It's a sticking plaster, delaying the inevitable. I don't suspect the 'new deal' will work and I think the growing discontent among the Greek people will continue to rise, especially under the measure of the latest deal. Greece will remain a protectorate and an insubordinate trouble child under the ECB's whip. Similar scenarios will likely play out in other southern European nation states in the next decade also.
Problem is the Greek's were screwed over in the first 'bailout'.
They should have defaulted on the debt they owed to the private sector banks but instead EU/IMF etc. convinced them to borrow money from them to pay off the banks.
Why would the other southern European countries want to be in the EU at this point? There's not much to gain, and they're likely to also be made an example of if another financial crisis strikes.
Does anybody have a good source that explains the reasoning behind all of the measures required from Greece?
Many of them make sense to me in terms of removing clientelist structures (e.g. removing "protected" jobs, early retirement incentives, bringing collective bargaining laws in line with the rest of the EU).
However, I don't really understand how increasing VAT or requiring advance payments on corporation tax is going to help in an already suffering economy. I presume this is all about increasing revenue by curbing tax avoidance and closing loopholes, but I can't really find a good source on this.
The main problem is the small taxable base, meaning tax evasion in Greece is a serious problem.
By increasing VAT you make sure that you actually increase tax revenue quick and in a uniform way across the entire population. It makes your budgeting and forecasting more predictable and reliable.
Yes, it affects the poor the hardest, but at least you can actually budget an increase in aid programs.
If it were to hope on plans to increase tax collection efforts it would then become a very unpredictable and lengthy setup.
Plus, there are already Eastern European countries (see Romania, a country in the proximity of Greece) that applied the VAT increase measure starting with 2010 when it went up to 25% VAT. At the time, Romanian State workers had to also accept a pay cut of 30% of their salary. What I mean to say is that the austerity plan Greece is embarking on right now has been tried already and it will work. The problem is the political will of the Greek elite to give up their privileges.
VAT increases: AIUI it's more about tax simplification & transparency. At the moment there are so many exemptions and reductions to various VAT rates depending on type of goods/service/location etc that it becomes close to impossible to accurately determine tax liability and monitor tax avoidance, especially when you've got a generally underfunded tax collection agency. Not to mention as a business it's really hard to actually work out what you owe, even if you are trying to play by the rules.
Effectively there's not much point in the existing VAT regime because it is so opaque, so if you're going to keep it at all you need to simplify somehow.
Not denying it's likely to have a negative impact on consumption.
No good source either but I do believe the VAT and corporation tax measures are to compensate on the Greek government inability to collect taxes. Sadly they probably make Greece a less attractive target for capital. Damned if you do, damned if you don't.
What I find worrying is that Greece like a few other countries are in the same situation, just that the other countries did all the things the loaners wanted and with that maintained credibility and credit lines so they could get them directly without having to be so public to get respectable rates.
Those countries did not want Greece to leave as would then place them on the front line and focus and attention upon them in much the same way that the press will interview and talk with those at the front of any queue, be that Apple or any other reason. This is a queue that nobody wants to be at the front.
But the sad part is, this whole process is self-fulfilling and talent leaves Greece and with all the uncertainty and worry put upon them, jobs kinda suffer and only snowballs the situation.
Yet all the focus is upon churning that debt mountain and little or no focus upon rebuilding and aiding the country beyond the standard - sell this and that off without any regard for it is is right for Greece.
In short this whole drama focuses upon mopping up a leaking water main and no focus at all upon resolving that water main and making sure it does not break. Yes the loaners made suggestions and some come about, many have not and all the diverging just only hurts the people more.
FOr the Eurozone and the Euro currency if Greece leaves then the knock on effect could be very detrimental, but that is only because currently Greece is on the front line and those ripples and impact upon the Euro currency not negligible and I do wonder if the amount lost on the Euro and the volume of Euro's in circulation that that amount is greater than all the money Greece has ever owed.
That nobody has worked out I can see and certainly a larger consideration that is being mooted.
The Euro has lost around 18% against the American Dollar (USD) in the past year and 10% against the British Pound(GBP).
Still not all atributable to Greece but when the UK/Britain is part the Euroland though not the currency then the impact and amount involved make it clear that the sooner the Greek problem is made a non-problem then the better. Though had they just written of the debt, the actual cost to the Euro-zone countries would perhaps been far less than it has been. Certainly would have had better news in that period and focus upon more productive things.
I absolutely love this phrase: "I don't think the Greek people have been humiliated, nor that the other Europeans have lost face. It is a typical European arrangement."
How sure is it that Tsipras will be able to get the Greek end passed? Seems rather different than what he campaigned on, so I'm wondering if his party will revolt.
I got this from one of the many forwards but I think it explains bad-debt painted as good-debt cycle well, even though it is a tad superficial. This is not applicable only to the Greek tragedy, but also to Sub-prime and startups burning VC-money.
MARY is the proprietor of a bar in Dublin. She realises that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronise her bar – she will go broke.
To solve this problem, she comes up with a new marketing plan that allows her customers to drink now, but pay later.
She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).
Word gets around about Mary's 'drink now, pay later' marketing strategy and, as a result, increasing numbers of customers flood into Mary's bar.
Soon she has the largest sales volume for any bar in Dublin — all is starting to look rosy.
By providing her customers freedom from immediate payment demands Mary gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages.
A young and dynamic vice-president at the local bank recognises that these customer debts constitute valuable future assets and increases Mary's borrowing limit.
He sees no reason for any undue concern, since he has the debts of the unemployed alcoholics as collateral.
At the bank's corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into Drinkbonds and Alkibonds. These securities are then bundled and traded on international security markets.
The new investors don't really understand that the securities being sold to them as 'AAA' secured bonds are really the debts of unemployed alcoholics. They have had a 'rating house' certify they are of good quality.
Nevertheless, the bond prices continuously climb, and the securities soon become the hottest-selling items for some of the nation's leading brokerage houses.
One day, even though the bond prices are still climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Mary's bar. He so informs Mary.
Mary then demands payment from her alcoholic patrons, but, being unemployed alcoholics, they cannot pay back their drinking debts.
Since Mary cannot fulfil her loan obligations she is forced into bankruptcy. So she now is broke.
The bar closes and the 11 employees lose their jobs.
Overnight, Drinkbonds and Alkibonds drop in price by 90%.
The collapsed bond asset value destroys the bank's liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.
The suppliers of Mary's bar had granted her generous payment extensions and had invested their firms' pension funds in the various Bond securities. They find they are now faced with having to write-off her bad debt and with losing over 90% of the presumed value of the bonds.
Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations. Her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.
Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multi-billion euro, no-stringsattached cash infusion from their cronies in government.
The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who have never been in Mary's bar.
The transfer of $50bn in state assets to an "an independent fund that will monetize the assets through privatisations and other means" is a fairly significant feature of the deal that doesn't seem to be receiving a lot of attention.
Well, I guess this is what happens when you elect a bunch of clowns from the political fringe - no expertise, no negotiating ability, no realistic goals, no reasonable promises.
This seems to be the worst deal offered to any Greek government yet, including the deal previously offered to Tsipras.
Can anyone explain how things got this bad? I've been following this but it's gone on so long now I've no idea why Greece got hit so hard relative to other countries in Europe.
>"How in the hell is it possible for a member of the euro area to say the deficit was 3 percent of G.D.P. when it was really 15 percent?” a senior I.M.F. official asks. “How could you possibly do something like that?”
>In just the past decade the wage bill of the Greek public sector has doubled, in real terms—and that number doesn’t take into account the bribes collected by public officials. The average government job pays almost three times the average private-sector job.
> The average state railroad employee earns 65,000 euros a year. Twenty years ago a successful businessman turned minister of finance named Stefanos Manos pointed out that it would be cheaper to put all Greece’s rail passengers into taxicabs: it’s still true. “We have a railroad company which is bankrupt beyond comprehension,”
Greece was way more messed up than other Euro-zone countries long before the crisis.
> "during the 1980s, Greece experienced the rise of irresponsible populism, unrestrained patronage politics, and a powerful culture of ethnocentrism that worked against the country’s full europeanization."
My reading of the situation is that Greece has a very politicised government administration and very poor tax collection regimes. One of the reasons getting tax through utility companies (e.g. electricity) are one of the approaches the government uses. Joining the EU, enabled Greece to get very cheap loans and to pursue vote winning agendas. They even charged one of the mathematicians (with treason iirc) as he proved that Greek government had the incorrect financial model.
[+] [-] vegancap|10 years ago|reply
[+] [-] youngtaff|10 years ago|reply
They should have defaulted on the debt they owed to the private sector banks but instead EU/IMF etc. convinced them to borrow money from them to pay off the banks.
[+] [-] d-equivalence|10 years ago|reply
[+] [-] erkkie|10 years ago|reply
[+] [-] StavrosK|10 years ago|reply
[+] [-] alfapla|10 years ago|reply
[+] [-] DangerousPie|10 years ago|reply
Many of them make sense to me in terms of removing clientelist structures (e.g. removing "protected" jobs, early retirement incentives, bringing collective bargaining laws in line with the rest of the EU).
However, I don't really understand how increasing VAT or requiring advance payments on corporation tax is going to help in an already suffering economy. I presume this is all about increasing revenue by curbing tax avoidance and closing loopholes, but I can't really find a good source on this.
[+] [-] mnglkhn2|10 years ago|reply
Yes, it affects the poor the hardest, but at least you can actually budget an increase in aid programs.
If it were to hope on plans to increase tax collection efforts it would then become a very unpredictable and lengthy setup.
Plus, there are already Eastern European countries (see Romania, a country in the proximity of Greece) that applied the VAT increase measure starting with 2010 when it went up to 25% VAT. At the time, Romanian State workers had to also accept a pay cut of 30% of their salary. What I mean to say is that the austerity plan Greece is embarking on right now has been tried already and it will work. The problem is the political will of the Greek elite to give up their privileges.
[+] [-] tow21|10 years ago|reply
Effectively there's not much point in the existing VAT regime because it is so opaque, so if you're going to keep it at all you need to simplify somehow.
Not denying it's likely to have a negative impact on consumption.
[+] [-] erkkie|10 years ago|reply
[+] [-] Zenst|10 years ago|reply
Those countries did not want Greece to leave as would then place them on the front line and focus and attention upon them in much the same way that the press will interview and talk with those at the front of any queue, be that Apple or any other reason. This is a queue that nobody wants to be at the front.
But the sad part is, this whole process is self-fulfilling and talent leaves Greece and with all the uncertainty and worry put upon them, jobs kinda suffer and only snowballs the situation.
Yet all the focus is upon churning that debt mountain and little or no focus upon rebuilding and aiding the country beyond the standard - sell this and that off without any regard for it is is right for Greece.
In short this whole drama focuses upon mopping up a leaking water main and no focus at all upon resolving that water main and making sure it does not break. Yes the loaners made suggestions and some come about, many have not and all the diverging just only hurts the people more.
FOr the Eurozone and the Euro currency if Greece leaves then the knock on effect could be very detrimental, but that is only because currently Greece is on the front line and those ripples and impact upon the Euro currency not negligible and I do wonder if the amount lost on the Euro and the volume of Euro's in circulation that that amount is greater than all the money Greece has ever owed.
That nobody has worked out I can see and certainly a larger consideration that is being mooted. The Euro has lost around 18% against the American Dollar (USD) in the past year and 10% against the British Pound(GBP).
Still not all atributable to Greece but when the UK/Britain is part the Euroland though not the currency then the impact and amount involved make it clear that the sooner the Greek problem is made a non-problem then the better. Though had they just written of the debt, the actual cost to the Euro-zone countries would perhaps been far less than it has been. Certainly would have had better news in that period and focus upon more productive things.
[+] [-] icebraining|10 years ago|reply
[+] [-] tormeh|10 years ago|reply
[+] [-] adamc|10 years ago|reply
[+] [-] ExpiredLink|10 years ago|reply
[+] [-] somberi|10 years ago|reply
MARY is the proprietor of a bar in Dublin. She realises that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronise her bar – she will go broke.
To solve this problem, she comes up with a new marketing plan that allows her customers to drink now, but pay later.
She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).
Word gets around about Mary's 'drink now, pay later' marketing strategy and, as a result, increasing numbers of customers flood into Mary's bar.
Soon she has the largest sales volume for any bar in Dublin — all is starting to look rosy.
By providing her customers freedom from immediate payment demands Mary gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages.
Consequently, Mary's gross sales volume increases massively.
A young and dynamic vice-president at the local bank recognises that these customer debts constitute valuable future assets and increases Mary's borrowing limit.
He sees no reason for any undue concern, since he has the debts of the unemployed alcoholics as collateral.
At the bank's corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into Drinkbonds and Alkibonds. These securities are then bundled and traded on international security markets.
The new investors don't really understand that the securities being sold to them as 'AAA' secured bonds are really the debts of unemployed alcoholics. They have had a 'rating house' certify they are of good quality.
Nevertheless, the bond prices continuously climb, and the securities soon become the hottest-selling items for some of the nation's leading brokerage houses.
One day, even though the bond prices are still climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Mary's bar. He so informs Mary.
Mary then demands payment from her alcoholic patrons, but, being unemployed alcoholics, they cannot pay back their drinking debts.
Since Mary cannot fulfil her loan obligations she is forced into bankruptcy. So she now is broke.
The bar closes and the 11 employees lose their jobs.
Overnight, Drinkbonds and Alkibonds drop in price by 90%.
The collapsed bond asset value destroys the bank's liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.
The suppliers of Mary's bar had granted her generous payment extensions and had invested their firms' pension funds in the various Bond securities. They find they are now faced with having to write-off her bad debt and with losing over 90% of the presumed value of the bonds.
Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations. Her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.
Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multi-billion euro, no-stringsattached cash infusion from their cronies in government.
The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who have never been in Mary's bar.
[+] [-] dataker|10 years ago|reply
Pragmatism is a scarce resource in our time.
[+] [-] ExpiredLink|10 years ago|reply
[+] [-] ExpiredLink|10 years ago|reply
[+] [-] _rpd|10 years ago|reply
[+] [-] dbcooper|10 years ago|reply
This seems to be the worst deal offered to any Greek government yet, including the deal previously offered to Tsipras.
[+] [-] k-mcgrady|10 years ago|reply
edit: Thanks for the explanations.
[+] [-] tim333|10 years ago|reply
http://www.vanityfair.com/news/2010/10/greeks-bearing-bonds-...
Sample quotes:
>"How in the hell is it possible for a member of the euro area to say the deficit was 3 percent of G.D.P. when it was really 15 percent?” a senior I.M.F. official asks. “How could you possibly do something like that?”
>In just the past decade the wage bill of the Greek public sector has doubled, in real terms—and that number doesn’t take into account the bribes collected by public officials. The average government job pays almost three times the average private-sector job.
> The average state railroad employee earns 65,000 euros a year. Twenty years ago a successful businessman turned minister of finance named Stefanos Manos pointed out that it would be cheaper to put all Greece’s rail passengers into taxicabs: it’s still true. “We have a railroad company which is bankrupt beyond comprehension,”
[+] [-] mseebach|10 years ago|reply
> "during the 1980s, Greece experienced the rise of irresponsible populism, unrestrained patronage politics, and a powerful culture of ethnocentrism that worked against the country’s full europeanization."
https://www.opendemocracy.net/openeconomy/takis-s-pappas/cau...
[+] [-] awjr|10 years ago|reply
[+] [-] unknown|10 years ago|reply
[deleted]
[+] [-] Trombone12|10 years ago|reply
Bloomberg: "Greece Capitulates to Creditors’ Demands to Cling to Euro" euobserver: "Greece capitulates at EU summit"