc in the last 40 years and guess what there is no sign it is to reverse anytime soon.

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  21. There will be NO Default THIS YEAR. Lok at this: http://alerta-financiera.blogspot.com/2011/06/falta-mucho-para-el-pinchazo-de-la.html

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  22. hey Dani

    what is that you are sitting on?

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  23. thanks gl for making it easy to understand, even for a knucklehead like me.

    USA, the PIIGS, Europe...everyone takes the path of least resistance...if the government gives me the money, why should I work? why should I show initiative? Why should I even try?

    However, once you've signed on to this mentality, you're hooked on the line unable to wiggle off. You're used to it unable to resist the lure of "we'll take care of you" disapates your resistance and common sense.

    Quite clever don't you think? Choice has consequences but the masses ignore that as it may be to ugly to contemplate. Evil is easy...just give them a choice.

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  24. The ONLY way to overcome the problem is to say F-you to the banksters.
    We can do that here in the US before we turn into greece by convincing the masses to buy physical gold and silver.
    The Silver Viral Project if successful would be the biggest FU the banksters have ever received!

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  25. It's not a question of if, but when they all fail. Can kicking is getting more
    expensive per kick. The EU is just buying time to prepare for defaults but
    there's not a whole lot they can do. Derivatives compound the problems
    they face and no one seems able to offer real solutions. There doesn't
    appear to be a consensus in the forecast of possible outcomes although
    they all share a bleak theme. My advice to investors would be to hold a
    large cash position.

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  26. Not too long ago a huge country had an economy shrinking each year at 5-6%. This rate of shrinkage is unsustainable politically and economically. So that country's system - the Soviet Union's - collapsed. The austerities imposed on the EU countries will also lead to political collapse. Even if people at first vote for these austerities.

    What's the real problem in the EU? It starts with a consensus among the big banks, their managers and bondholders, and their governments that the big European banks cannot possibly succeed in a free market system. Why not? Because their incompetent managers - extremely well compensated - make foolish loans and buy dodgy derivatives. Therefore the big banks must be kept operating - despite being insolvent - through government action. One way governments have acted to shield the incompetent banks from market discipline is for the EU to bully certain governments into paying the huge debts of their private sector banks.

    Take Ireland, for instance. German, British, Dutch and French banks made foolish loans to Irish banks, which proceeded to use all that money to create a real estate bubble and crash. Then the Irish government, patted on the head by Berlin and Washington, agreed to pay all those private bank loans back.

    Thus the so-called Irish bailout is really a bailout for European banks. The Irish governments borrows at a high interest rate, adds some of its tax revenues, and sends the money to the European banks. Meanwhile the Irish economy shrinks. But the incompetent banks are kept alive and their bondholders and managers suffer no austerities, but in fact rake in huge revenues (despite being insolvent). What wonderful union the EU has turned out to be. Bah!

    If Ireland, Spain, Portugal and Greece had their own currencies they could devalue those currencies. This step would enable them to confine the spending of their citizens to their domestic markets, attract tourists, attract businesses and export more, all these effects leading to the growth of their economies and job growth.

    If the EU were to act rationally and fairly it would devalue the Euro. But Germany does not want the Euro devalued because it gets top prices for its highly engineered exports and the Euro devaluation would reduce its revenues. And the German bank loans would be paid off with cheap money, cutting into their revenues. In effect Germany wants its banks paid off and the Euro kept strong even at the cost of wrecking the economies of the EU's peripheral countries. Germany, in collaboration with France, has reduced those peripheral countries to colonies.

    Sad sad Europe. Let's rename the EU Bankistan.

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  27. Whats the Silver Viral Project?

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  28. To the person who quoted me as an anglosaxon ingnorant!

    First, I am Greek.

    Second, I maintain that Greec is bankrupt and will never be able to pay its debt back and will be in great difficulty making interest payments.

    I will refer to Nouriel Roubini's work on PIIgs debt ( you can find a good summary on John Maulduin' weekly letter: http://www.johnmauldin.com/frontlinethoughts/could-the-eurozone-break-up ).

    As for the asset sale worth 50 billion USD. Who made the estimate? The Greeks and the IMF! We know how accurate these estimates are. Still, the actual debt is already 130% of GDP (360 billion USD ca.). So 50 billion will barely make a dent. Moreover, how long will it take to sell all this property? 1 year, 2 years... By then the debt will be close to 160% of GDP.

    We, Greeks, have to come to the painful realization that we our governments (right and left) have mismanaged the economy and that we have not acted very civically either by cheating on our tax declarations. There is a price to pay for all this nonsense and unfortunately, it will be dear politically and socially.

    But if we want to get out of this mess as quickly as possible. We need to get out of the Euro, liquidate our debt and start from a clean slate. If not, we will drag this debt for a long time and the political and social consequences could be devastating. Yes, I understand it might mean to get out of the EU and it pains to think that we would have to abandon (for a while hopefully) this project. But, if we continue to cling on to the status quo which is what the ECB and the Eurozone members want us to do, we will need at least 10 to 15 years at least to get out of this mess.

    One last thing. Greece has a total debt close to 305% of GDP. The world record for a country getting out of its debt was England with 260% of GDP from 1820 to 1900. It took massive government spending cuts and the Industrial Revolution...

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  29. If youre Greek, Im chinese.

    "As for the asset sale worth 50 billion USD. Who made the estimate? The Greeks and the IMF! We know how accurate these estimates are. Still, the actual debt is already 130% of GDP (360 billion USD ca.). So 50 billion will barely make a dent."

    The plan is selling only a few public assets. You can allways sell mthe Parthenon, right?

    According some estimates, in land, greek state has like 270 billons of dollars in inventory. Sell half and keep Parthenon.

    "But if we want to get out of this mess as quickly as possible. We need to get out of the Euro, liquidate our debt and start from a clean slate."

    Its a choice. But you really know what will cost you and the people to afford a new currency?

    let me tell you some couple of things. Maybe someone didnt teach you as they should. (Did you graduate in USA? lol)

    First of all, no matter what kind of devalutaion in a new currency regime your fiscal deficit will rise because in a new currency the private demand will colapse. So, new currency more old problems. Without money from private demand (as VAT) more fiscal deficit.

    Secondly, no matter what level of new debt the interest rates charged to Greeks (privatae and State) will costly a few hundrdes pints above what youre paying now to "troika". So your exports will suffer because you will not be able to increase potential GDP.

    Thirdly, leaving the Euro will make you out of UE because others will not acept Greece anymore and they will increase proteccionist measutes to make you feel the pinch. But if even you acpet to pay the current debt the increase in interest rates will put Greece in deep hole like a hell.

    No matter what you think. If youre really Greek (of course yourent because youre very ignorant and greeks arent like that) you should study very careful what youre options are. But let me teach you another thing. When someone makes a default unless as an agreemet with creditors will allways loose because the new interests rates charged. The problem is allways the same: how much costs to have more money in the future. And Greece outside the euro never, I repeat, never will be capable to generate fiscal surplus even without taking interests in account. Who believe the opposite is dumb.

    But, let me tell you this too. Ig Greece get out of the euro it will teach to others countries one great lesson: nobody gaisn when cheats others.

    If you are Greek, Im so sorry of greek people with these kind od opinion makers. But as I have in high esteem greek people, I maintain that youre an ignorant american.

    Cheers.

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  30. GL, that was an excellent synopsis of the EU situation but it doesn't cover other alternatives.

    What if Greece leaves the EuroZone, goes back to the Drachma, converts its debt from Euros to new Drachmas at 1:1, and then devalue the shit out of the new Drachma, giving the bondholders a hell of a scalping?

    Remember that EU membership and EuroZone membership are not the same. The UK is in the EU but not a part of the Eurozone and there is still the European Council, which Switzerland is a member of without being even in the EU.

    Greece can drop out of the Eurozone, move back to the Drachma, and still retain EU membership. They will still be on the EC as well, that's a separate thing.

    None of that will be good for the banks, which is why the motivation for bailouts.

    ReplyDelete
  31. Why don't PIIGS join forces together?
    What if... «Why Germany must exit the euro?» http://www.telegraph.co.uk/finance/financialcrisis/8584064/Why-Germany-must-exit-the-euro.html#dsq-content

    Btw, «Egypt declines World Bank loan as incompatible with national interest» http://www.almasryalyoum.com/en/node/469888

    United we stand, divided we fall.

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  32. PIIGS see «the idea» here: The great EU debt write off http://www.eudebtwriteoff.com/

    ReplyDelete
  33. Hi Slamlander

    This is an idea:

    "What if Greece leaves the EuroZone, goes back to the Drachma, converts its debt from Euros to new Drachmas at 1:1, and then devalue the shit out of the new Drachma, giving the bondholders a hell of a scalping?"

    Ok. What Greece will gain in this operation? (Cant do that but is your scenario.)

    Seems to me that you all think like politicians not like financiers.

    Ok. Greece does a default leting the New Drachma fall. Maybe 50% like Iceland. And gives pain to bankers. (Not only bankers but I got the idea.) And cut half his public debt to 75% of his GDP. Its a good idea?

    So what will happen to fiscal defict after the devaluation? It will rise because the colapse in private demand. (Just in crude oil this is a great pain not only to businesses but to families.) When you devaluate the Drachma the inflation rises and the cost of living rises (and standard of living falls), the private demand falls, lowering taxes collected.

    At the same time when this private demand colapses the unemployment rises, the bankrupticies rises so much and more costs to public tresor.

    So what will happen to fiscal deficit? It will rise, again, and maybe the fiscal deficit will be 15% or 20% of Greece GDP.

    Wait. Isnt all. Because the default the cost of new interests charged to Greece will be, more or less, 12/15%. (Like in others countries who made this aproach.) But wait. Not only this new level of interestes charged will afect the Greek State as businesses and families. Wich will collapse more the greek internal demand.

    So, let just to put in plain and simple, in the new scenario after one year:

    Public Debt/ GDP = 75%

    Fiscal deficit/ GDP = 15%

    Interests charged / GDP = 9%

    After one year, 99% of public debt of Greek GDP. (Even we dont take the fall in GDP because the internal demand collapses.)

    In year two... 134% public debt / GDP.

    In year Three 162% public debt of GDP.

    Nice one, my friend. Youre a very good financier. lol


    And another more thing. Do you believe that europeans will let Greek default after cheating and leaving the euro plus stay smiling in EU? Do you really believe in your fairy tale? Come on, come to Earth and start living in the real world, ok?

    Cheers.

    PS Poor USA with those great economists and financiers. lol

    ReplyDelete
  34. Maybe some people should read this article and the comments. Especialy one swedish lady called Anna:

    http://roarmag.org/2011/06/greek-debt-crisis-international-media/

    No matter who is right. What we should learn is this. Greeke people is suffering a lot and cant show to others europeans that deserve more help. That is the real problem.

    And the anglo-saxonic world, who even cant solve their own problems (look the american and british figures) wants to teach Greeks and others europeans to solve their problems. What a bunch of hipocrisy. Thats why USA and UK will loose their europeans allies and we will see the divorce beetween USA and Europe very soon.

    Buu Its ok. Maybe USA will learn soon to be more cautious about thinks and says to others. His hegemony is finish and we will see that pretty soon. It will be sad.

    Anglo-saxon way of life: RIP.

    Best regards.

    PS And its wonderful seeing the british Prime-Minister puting more gasoline in the fire. We will see how much time will UK stay in EU. Not much more time. But its very sad seeing the british "solidarity" with greeks. Its the same as USA with Greeks. Only hipocrisy and a bunch of idiots.

    ReplyDelete
  35. For those who have doubts wich way is the best to help Greece is telling the truth and not lying to them or ourselves.

    We can read these two papers:

    http://www.clevelandfed.org/research/POLICYDIS/pdp21.pdf

    http://ec.europa.eu/economy_finance/publications/publication14098_en.pdf

    And to try to learn with the past of Sweden.

    The financial crisis in Sweden teach us one thing: devaluation doesnt work because the financial crisis is one face of the coin. The other is lack of sound economic policies. In the same way, Greece leaves now the same problem. Has a fiancial crises and one failed economic model.

    So, what IMF, the ECB and EC are doing is the best to Greece.

    Greece must to improve his financial system with help from outside (The Troika) and inject money to improve their equitie.

    Greece must cut public spending and reform his economy to one more open, free and competitive one.

    Greece must sell public assets, not only to atract investors, but to lower public debt and improve his productivity through free competition inside their domestic market.

    This is the solution.

    As others countries are forbidden to give free money to Greece, all new funds should pay interests. To gain time until economic reforms starts making economic progress.

    Meanwhile, selling public assets, improves productivity, give more competitive advantage to Greece economy. Also lowers public debt.

    After measures established fiscal balance should be positive before interests. This is the first lesson of Sweden. Generate fiscal surprlus before interests and wait until markets realise that Greek Public Authorities are honorable and able to maitain public policies to pay their debt.

    As Public debt will be reduce with selling public assets and with time that loans from Troika gives, Public debt will start falling and an open window will be open by financial markets.

    Of course isnt easy and nobody can say that markets will believe in Greek authorities. Thats why is very important governemnt and opposition understand this is the only way to flee the iliquidity trap.

    If Greece defaults, the interests charged in the future will allways make impossible to stop their crisis.

    Doesnt matter what are the ideal solutions, only feasible and credible solutions will work. It will be hard, it will cost a lot of pain, but the others solutions arent really sollutions. Are only fictional desires. The case of Sweden teached this to europeans.

    So, for Greece the best way, even hard, costly and ppainful is that The troika designed to them. The others are only ilusion and who says the oposite should explain a good plan to convince greeks and the markets that their solution works.

    The baltics states, hungary, and so on showed us that this measures can work in the €urosystem. So lets talk less and work more to fix their Greeks problems. (And the others euro-members too.)

    just another thing. Even with hard measures, Greek exports are growing 33% year by year and Greek economy looks in better shape and starts growing. (As Ireland.) So, its possible to Greece fix their problems and use the money from their europartners too change economic model and build a better and sound economy.

    Cheers.

    ReplyDelete
  36. During the game, your blog, I am inclined to think that it should address near the bottom. Then just put in perspective the need to restructure U.S. deficit.will is not an exact science! However, unlike the United States, Greece is not printing money and buying their own obligations.

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  37. I don't know much...All I know is that one hundred thousand indignados in Sol square don't represent me....One month ago, 22 million spaniards voted in municipal election ....And the PSOE lost.....1% percent of thet number camping out and peeing in the street, led by a lame duck and terrorist lover lefty politicians do not represent Spain....Thst a bunch of hippes that never worked anyway...we may not be too bright or fashionable, but we have strong will, a hand for agriculture, new railways, great infrastructure, and great places for tourism & great opportunities for investment in renewables and science.We are not Portugal, nor Greece, nor Ireland, neither in size nor in output and economic potential....and we will not fail...Gonzalo, if you just cant see that I guess Pinochet messed you up real good.Or you work for JPM. Chileans and argentinians that come over here, they never wanna leave.....Even with the crisis..There's gotta be a reason for that...The same happens to the Brits...
    Gracias a Dios que existe Webster Tarpley, Germany and France....death to Rodriguez Zapatero

    ReplyDelete
  38. What europeans can learn with US, and the anglo-saxonic ideology?

    Avoid their mistakes:

    http://www.theburningplatform.com/?p=16575

    When I read some americans and british opinion makers I allways think: are those guys smart enouph to pretend be more inteligent that the rest of the world? When I read some americans and british trying to teach the others barbarians, like in the Old Rome, as they must live, fix their problems and so on but the New Rome is rotten... I feel allways the same: what a bunch of idiots or hipocrits.

    Cheers.

    ReplyDelete
  39. When the Euro countries got together to create this currency, didn't they discuss what would happen if a particular country did what the PIIGS have done? Why are they now trying to figure out what to do?

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  40. Most of you here dont know what are talking about.

    I am from Greece and i know better whats going on here then lot of you.

    Greece problem is the rich people all over the world that speculating against greece so the will give loans to greece much more expensive that they should. And some of them that wont greece to default so they could get the money form CDS'S.

    Another huge problem is Germany, 70 percent of the money that Greek people Spends goes to German multinational companies, most of the money that greece spends on military equipment goes to germany (70%). German Companies like Siemens paid greek corupted polititians money under the table to persuade the Goverment to buy broken infastracture for airports, roads, olympic stadiums, etc. for much more money that actually cost. Germany make a deal with o Corrupted Goverment official( who is now under trial ) to buy faulty submarines. Greece is the only country in the world that didnt take the money that Germany owes to Greece for the damages that Germany did to Greece during the secont world war, if Greece demanded these money Germany economy would colapse.

    If Europe leaders wanted Greece to get out of the crisis they would simply lent money to greece with lower intrest and give to greece the time (up to 15 years) to repay the dept. Greek people want justice, they want the corupted goverment to go to jail, also they dont want to steal the money from the rest of the europian countries they just want more time to repay their debt with lower intrest.

    From Greece!

    Sorry for my not good english

    ReplyDelete
  41. i do not like your picture of the Greece flag as toilet paper. Shame!

    ReplyDelete

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