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Why the Greek bail-out has worked

Stephanie Flanders | 10:46 UK time, Tuesday, 10 May 2011

Everyone says that heightened talk of a Greek default is proof that last year's bail-out has "failed". But you could make a strong case for the opposite.

In reality, all that the Greek support programme last year was ever going to do was buy time. And that is exactly what it has done. It just hasn't bought quite as much as governments hoped.

As I said in my last post, officials are agreed that Greece needs more support. The only issue is what form this takes - and how many hoops the government has to jump through to get it. Germany is also looking for voluntary re-profiling of privately held debt along the lines that I described yesterday as part of the deal. (Though it's far from clear that can happen on the timetable available).

Even the non-eurozone officials who have been most exasperated by Europe's management of the crisis would accept that governments were right a year ago to kick the Greek problem down the road and buy the system some time.

One year on, they are roughly back where they were, facing the same choice.

What's changed, from a Greek standpoint, is that its government is now much less popular than it was, and it now has even more debt to repay.

For the rest of the eurozone, the key differences between now and then are that a much larger share of Greek debt is now owed to official institutions (notably the European Central Bank), and that outside the periphery, Europe is enjoying a decent recovery.

Put it another way: Greece looks less able to repay than it did a year ago - while the system as a whole looks in better shape to withstand a default.

For some, these new dynamics shift the balance in favour of facing up to the reality of an involuntary restructuring or Greek default. Officials should stop fighting it, on this view, and instead focus on limiting the collateral damage, by recapitalising the banks that will be hardest hit (notably the Greek, French and German). They also need to have a credible line on what will happen to the sovereign debts of Portugal and the Irish Republic.

That is the voice you hear in the markets these days. I am in Athens today, and so far that is also what I am hearing from people here.

But most of the eurozone officials who would actually have to deal with the fallout from a Greek default - and the blame, potentially, for another Lehmans - see things differently.

From their perspective, buying time has worked for the eurozone. It just hasn't been working out so well for Greece.

Comments

  • Comment number 1.

    '...It just hasn't been working out so well for Greece'

    So why should they put up with it ? The only thing apparently missing is a Greek political party with the grassroots appeal for default, or something similar.

  • Comment number 2.

    "buying time"...hmmm.

    To me it seems like Greece is doing the equivalent of keeping the house warm by putting the furniture on the fire. What next - the doors? the walls?

    Greece hasn't a hope of paying back its debts, this is all just making it worse in the long run. We've been kicking the global debt can down the road since the Greenspan Put. Time to face up to it!

  • Comment number 3.

    The Greek case at least demonstrates the failure of the austerity cures all approach. A re-scheduling of debt combined with short term measures to get the economy growing again and modernisation of industry and state (e.g. effective tax collection) is the only way out of the mess. However it does beg the question of what happened to all that EU dosh that has been poured into the Med rim in the past.

    PS sorry to plagiarise my own material (RP) but it seemed just as relevant.

  • Comment number 4.

    #3 watriler
    The Greek case at least demonstrates the failure of the austerity cures all approach...

    Only in Greece. They have other problems, as you pointed out, like getting all transactions and work that should be taxed into the system. That's kind of a fundamental social problem.

    First, they have to get to the point where the people trust the government. No amount of industry will help with the economy while the government has little or no funding from the populace.

    That means they need another government. PASOK seems to have the status in Greece that the Labour Party has in Scotland.

  • Comment number 5.

    It is not clear to me or most other observers of this crisis that you can call the Greek bailout a "success". If we look at one of the reasons put here we can see it quickly falls apart.

    "For the rest of the eurozone, the key differences between now and then are that a much larger share of Greek debt is now owed to official institutions (notably the European Central Bank), "

    As was pointed out on here yesterday this is a reason for failure and not success.

    "As to debt restructuring the Euro zone has by a combination of incompetence and dithering got itself into a position where a lot of the restructuring would take place on the books of the European Central Bank! They are fortunate that the vast majority of their taxpayers and voters do not understand what has taken place here. In fact it is worse than that as the accountancy used is that of the madhouse which declares the interest-rate profits but assumes that capital losses cannot happen! Yes a position which can only have large losses as we stand is declaring a profit…"
    http://t.co/Kbloyb7

    So what we now have is yet another bailout of the banks. Losses have been transferred to the European Central Bank and via it to the European taxpayer. As the analysis points out above the European Central Bank has even had the cheek to declare a profit meaning that European taxpayers are in for quite a shock when reality intervenes. Anybody who doubts this merely has to look at what Greek government bond prices were when the buying by the European Central bank took place and the much lower level they are at now..

  • Comment number 6.

    The overall effect of this has been to leave Greece with two large deficits,
    one is fiscal the other is external. This has been exacerbated by the fact that
    the Greek government has proved unable to produce economic figures which are
    reliable. Any element of doubt about its honesty has been removed over time by
    the fact that its figures for Greece’s fiscal deficit are always having to be
    revised upwards. We can see now that governments of both hues have suffered
    from this weakness.

    The proposed solution and why it won’t work? http://bit.ly/jZTqLd

  • Comment number 7.

    They will keep kicking the can down the road as long as possible. What would you do. It will get to the point of default then be propped again. Nobody will embrace default. Every effort will be made to push things into the future to avoid things being brought to the ledger. That was the first reaction and it will be the second reaction. Greece may effectively become a puppet state with policy dictated from outside. Then the Greeks may wake up and have a revolt, it's happened before. If the rolling funding is cut off then services shut down and that will not be allowed if only on humanitarian grounds. Isn't Greece only a couple of percent of the EUs economy. So its a long way from meltdown and the only issue is it will be made sticky and unpleasant, probably to placate citizens elsewhere. So its just brinkmanship all round.

  • Comment number 8.

    Bail out, bail out, bail out. Is it just me, or is that the only thing we here from European countries since the Euro, as a currency, was unelected and imposed?

    Is it not time that those countries who imposed the Euro, held up their hands and said "sorry, the Euro isn't working"?

  • Comment number 9.

    The reckless borrowers are being punished.

    Now it is time for the reckless lenders to be punished too.

  • Comment number 10.

    As much as I disagree with David Owen's reformist politics, he was right in his analysis of monetary union potentially destroying the EU.

    The tensions are so great that faced with an Egyptian style revolution, the Greek governmment will leave the Euro & default.
    This could result in others going their own way & a collapse of the whole project, even if an inner core form a political union.

    But whether the EU remains intact or not is actually not even the biggest issue.

    Although its hard to quantify the scale of fictitious capital is likely to be so great, that the collapse in capital value (repeat of 2008 without the government bank bail-outs) will put the whole capitalist system into doubt.

    Think Weimar Republic to get an idea of the forthcoming chaos.

  • Comment number 11.

    Put it another way: Greece looks less able to repay than it did a year ago - while the system as a whole looks in better shape to withstand a default.

    ... what about another way: Greece is more bankrupt as is the system!

    With Greece's default not coming alone and the system all but in a better shape it will not withstand the domino effect; no need to know who will fall first.

    caw

  • Comment number 12.

    8. At 12:15pm 10th May 2011, Read Animal Farm wrote:
    Bail out, bail out, bail out. Is it just me, or is that the only thing we here from European countries since the Euro, as a currency, was unelected and imposed?

    =======

    It's just you.

    Note: politicians are elected not currencies.

    In the round the Euro is still a success. It has created the worlds largest currency union. German exports for April hit an all-time high.

    You cannot blame the problems of the PIIGS on the Euro. It is debatable whether their problems will go away were they to leave the Euro.

    Time the UK joined.

    7. At 12:00pm 10th May 2011, Arthur Daley wrote:
    They will keep kicking the can down the road

    ==================================

    Well its a long road.


  • Comment number 13.

    I agree that the Greek bailout has bought time.
    I'm not so sure that Greece needs more support as much as she needs a good, financial house-cleaning, especially re those nefarious practices sold to her by Goldman-Sachs - like debt deferral and the use of CDS.
    The only issue is what form should the house-cleaning take. I suggest exactly what is happening 1. investigation and 2. into the courts.
    Germany can afford to bide her time for an inevitable court ruling; after all, when the world has $600 TRILLION IN CD/DERIVATIVES (most worth essentially NOTHING), the world is in big trouble.
    Most of the countries who are not in trouble are those that refused IMF loans (because of the austerity & economic havoc that they create), and did little trading if any with the United states of America.
    Why is all this attention going to the EU? Why not the United States that's in so much debt that it must, I mean MUST raise its debt ceiling in order to survive a decline in its rating and default. The United States is 14 TRILLION IN DEBT; it's only solution is to keep them printing presses running, but should she lose federal reserve currency status, guess what?
    THE PRINTING PRSSES WILL SCREECH TO A STOP!
    Poor Greece - debt grows when economic cancer takes hold, and poor Greece is full of economic cancer; so is the world in the amount of $600 trillion!
    Greece looks less able to repay than it did a year ago; she is weaker, sicker.
    But I believe that the EU is on the right track. I believe the United States has unleashed a terrible financial cancer upon the world in the form of CDS/derivatives, essentially worth nothing! An investigation is underway.
    Let us wait and see what the courts decide to do about these nefarious, ugly, worthless trading products that serve mostly the needs of the United States huge investment banks.
    Greece will not default. Ireland will not default.
    They may suffer keen austerity, but in the end the truth will out, and this truth will be explosive.

  • Comment number 14.

    #12 TheComingStorm
    ...In the round the Euro is still a success. It has created the worlds largest currency union. German exports for April hit an all-time high...

    In the context of the world, that's like saying the world's economy is hugely successful at the minute because Chinese growth is high.

    To every surplus, there is a deficit. Ours is bad enough without sucking in even more German exports - which is what would happen if we could not devalue our currency against theirs...

  • Comment number 15.

    In reality, all that the Greek support programme last year was ever going to do was buy time. And that is exactly what it has done. It just hasn't bought quite as much as governments hoped.

    Buying time would indeed be a good thing except that:

    (i)
    The Greek government failed to use that time to deal with the underlying problem on anything like the scale required. That 10% deficit is still going to need feeding, and it's hard to see anyone lending to a post-default Greece except out of charity

    (ii)
    The bail-out was sold to the German electorate as a solution, not a deferral of the problem. They're unlikely to stand for a second round when they realise that calls on them to fund the Greek public sector are now an annual event with little prospect of repayment

    So, whilst buying time could have been for Greece (and the EU), the local politicians have ensured that it was not.

  • Comment number 16.

    ...The original value at which sterling was going to join the ERM was, if I remember rightly, 2.95. The Bundesbank president thought that was too high, he thought it should be 2.45 - again, if I remember rightly but these figures are approximately right.

    At the moment we stand at 1.12 or so.

    We just went through years of high government spending while the Germans were implementing Hartz IV to make their economy more competitive.

    We would be Greece, had we joined and we still have the chance if we take your advice.

  • Comment number 17.

    Greece has lived in a state of international default for more than half it's years since independence from the Ottoman Empire 182 years ago and the Greek government has gone bust five times already.

    At the Davos Econo-fest this year both President Sarkozy and Chancellor Merkel stated ' we will never, never ....turn our backs on the Euro....We will never let the Euro go or be destroyed'.

    An interesting political and social situation is developing in Greece to which the already diminishing EU economic options can offer only partial respite other than a complete write off of the Greek government and German Banks debts.

    Defaulting and going bust with the Drachma was one game but with 17 other peoples Euro, well that's a different ball game, it is politics not economics.



  • Comment number 18.

    #15 MattWasp
    The bail-out was sold to the German electorate as a solution, not a deferral of the problem. They're unlikely to stand for a second round when they realise that calls on them to fund the Greek public sector are now an annual event with little prospect of repayment

    Germany will probably have a different government in a couple of years. The problem there - like so many EU countries is - the electorate has nowhere to go to get what they want from the EU. All the major parties will suport pushing German money into the eurozone sausage machine.

  • Comment number 19.

    should any Greek political party suggest default and then get elected the EU will not allow it and make them vote again - sound familiar?

  • Comment number 20.

    #15 MattWasp
    Buying time would indeed be a good thing except that:

    (i)
    The Greek government failed to use that time to deal with the underlying problem on anything like the scale required. That 10% deficit is still going to need feeding, and it's hard to see anyone lending to a post-default Greece except out of charity

    I don't think the intent was to buy time for Greece, but for the North West economies to bear the shock of transferring wealth. It simply doesn't work otherwise.

  • Comment number 21.

    #18 OldPerson:
    The problem there - like so many EU countries is - the electorate has nowhere to go to get what they want from the EU

    That's what I'm afraid of. It ultimately leave us with a choice between social catastrophe in Greece (from cutting off the EU credit tap) and political uprising in Germany (from leaving it on).

    With apologies to the Greeks, I know which I'd choose.

  • Comment number 22.

    18. At 13:28pm 10th May 2011, OldPerson wrote:
    All the major parties will suport pushing German money into the eurozone sausage machine.

    =======

    Because it works.

    Just think if Germany had a FPTP voting system some red-neck politician in love with Hayek economics (ala Thatcher) would have ruined the German economy. Coalition politics prevent lurches in policy; they provide continuity.

    The Conservatives and their FigLeaf (don't kid yourself that that is a proper coalition) are doing just that to one institution that is the envy of the world - the NHS.

  • Comment number 23.

    That is the envy of the world - the NHS.

    I love the rose tinted values people place on the NHS. What was it in the last league table 18th? Yeh the envy of the world.

    To put some perspective, Spain was 7th and Greece 12th, unless there has been a dramatic change in the last 8 years the NHS is the envy of nobody. Sweden has the best healthcare system in the world.

    I work for a diagnostics company, the NHS hardly comes onto our radar, it's backward looking and overly bureaucratic.

    Anyway..

    I agree the purpose of the bail out was never to help greece, it was to give the northern eurpoean banks time to get their house in order ready for the coming default.

    This of course has mostly been done at the expense of the general public, with record low central bank interest rates, the retail banks have been given massive margins on their good lending.

    Anyone wonder why lloyds used to have a SVR of 2% over base, this was a promised max. Guess what new customers get? Not the SVR at the end of their introductory offer, 2% was too good so they scrapped that and call it something like Homeowner Variable rate (currently about 3.5 over base), getting round the promise of not fleecing people above 2%.

    The only hope here is when the apocalypse comes, the banks have had time to prepare. Let's hope so and they haven't simply been making hay again...

  • Comment number 24.

    The Greek Government should reduce public sector salaries by 10%, as they have done in Ireland.

  • Comment number 25.

    #22 TheComingStorm
    All the major parties will suport pushing German money into the eurozone sausage machine.

    =======

    Because it works.

    Just think if Germany had a FPTP voting system some red-neck politician in love with Hayek economics (ala Thatcher) would have ruined the German economy. Coalition politics prevent lurches in policy; they provide continuity.


    I note that you made no mention of the pound's absurd ERM accession rate which would have had the UK economy spectacularly in the toilet.

    What do you think of Hartz IV ? Introduced by the SPD.

  • Comment number 26.

    16. At 13:04pm 10th May 2011, OldPerson wrote:
    ...The original value at which sterling was going to join the ERM was, if I remember rightly, 2.95. The Bundesbank president thought that was too high, he thought it should be 2.45 - again, if I remember rightly but these figures are approximately right.

    At the moment we stand at 1.12 or so.
    ============================

    Your memory deceives you. The first numbers you state were exchange rates against Deutsch Marks. The Euro is worth 1.955 DM, so £1 is now equivalent to roughly 2.19 DM.

    A decent devaluation, no doubt, but to the scale you were alluding to.

  • Comment number 27.

    The simple reason why no Greek political party has moved to back default openly is that if they default, the debt market will be closed to Greece for a number of years. They are still running a deficit and therefore need to fund that from somewhere until they can reduce government spending and boost revenue - if they fail to raise money they will have to close government services and chaos will ensue. The only source of funding to defaulting countries is - yes you guessed - the EU (if you are a Eurozone country) and the IMF. But if you have already borrowed from them, how willing will they be to fund you through the default? Also, the Germans and French will likely be VERY annoyed if Greece defaults as that will force them to recapitalise their banks and make them look like fools for the deal they did this time last year as the problem is now larger and the haircut required correspondingly more painful. So the reality is that the Greeks will probably muddle on for some time with a further bailout (in the form of more money and "re-profiling" plus a lower rate of interest). Sad, because this could all have been dealt with so much more simply last year - they should have defaulted and THEN taken the EU/IMF money. As for those who think Greece can pull out of the Euro - forget it - all their debts are denominated in Euro so it won;t help. And anyway, how do you actually do it - you have to secretly print huge numbers of new notes and coins and then announce that all funds in Greek banks are frozen whilst you effect the exchange - because if people know you plan to dump the Euro, funds will flood out of Greece faster than you could imagine, causing a liquidity crisis of epic proportions. Its just not feasible - the Greeks are stuck with the Euro, whether they like it or not.

  • Comment number 28.

    25. At 15:41pm 10th May 2011, OldPerson wrote:
    #22 TheComingStorm
    All the major parties will suport pushing German money into the eurozone sausage machine.

    =======

    Because it works.

    Just think if Germany had a FPTP voting system some red-neck politician in love with Hayek economics (ala Thatcher) would have ruined the German economy. Coalition politics prevent lurches in policy; they provide continuity.

    I note that you made no mention of the pound's absurd ERM accession rate which would have had the UK economy spectacularly in the toilet.

    What do you think of Hartz IV ? Introduced by the SPD.

    ==========================

    Re. ERM accession rate

    Whose fault was that. Thatcher wanted to peg sterling to the DM at too high a rate. Pride before the fall.

    Hartz IV ? Painful but necessary. Unemployment benefit is still higher than in the UK,


  • Comment number 29.

    27. At 16:11pm 10th May 2011, Tim wrote:

    Good points.

    Whatever happens the Euro will still be the defacto currency of most Greeks.

  • Comment number 30.

    A cautionary note is required here. As Ireland's economy collapsed last November I remember Stephanie interviewing the Irish Finance Minister Brian Lenihan and calling him "A Good Man".

    I doubt whether Ireland taxpayers and pensioners feel that now as they bear the burden of the decisions he made as Finance Minister. I shall put the idea that the Greek bail out has worked in the same category.

  • Comment number 31.

    23. At 14:19pm 10th May 2011, AndyTheScientist wrote:
    That is the envy of the world - the NHS.

    I love the rose tinted values people place on the NHS. What was it in the last league table 18th? Yeh the envy of the world.

    =====

    As you say 8 years out of date.

    Sweden /Greece both small countries learnt from the NHS mistakes.

    By any measure the NHS is a massive achievement.

  • Comment number 32.

    So you can have a sovereign debt, without a sovereign currency .. how does that work?

  • Comment number 33.

    I hope Greece defaults and tells the banks to come and get the money....not that banks can't hire their own armies and control some in other countries. The Greeks made the biggest mistake in believing the Rating Agencies of the banks in the last decade. They believed the bankers....never, ever do that. The problem remains: the culpable politicians who facilitated the greatest theft in history , found it impossible to punish the banks without implicating themselves. Faced with having to be honest, the governments chose the smoke and mirrors approach....which apparently has caused surprise because it hasn't worked.
    We live in a world where countries can fail but banks cannot. Follow the money.

  • Comment number 34.

    Not an economist, but it all seems to be about putting things off.

    I still can't see how economies with widely varying performances can operate together in the straitjacket of the euro, for all it's benefits. Unless individual states are totally absorbed into and administered by a european state?

    A simple explanation would be welcome.

  • Comment number 35.

    #26 Reticent_Trader
    Thank you for the correction. I got that just plain wrong.

    Still a decent devaluation as you say but no, not spectacular.

  • Comment number 36.

    Brits have become delusional. The £ is a basket case, it has been a basket case since the 1960's, it is in terminal decline but the good old Brits hang onto it the same way that they hang onto FPTP. It must be better than anything 'Johnny foreigner' has got because it's British. Much the same with the NHS really which is top heavy with management and bureaucratic to a fault.
    I think that all Brits and anti Europeans should reflect on the fact that it is the EU that is taking the banks on because the individual nations are not strong enough to do so.

  • Comment number 37.

    #21 MattWasp
    The Conservatives and their FigLeaf (don't kid yourself that that is a proper coalition) are doing just that to one institution that is the envy of the world - the NHS.

    Any of the major parties were going to reform the NHS, they've all said so.

    John Healey, Labour's front bench spokesman on health called the Coalition proposals "comprehensive, consistent and coherent".

    What's your problem with them ?

  • Comment number 38.

    OFF TOPIC!

    I offer this link as a temporary respite from current events!

    Highly recommended if you are at the 'kicking the sofa' stage of your economic development.

    Don't miss it!

  • Comment number 39.

    Oops!... forgot the link at post 38.

    Here it is:-

    http://www.youtube.com/watch?v=nGeKSiCQkPw

  • Comment number 40.

    Myneerkop@34

    It is about putting things off, these are big political decisions, this one with a big impact on Chancellor Merkel and the German Banks.

    My view, as a non Economist also, is that economics is used cynically by politicians to retain power and develop political control systems to fit their peculiar ideology, often at the expense of the ordinary taxpayers, especially when things go wrong.

    A socialist political agenda has been in place in the EU for a few years to dumb down the weathier and minority nations, to financially support the underdeveloped and culturally different nations and economies.

    Like the definition of Irish Communism, 'every one will get an equal share of nothing', except the politicians, of course.

  • Comment number 41.

    12. At 12:49pm 10th May 2011, TheComingStorm wrote:

    ''7. At 12:00pm 10th May 2011, Arthur Daley wrote:
    They will keep kicking the can down the road ''

    ==================================

    ''Well its a long road.''


    Hey dude they will get fit doing it, no bad thing, and some find it easier to kick the can than pick it up an recycle it. Do you want to take a bet on it. Kick or Pick. I'd give you 10 to 1 they kick. And hey, I make my living trading what people will do irrationally. Past a certain point I can tell you rationale does not come into it - so forget rationale. We have nothing to fear other than fear. Yeah right. Why do you think people are stuffing cash in their wallets rather than spending. Why do you think the tribal leaders have lost credibility.

  • Comment number 42.

    The greeks will take responsibility for their economy when the rest of europe stops lending them money they can't and won't repay. The ECB is just throwing good money after bad. The markets have put the correct risk premium on greek government debt, as they have on irish and portuguese debt. Giving any of these countries cheap bail-out loans is the equivalent of giving an alcoholic a free pass to the distillery.

  • Comment number 43.

    Stephanie wrote:

    "One year on, they are roughly back where they were, facing the same choice."

    Some observations about economics and finance: a year has passed people have lived and been (over - in many cases) paid. They have spent their incomes and the wheels of commerce have turned.

    Perhaps the 'reason' why nothing appears to have changed is that what you thought was the situation last year wasn't the actual situation?

    Like the weather the best economic forecast for tomorrow is that it will be like today.

    The problem has not changed and the bail outs, like zero interest rates and QE I, II and III) haven't fixed anything and indeed can't fix anything only the passage of time over which debt is deflated can fix the problem. There is no quick fix - and with one bound like superman we are free from the problem of debt - even if it is defaulted upon on a grand scale it actually makes no difference.

    I am working towards arguing, yet again, that the most rapid deflation of debt is the way to get the economy going again - all this hanging around and waiting, by Greece or over borrowed mortgagees here can never be a solution.

    There is but one solution and that is to de-leveraged debt so that it can be afforded either through haircuts or inflation/devaluation - there is no other solution as it is only about arithmetic.

    Let me once again propound the reason why this should be done quickly and not slowly. First we must recognise that in a time of low inflation historical priced debt does not lessen very quickly. So only when forced sellers work through the market will the overpriced assets be more rationally priced. This is not technical speak it is about the death in the natural course of things of the borrower. Countries and corporate bodies who have overborrowed do not have this option - however there is a similar situation when a new party comes to power and blames the last administration fro all the ills. The Irish are doing this now in that they are forcing a lender haircut and so will Greece. This is analogous to default or bankruptcy and is inevitable. So the lenders will per-force have to take the pain as they can't repossess Greece and flog it off, like they can and will do to UK householders.

    This also means our banks' assets are not quite as valuable as they claim. The faster we can get the debt mountain de-leveraged the quicker we can start to really recover. But The Long Depression of the 1870s took 23 years to unwind (in the UK) as the bubble that caused it was a property bubble and unless action is taken to promote debt deflation I see that the arithmetic will give us along grinding depression now lasting till 2030 or later (I this I have not altered my analysis fro the past two year and more - I have not altered my view as the fact that have come to light in the last years match the expectations of the analysis.)

    My proposal for action is to get the economy going again and to do this by actively promoting debt de-leveraging, by deliberately putting up interest rates to nearer where they should always have been (and re-rescuing and restructuring the banks as required.) Do it NOW!

  • Comment number 44.

    Morning Stephanie,
    I really don't know how to take your posts these days.
    "why the Greek bail-out has worked"!
    The markets (which are still driving events) don't agree with you with 10 year yields at 15% and 2 year yields at 29%. Says it all really.
    Just wait until they turn their attention to this green and pleasant land!

  • Comment number 45.

    I really used to enjoy playing Marbles with my mates on the School Drains, when I was about 5 years old. And now everyone I know and continue to meet is still playing Solitaire in Windows or jogging down the high street running endlessly in circles because they got thrown off the tread mill at their local health spa. Act your age & not your shoe size!

  • Comment number 46.

    JfH, I think most people would choose 10-20 years of stagnation that 2 years of anarchy.

    Your plan of effectively forcing people out onto the streets is just insane. Yes economically it makes alot of sense that it would be good to quickly reset the housing market. But your plan would decimate 100,000s of people who's only crime was buying a house for their family.

    There are many ways to try and reset house prices, sensibly in my opinion the government appears to have gone for slow house price stagnation in conjunction with general inflation to bring things back inline with wages. Yes this will probably take 10 years to reset. But for me that's better then 100,000s of people losing their homes, and the social stress that would put this country under.

    I'm also not sure house prices (outside of london) are still as high as you suggest, my property in a northern city has not increased in value on over 6 years. Your desired correction has already been happening for years.

    Yes the early 2000s was insane, my first property more than doubling in value in 5 years. That should not be allowed to happen again, perhaps things like increasing buy-let tax for example might curb that which was one of the biggest drivers of house inflation.

    But whatever is done, we simply can't say lets put people out on the street just to speed up the process. Even the most right wing folks would not condone what you are suggesting.

    One other thing that could also help is the banning of Credit Card balance transfers, these were one of the major drivers of indebtedness in the UK. People thought they could just keep spending and never actually have to pay off the dept.

  • Comment number 47.

    46. At 11:04am 11th May 2011, AndyTheScientist wrote:

    One other thing that could also help is the banning of Credit Card balance transfers, these were one of the major drivers of indebtedness in the UK. People thought they could just keep spending and never actually have to pay off the dept.

    --------------------------------------------------------------------------------------------------------------
    And they were probably right. Living, as we do, in a society where everyone has a "right" to have anything they want, right now, and where foolish borrowers have a huge number of charities and campaigners looking after their interests, then I am sure that some way will be found to get these poor overborrowed souls off the hook, so that with a shiny new clean sheet they can start spending money they don't have again.

    The banks will just have to pass the pain of the inevitable losses on to savers. Well, that's what they exist for, isn't it? Thrift and financial continence are a complete mug's game in this country.

  • Comment number 48.

    Over the last year or so it has become clear that any comments which I make on fiscal policy or international finance are just as good as any which the 'experts' make....in that neither of us have a clue but can talk the talk and turn it into meaningless jargon.
    As I am presently out of work I shall shortly make myself available to help out the Big Society by volunteering my services as a financial pundit and seer on par with others who have lead us all into this present quagmire.

  • Comment number 49.

    All the talk goes down the drain when one does not study at least some of the basic reasons. I won't be going to WWI, genocide of Minor Asia, WWII, Cyprus etc. though everything is tightly knit around Greece's geostrategic position controlling the entrance to Black Sea (and you know who is there in the cave...), but I will simply stick to what happened when Greece joined the EEC/EU.

    Fact 1: Greece back in the mid-late 1970s had a small, much less than perfect, but still a very functioning economy with much potential (that should be an enormous potential in a post-communist environment) . Nothing was perfect, but at least a basic social state and a laissez-faire loose economy worked for most of the population.

    Fact 2: It might surprise you but Greeks back then were the ONLY European nation that highly rejected their country's entry in the EEC at a rate of more than 60% (which even British wanted it at a bit of slightly more than 50%). The ND party that enterred Greece justified it not on the basis of economics (as the economic strangling was obvious) but on the basis of finding a new geostrategic partner rather than NATO that had turned against Greece (see Cyprus, Aegean etc.).

    Fact 3: Financial trouble starts by 1981 when Andreas Papandreou (son of Georgios Papandreou who came along with the British in 1944 and started the civil war against the till then British paid communists... no comments) came from USA (where he is citizen) with the promise of "out of NATO", "out of EEC" that all Greeks wanted and believed but then he did the exact opposite: he helf Greece within NATO and within EEC. He started closing the main country's production sectors, nationalised the most irrelevant sectors, tripled the state machine, made the population dependent not just on state jobs but actually on party-given jobs and handouts and created a tight circle of "new-business" which of course moved around party favortisme. All the packet was funded by EEC "packets" that continued arriving and through which Papandreou managed to convince Greeks that "EEC is really working".

    Fact 4: At the end of Andreas Papandreou governace, by 1990 Greece was already at the 90% of its current debt (the rest is just the result of the country's inability to keep up with the loan interests!!!). All the subsequent governments did nothing else than to maintain the situation by selling-out the state. Greece's entry in the eurozone in 2002 was done in full knowledge but as German and French analysts were saying (Greece, 2,5% of eurozone and less than 2% of all EU, is just too small to do any harm), 2004 Olympics (Germans' last vote eh!) was the last hit.

    Fact 5: The ONLY real project that Greece decided to do in the last 30 years was the gas pipeline connecting Greece and Bulgaria (also EU) with Russia. EU countries like Britain and Germany (and big daddy US behind) harshly attacked Greece and Bulgaria on that and on both countries the respective governments fell under "scandas of corruption" and "policemen shooting kids...".

    Fact 6: In late 2009, Giorgos (his real name is Jeffrey, he is US citizen and a Goldman's Sachs associate by the way!!!) Papandreou won in elections characterised too by extensive fraud (illegal citizenship handouts etc.) under the promise that "there are money" and 3 days after (and following a dinner with Goldman's Sachs vice-president at his own home at Athens), he says "there are no money, Greece is in crisis". Remember, he is the son and grandson of the aforementioned Papandreou, a guy that openly declares "a supporter of world governance" and who does not even care about basic sovereingnty rights of the country he is supposedly governing (let alone learning its language properly...).

    -----------------------------------------------------------------------------

    ... and then I have you hear sitting and discussing and trying to reason with a third(rate accounting-like logic? You must be joking!

  • Comment number 50.

    #43. John_from_Hendon wrote:

    My proposal for action is to get the economy going again and to do this by actively promoting debt de-leveraging, by deliberately putting up interest rates to nearer where they should always have been (and re-rescuing and restructuring the banks as required.) Do it NOW!

    --------------------------------------------------------------------------------

    Please explain the mechanics of how 'deliberately putting up interest rates' will 'get the economy going again'?

  • Comment number 51.

    Continuing from mes.49... so let us ask all little accountants out there... : under what legal framework is any country supposed to pay debt that has been granted under illegal procedures (illegal on the basis of both local and international law)?

    More than 35% of Greece's country has been taken under totally illegal procedures (we are talking about handouts under the table, unconstitutional manipulations and all the typical stuff etc.) and there is suspicion for the illegality of another 15-20% of it. And I am talking just about the debt (not the interests!). Basically only some basic EEC parcels seemed to have a basis of legality (though of still questionable motives).

    Given that the country has already been paying for more than 20 years now the interests on illegal debt, one is wondering whether the country owes or needs to take what is owed to it.

    So, is the problem financial? Not at all. It is political and geopolitical. 1 year we have been discussion this on BBC forums and still most people are not even remotely in position on comprehending this.

    I only need to provide the following example: I still see around people here saying ludicrous things like "Ireland's economy unlike Greece's & Portugal's, is sound"....

    ... well as sound as the following:

    Fact 1: Greece with its rough terrain and its particular culture (it uses even a different alphabet), its geopolitical isolation (surrounded by barbaric aggressive states with the exception of Bulgaria) is by far the most expensive to invest country in EU. English speaking, flat, cozy and quiet Ireland on the contrary is one of the most easy to invest.

    Fact 2: Greece has the highest defense expenses in the EU. Ireland one of the lowest. Greece has paid so much into its defense that has by now an army that can easily wage war against all EU countries together if taking out France and Britain. Ireland of course is far from that.

    Fact 3: Greece has suffered not just from its own traditional financial corruption but also largely by US and even German imposed imported corrruption (see large projects, defense contracts, Olympics etc.).

    Fact 4: Though Ireland had too a tough history, in the 20th century it was paradise on earth in comparison to what Greece had to bear in WWI, WWII and post war.

    .....

    now Fact 100:
    Greece owns more than 300 million Euros. Ireland with only a bit more than half the economy of Greece's owns more than 250 million Euros (but the secret story is that its debt is actually increasing more rapidly than Greece's!!!).


    .....

    And people say that Ireland's economy unlike Greece's and Portugal's is sound? Whom are we kidding here?

    I do insist that we have lots of third-rate little accountants here that do the talk. I do know that despite inherent problems, Greece's problems are largely if not solely due to the imposed (see other side of Atlantic) corruption. But then, what kind of corruption must there be in the case of Ireland to have ended up in the same situation I do not dare even ask!

  • Comment number 52.

    Europe is still trying to make the flawed dream of a few misguided fools come true.
    Regardless of how, why and when the crisis began, the cure is not to be found in a union of countries! If you take a bag of potatoes and one goes rotten, the others are quickly affected and are fit only for the bin. I have never seen that process reversed!

 

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