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Thread: Some articles about the European debt crisis

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    It's painful enough to see unnecessary, counterproductive austerity measures here in the US. But at least we've got our own currency and the Federal Reserve to keep us relatively stable (nevermind that we don't have a real debt crisis). Nations such as Greece, Spain and Italy have no such luxury. As Krugman says, it's a contagion that will only spread as the ECB sits on it's hands, listening to a bunch of politicians who don't know their elbow from their asshole when it comes to economics. And Blejer makes an excellent case for Greece to default, too bad no one is listening. Their position is unsustainable.
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    Quote Originally Posted by tigger View Post
    It's painful enough to see unnecessary, counterproductive austerity measures here in the US. But at least we've got our own currency and the Federal Reserve to keep us relatively stable (nevermind that we don't have a real debt crisis). Nations such as Greece, Spain and Italy have no such luxury.
    In January Greek v US debt was:
    –Debt-To-GDP Ratio: 152.3% vs. 99.5%

    These are the gross debt-to-GDP ratios projected for the end of 2011 by the International Monetary Fund. The ratio includes all state and local government debt. By 2016, Greece’s debt-to-GDP ratio is predicted to be 145.5% compared with 111.9% for the U.S.
    http://blogs.wsj.com/economics/2011/...en-comparable/

    Debt-To-GDP Ratio of near a 100% is really brutal

    CNBC Geitner interview before EU Finance meeting:
    http://www.cnbc.com/id/44487020/CNBC...H_AT_8_30AM_ET
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    This interview is about employment and housing, but Buffett mentions the debt crisis. Watch from 7:22 onwards and you will see Buffett talking about printing money. Yes, printing money can cause inflation and lead to civil unrest. No, the United States need not worry about default (unless, of course, Congress decides to do something which could possibly spark a revolutionary uprising, by refusing to raise the debt ceiling.)


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    Quote Originally Posted by jack_christie View Post
    Debt-To-GDP Ratio of near a 100% is really brutal
    It's high but plenty manageable for a nation with its own currency and central bank. And it's nowhere near the burden that 150% is on Greece. As that WSJ article basically sums up, comparing the US and Greece is apples and oranges. The GOP and others are just using the situation in Greece and other nations as an excuse to push their agenda of slashing social programs and taxes here in the US. Same story in Europe and the UK. Such measures stifle economic recovery and won't do a thing to prevent the economy from taking a dive again.

    Quote Originally Posted by Mr. Nice View Post
    This interview is about employment and housing, but Buffett mentions the debt crisis. Watch from 7:22 onwards and you will see Buffett talking about printing money. Yes, printing money can cause inflation and lead to civil unrest. No, the United States need not worry about default (unless, of course, Congress decides to do something which could possibly spark a revolutionary uprising, by refusing to raise the debt ceiling.)
    It's more than just printing money, but that's an easy way to sum it up. We've got a much better chance of defaulting due to GOP intransigence than we do of having a problem with inflation. If anything higher inflation would actually help us right now, because people and businesses are simply hoarding money. Make the dollar less attractive to hold onto and people spend more of it. That will boost demand and get businesses hiring. Bernanke's been trying to increase the money supply a bit, while promising to keep higher inflation targets through next year, but you can only do so much with monetary policy in a recession like this.
    Last edited by tigger; September 21st, 2011 at 4:00 AM.
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    Yes let's listen to this man, and plunge Europe into a looting and pillage spree like Argentina did in 2001. That was really well handled.
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    We (Ukania) should join the EURO now be a smart move, you know like when we sold 1/2 our gold off at historically low levels a few years ago and bought EUROs with the value - wait, what?

    http://www.timesonline.co.uk/tol/new...cle1654931.ece
    Last edited by Cobol74; September 21st, 2011 at 8:18 AM.
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    Quote Originally Posted by mpicco View Post
    Yes let's listen to this man, and plunge Europe into a looting and pillage spree like Argentina did in 2001. That was really well handled.
    The reason he says this is because Greece has a very high chance of defaulting right now. I may be wrong but, it is likely that the ECB, EFSF and political leaders are merely delaying the inevitable.

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    AiR
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    Greece will default, it's just a matter of how. An orderly default would be better than a disorderly one. Default is not uncommon, it happens on a regular basis. Greece is in luck as it will have neighbours who will continue to lend money after a reconstruction. Here's a chart of countries who have defaulted in the past.



    Last edited by AiR; September 22nd, 2011 at 7:34 PM.
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    Mr. Nice's Avatar
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    From reading all of these articles, (and a few more which I forgot to post) it looks like there are six countries which may default in this hypothetical order:

    Greece
    Cyprus
    Portugal
    Ireland
    Spain
    Italy

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    Quote Originally Posted by mpicco View Post
    Yes let's listen to this man, and plunge Europe into a looting and pillage spree like Argentina did in 2001. That was really well handled.
    Don't be ridiculous. Forcing Greece to continue to shoulder an unmanageable amount of debt and the brutal austerity it requires will lead to more civil unrest. In Greece. And it will continue to drag the Eurozone down, spreading confidence crises from nation to nation (as it already is). As AiR said, the sooner they default the better. Combine that with the ECB getting their shit together and doing what's needed to support other nations that are starting down that path and things will be alright.

    But that doesn't seem to be the way things will play out, thanks to politicians and bureaucrats too pigheaded to admit that they've been steering things in the wrong direction for 2-3 years now.

    Quote Originally Posted by Mr. Nice View Post
    From reading all of these articles, (and a few more which I forgot to post) it looks like there are six countries which may default in this hypothetical order:

    Greece
    Cyprus
    Portugal
    Ireland
    Spain
    Italy
    And it's entirely within the ECB's power to head off problems in most of those nations. But they lack the political will to do so. Too many people worried about their jobs instead of doing the right thing.
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    The soloution??

    • First, Europe’s banks would have to be recapitalised with many tens of billions of euros
    • The second leg of the plan is to bolster the EFSF. Economists have estimated it would need about Eu2 trillion of firepower
    • As quid pro quo for an enhanced bail-out, the Germans are understood to be demanding a managed default by Greece but for the country to remain within the eurozone. ... private sector creditors would bear a loss of as much as 50pc
    http://www.telegraph.co.uk/finance/f...-prepared.html

    The Greek haircut looks too small, maybe 70 or 80% would be better?
    Last edited by jack_christie; September 24th, 2011 at 8:31 PM.
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    I just can't understand how, with so many examples in history of these defaults and the problems they bring, we still use the same financial system. Can't we come up with something better?
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    How could Greece remain in the eurozone if they have a structured default? With the common currency of the Euro, how would they do anything but become a permanently impoverished nation? As far as I can see, if they don't leave the eurozone, the Greek economy will never regain stability.

    Euro Zone Death Trip
    Last edited by Mr. Nice; September 26th, 2011 at 3:24 PM.

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    Quote Originally Posted by jack_christie View Post
    The soloution??



    http://www.telegraph.co.uk/finance/f...-prepared.html

    The Greek haircut looks too small, maybe 70 or 80% would be better?
    It's still more than double what they were originally calling for. The G20 plan sounds like a huge step in the right direction, especially the bolstering of the EFSF. But without expansionary policy in stronger eurozone economies the 'peripheral' nations will still be fighting an uphill battle.

    Quote Originally Posted by mpicco View Post
    I just can't understand how, with so many examples in history of these defaults and the problems they bring, we still use the same financial system. Can't we come up with something better?
    At least things are, overall, better than they used to be. It would be a lot better if politicians were able to admit when they were wrong. Or admit they didn't know how to handle a problem and leave it to experts.

    Quote Originally Posted by Mr. Nice View Post
    How could Greece remain in the eurozone if they have a structured default? With the common currency of the Euro, how would they do anything but become a permanently impoverished nation? As far as I can see, if they don't leave the eurozone, the Greek economy will never regain stability.

    Euro Zone Death Trip
    Shedding their debt burden will actually keep them from becoming a permanently impoverished nation. It's effectively a reset on the nations finances. And staying in the eurozone should help them recover faster, since it makes trade and securing loans much easier for them. Greece will still have to deal with the pressure of deflation, but without so much debt they should at least become stable if not grow modestly. Once the central economies pick back up (and inflation gets back up to 3-4%) Greece will be fine.
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    A major problem in Greece is corruption at the moment, and in Portugal to a lesser extent as well. I hate to say it but both these nations need neutral outside experts that can be objective, controlling the budgets and the usage of the rescue money.

    Living in Portugal I can say there are excesses of such ridiculous nature, like former presidents getting assistants, secretaries, choffeurs, cars, all paid by the state; tons of 'public institutes' that do nothing at all yet have administrators and workers in their payroll (which in turn don't even work there but have it as a second source of income, normally tied to someone in the government cos they're relatives or friends); city officials being paid 200 € just to show up to town hall meetings in cities and 75 € in smaller towns; political parties being funded by public money; Luxury cars (talking about S classes or BMW 7 series) for many not-so-important government officials including 20h/day drivers for them; Hospitals having more administrators than doctors; etc., etc..

    I saw a report that in Greece similar things are happening such as if a government worker dies and he has single daughters, those daughters are entitled to 1000€/month for the rest of their lives. Also high paying retirements for high-risk jobs such as, wait for it.... hair dresser.

    Pumping money into the countries without a firm slap on the wrist won't do anything at all but to make it all happen again in a number of years.

    I'm also looking at those sovereign default timelines... Germany defaulted just as they were about to invade Poland?
    Interesting
    Last edited by mpicco; September 26th, 2011 at 4:33 PM.
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    Quote Originally Posted by mpicco View Post
    A major problem in Greece is corruption at the moment, and in Portugal to a lesser extent as well. I hate to say it but both these nations need neutral outside experts that can be objective, controlling the budgets and the usage of the rescue money.
    Corruption, while relatively high in Greece, is not the reason they're in so much debt. Not remotely. A structured default will probably mean guarantees from the ECB/EFSF, other nations, etc to keep Greece stable. And you can bet that all those players will want to make sure that there is neutral oversight on the deal.

    Quote Originally Posted by mpicco View Post
    Pumping money into the countries without a firm slap on the wrist won't do anything at all but to make it all happen again in a number of years.
    We're not talking about a "firm slap on the wrist" here. We're talking about crushing the Greek economy for a decade and quite possibly dragging the euro down with it. All these politicians talking tough about punishing Greece are unable (or unwilling) to see the big picture.
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    I'm not talking about applying sanctions to the actual country full of common people but the corrupt class who's running it.
    I agree Greece should start their orderly default while shit hasn't really hit the fan yet, cos trying to do it after the people have lost their temper, see Argentina 2001, is much worse off.
    I was just saying that after the smoke has cleared, the greek (and Portuguese, Irish, and others, even the whole world) way of working has to be changed and restructured to keep it from happening again in the near future.

    I do not agree however with Greece leaving the Eurozone, going back to the drachma or whatever new coin would be extremely low valued and then their new loans would be very hard to pay yet again, how long till they default one more time?
    Last edited by mpicco; September 26th, 2011 at 5:21 PM.
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    Quote Originally Posted by mpicco View Post
    I'm not talking about applying sanctions to the actual country full of common people but the corrupt class who's running it.
    I agree Greece should start their orderly default while shit hasn't really hit the fan yet, cos trying to do it after the people have lost their temper, see Argentina 2001, is much worse off.
    I was just saying that after the smoke has cleared, the greek (and Portuguese, Irish, and others, even the whole world) way of working has to be changed and restructured to keep it from happening again in the near future.
    Ah, gotcha. Honestly I don't think the system itself needs drastic change (maybe I just can't think of anything better ). It's the people running it who are the problem. It's their failure to learn anything from past economic collapses. The G20 should've been talking like this 2 years ago. The EFSF should've been given 2 trillion euros 2 years ago. Now they're doing it but no one is going to come out and say they've been pursuing idiotic, counterproductive policy for years.

    National debts didn't cause the recession (we did ), but became a liability as economies contracted and revenue dropped. Hell, Ireland used to be touted by Republicans here in the US as a fiscally conservative model country. It didn't save them from economic hardship. Anyway, the system works well until you rattle it hard enough. If people had pulled their heads out of their asses and used the tools available to them for recovery, I doubt we'd be having this conversation.

    Quote Originally Posted by mpicco View Post
    I do not agree however with Greece leaving the Eurozone, going back to the drachma or whatever new coin would be extremely low valued and then their new loans would be very hard to pay yet again, how long till they default one more time?
    There's no reason for Greece to leave the eurozone now and I haven't heard anyone involved claim they should. However, if they'd never joined the eurozone and still had their own currency (and central bank) they probably wouldn't be in this position in the first place. Of course, they'd be poorer as a nation and wouldn't get all the perks of being in the eurozone.
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