Back in the early 2000s, Italy, Portugal, and Greece were being chastised and threatened with fines by the European Commission for breaking the Stability and Growth Pact, which aimed to limit the fiscal deficit of member states’ budget to 3% of GDP. Then something happened around 2001 which caused the French and Germans to blow their budgets and go on a borrowing spree, and all of a sudden the Stability and Growth Pact didn’t matter (see this chart for historical deficits). It became quite obvious that EU rules are only to be enforced against certain countries, and exceptions made when it came to France and Germany; those less charitable thought it quite obvious that the EU was run for the primary benefit of those two member states.
Fast forward 17 years and we had the European Commission refusing to approve Italy’s budget because it breaks the Stability and Growth Pact. Then a short time later French president Emmanuel Macron, with his back to the wall facing the might of the gilets jaunes, decided to throw an €8bn – €10bn bung at them in the hope of saving his presidency. France’s budget was already perilously close to the 3% limit, and this pushed it over the edge. So the European Commission is going to take action, right?
Heh:
The EU will accept a French budget deficit above the EU’s 3 percent ceiling in 2018 “as a one-time exception,” Budget Commissioner Günther Oettinger said in an interview published Thursday.
Now there’s a surprise, eh? If you follow the link and translate from the German, you find out why:
President Macron has lost authority with his budget for 2019, which exceeds the deficit limit of three percent. But he remains a strong supporter of the European Union.
Of course. The rules don’t matter provided you are France or Germany and you are a strong supporter of the EU. What a wonderful club. I can’t think why Britain voted to leave.
Also shows the lie to all the BS we’ve heard around Brexit and the negotiations – ‘The EU is bound by rules and law!’
Is it bollocks. It does exactly what it likes (which as you accurately point out is usually what suits France and Germany) and either uses the law to justify its choice (‘we had to’) or ignores the law (‘special one off deal’ ha ha) If the EU wanted to give the UK a special (and mutually advantageous) Brexit trade deal, it could, regardless of whatever rules might say otherwise. The only reason it wouldn’t would be political, not legal.
One wonders why the rest of the EU haven’t cottoned on to this yet. Italy obviously has, how long will it take the other ‘dispensable’ EU members to realise they’re running under a completely different regime of regulation than the big 2?
This is an easy one, Macron is a globalist and Italy is going nationalist.
Although I think that they have decided to throw Macron under the bus and I wouldn’t be surprised if there was snap election in France next year, could even be one in the UK as well.
See this article for an example of Italian bashing as the new sport.
…………………………………………………………………………
For Italy’s Populists, Everything Is a Nationalist Cause. Even Leonardo.
By Jason Horowitz
Dec. 27, 2018
ROME — In a small showroom filled with replicas of Leonardo da Vinci masterpieces, Lucia Borgonzoni, Italy’s under secretary for culture and a member of the right-wing League party, attested to the authenticity of her disgust with the French.
She accused France of trying to culturally appropriate Leonardo for a 2019 exhibition at the Louvre celebrating the 500th anniversary of his death. And that was just the beginning.
France had treated Italy with “a lack of respect” and like a cultural “supermarket” by “sending a shopping list” of the works it wanted to borrow — essentially everything.
https://www.nytimes.com/2018/12/27/world/europe/italy-leonardo-da-vinci-france-louvre.html
Of course one of the reasons that the EU is calling in every favour and pulling every string to Styme Brexit is that with Britain fully independent we could offer tariff free trade to any and every discontented member state, and thus make it easier for them to leave. We would not require them to follow laws not of their choosing, nor would we ask them to pay anything (though neither would we subsidise them).
If we get fully out others will have someone to join, and many will do so.
I think this is more complicated, and as the “realpolitik” took over the question was more “who is going to get shut out of the debt market in short order”, rather than “who is breaching this arbitrary rule”.
And what happened, was that Greece and Portugal’s breaches did cause real and immense pain pretty quickly, but Germany and France’s did not. Similarly, Italy’s current debt problem* is largely due to the failure to stick to spending rules since joining the Euro (including those breaches that were sanctioned nearly 20 years ago). Maybe it was, strictly speaking, the wrong thing to do, but they called it right in terms of actual consequences.
With Italy, we might kinda find out (if we are unlucky) what would happen if France or Germany were to be mismanaged to the extent that they were shut out of debt markets. I don’t think we want to find out.
*: Electorates in Italy and Greece are stealing from the future. Have never accepted that you need to work and produce to be wealthy. Life is to be handed to you on a plate. You see this in microcosm in the west. A good friend of mine, semi-retired schoolteacher, I occasionally do talks for his classes, “former pupil made good/careers in science and pharma” kinda stuff. Biggest complaint is that the kids think an easy life is heading their way. And this is a relatively nice school, not without its problems but mostly aspirationals, and parents who had it really easy. So the attitude is “get into a half-decent uni, get your Desmond, and you are made.” As we keep telling them, there are two billion people in China and India. And they will all work harder than you. For less money. So you gotta stand out, average won’t fly any more. I think one or two take notice.
@Pat, so what you would achieve is essentially the re-founding of the EU, or rather a successor organisation that will do much the same thing*.
Which might not be a bad idea, actually. But there’s got to be an easier way to do it. It’s a big ship and takes a long time to turn it around, but watch it happen. It was all “fortress Europe” 20 years ago, and it will be again.
*: I think you will be surprised to learn, however, that the libertarian world free trade dream (which, incidentally, I share) is held by only a minority of people and no states anywhere, not even the UK. So it won’t happen without rules, regs, and external tarrifs.
“Electorates in Italy and Greece are stealing from the future.”
And the French aren’t doing the same (97% debt to GDP)? How come they get to add to theirs, but the Spanish (say) can’t (debt to GDP of 99%)?
And what happened, was that Greece and Portugal’s breaches did cause real and immense pain pretty quickly, but Germany and France’s did not.
I’m not sure that statement will stand up when this entire scenario is played out and we see how French and German banks have played a role, and what the impact of their collapse will be.
“I think this is more complicated, and as the “realpolitik” took over the question was more “who is going to get shut out of the debt market in short order”, rather than “who is breaching this arbitrary rule”.”
Fair enough, to govern is to choose.
But why have the rule then, other than a fig leaf for the French and Germans telling everyone else what to do? Thats all it is, because as we see right now (and saw with Germany back in the early 00s) it doesn’t apply to them.
If you have a ‘Union of Equals’ under the law, then apply the f*cking law equally. Don’t pretend that its all legal and equal, when in reality its just (to quote Nick Ridley) a German Racket.
France and Germany will have to face this problem, but not for another 20 years. The acute issue is one of maturity (debt terms, not necessarily the same thing as behaving like adults).
But this is where democracy inevitably ends up. Once politicians realise they can borrow to buy votes, then borrow against the “asset” of future debt repayments, then take out derivatives on the promise to repay borrowings against future debt repayments, and so on.
It’s a big problem and I don’t have a solution, but to pretend it’s much to do with the EU is silly. The Euro would be a solution, actually, if the rules were kept, but that’s proving hard.
It’s a big problem and I don’t have a solution, but to pretend it’s much to do with the EU is silly.
I don’t know, and we’ve bickered about his before. The Euro is very much an EU project driven mainly by the Germans for their benefit, and is directly responsible for the mess in Greece and Italy. Firstly, neither country can inflate their way out of trouble, dropping their currencies and making their own industries cheaper (particularly tourism). Secondly, much of the irresponsible spending in both Greece and Italy was done by municipalities and state bodies who, thanks to the Euro, found they could afford German cars. A big win for Germany sure, but at what cost to the rest of Europe? Sorry, this is very much an EU problem.
Greece and Italy never inflated their way out of trouble, they just inflated their way into a different type of trouble. Inflation solves nothing in the long-run, least of all bank solvency in a world of international trade and investment.
Far from this being a German project, the Kohl government was actually incredibly skeptical of the Euro. An alternative reading of history, popular among Euroskeptics, is that it was Maggie’s price for reunification. I have no idea how accurate that is.
The long and the short is, the Euro would work fine if we treated governments as any other debtor, i.e. more or less risky, and did not lend to them beyond their ability to repay long-term. Unfortunately, governments, like any other irresponsible debtor, want to keep borrowing and splurging, and the euro should provide a functional market mechansim to prevent this, just as it does most of the time with natural persons and companies who owe money. That it’s lower than national-level government causing the bulk of the problem is a fuck up of the accounting rules, and also illustrates that the problem is not caused by the euro itself. A good deal more of that national unity (as espoused by skeptics) would be a good thing, no? But not, apparently, when it involves telling the prefectural mayor not to buy a ceremonial Mercedes.
A further complication is where else do investors go to get a return? There is nothing left out there. Interest rates are rock bottom to negative. Capitalism as we know it has eaten itself, most new value is now created with a laptop and a kitchen table, not exactly capital-intensive tasks. So it is somehow inevitable that cash is flowing into government debt. Not just for the security, but for the return!
How you persuade people not to vote themselves a hearty brunch of their great-great-grandchildrens’ seedcorn is beyond me.
“It’s a big problem and I don’t have a solution, but to pretend it’s much to do with the EU is silly. The Euro would be a solution, actually, if the rules were kept, but that’s proving hard.”
Isn’t this exactly about the rules not being kept? And why exactly is keeping the rules ‘proving hard’? The rules are very clear, the data from each government is all there for everyone to see, whats so hard?
‘Sorry M.Macron, you can’t do that, either raise some more taxes or cut some other spending, now.’
What’s so hard about that, other than it means one of the Untouchables just got felt up?
That it’s lower than national-level government causing the bulk of the problem is a fuck up of the accounting rules, and also illustrates that the problem is not caused by the euro itself. A good deal more of that national unity (as espoused by skeptics) would be a good thing, no? But not, apparently, when it involves telling the prefectural mayor not to buy a ceremonial Mercedes.
They couldn’t buy that Mercedes were it not for the Euro, and had German (and French) banks willing to extend them credit to do so. If they had drachmas to spend, they’d not be buying Mercedes.
Bollocks. What else was there to buy?
It’s not like Greece has a large indigenous car industry, or that their cars would be better value if it did.
OK – so it it’s about banks, how come Hungary ended up with a massive personal debt crisis? It’s not in any currency union, but its householders all took out their mortgages in Swiss Francs. Swiss banks happy to do that, absent a currency union and indeed absent being in the EU. Nice low interest rates, and was fine at CHF1.6 to the Euro. Then suddenly the currency hit parity overnight and everyone was fucked.
Yet that is what you are saying should have happened to Greek borrowers. Take out Deutschemarks and inflate (devalue). And fuck themselves over a slightly different way. Being in the Euro actually spared everyone that experience.
These countries have structural lack of competitiveness and the solution is to become competitive, not to keep pulling the old inflation trick. It is however very hard to do when that involves changing economic rules that the voters like (such as no one can be fired, made to work more than 36 hours a week, or even has to be competent).
Jim, we may have to agree to disagree here, but it is clear that cracking down on Greek/Portuguese excessive borrowing was both right and necessary. Cracking down on France and Germany too might have been right (and long-term it absolutely is), but it wasn’t necessary.
What else was there to buy?
Cheaper cars. That’s the whole point: the Euro allowed them to forgo the cheaper European and Japanese cars and buy expensive German ones. Good for the Germans, not so good for local taxpayers.
Er, so being in the Euro they had the choice of a Mercedes for €40k and a Renault for €20k. They were still at liberty to choose the Renault.
And if you claim the Mercedes was only available by dint of being in the Euro, the same also goes for the cheaper French car.
Er, so being in the Euro they had the choice of a Mercedes for €40k and a Renault for €20k. They were still at liberty to choose the Renault.
Yes, and in the same way all those people who overextended themselves on houses thanks to cheap credit and zero deposit mortgages were at liberty to buy somewhere cheaper, but are we to say the banks are blameless here?
Yes, those in local governments who blew taxpayers’ money on fancy cars are to blame, but so are the Germans who knew full well they were selling them cars they couldn’t afford and extending them credit to do so.
And if you claim the Mercedes was only available by dint of being in the Euro, the same also goes for the cheaper French car.
To a point, yes. Only as you say, the French cars are cheaper.
Greece and everywhere else was buying German, French, Spanish, Japanese cars long before the euro. And borrowing in Marks, Francs, Yen and whatnot to pay for them.
Who should take the hit when a borrower defaults? Yep – the lender. But as the old saying goes, if you owe the bank a million, you are in trouble. If you owe the bank a billion, the bank is in trouble.
And I totally agree, banks need to stop lending to governments beyond their ability to repay. The market should be capable of solving the problem of overextension for its biggest customers, but you are assuming a moral, disinterested, and corruption-free world if you think that will happen.
And this really isn’t a problem of the Euro. You can go back 100 years and more and see the same problems, through the great depression (which was basically an enormously prolonged bank run compounded by the gold standard acting as an effective ban on monetisation of creditor protection), Creditanstalt managed the same feat with a single domestic customer. Icesave, Northern Rock, Landsbanki, all managed to fall over due to a combination of bad debtors and loss of depositor confidence (I personally lost a five, almost six-figure sum in the collapse of the first of those, so I have a more than hypothetical interest in this kind of stuff).
The difference the Euro makes is to spread the pain differently. In this case, we had to finance Greece’s profligacy directly, and Greece had to face some hard spending decisions directly. As shitty as it was, perhaps lessons will be learned for the future. Certainly it was, for all the pain, much more civilised than the last time Greece went bust owing Germany a lot of money.
The EU ignoring the rules it is apparently based on when it’s politically expedient is not exactly new news; from 2010:
Greece and everywhere else was buying German, French, Spanish, Japanese cars long before the euro. And borrowing in Marks, Francs, Yen and whatnot to pay for them.
Buying expensive German cars to the same extent? Doubtful.
And I totally agree, banks need to stop lending to governments beyond their ability to repay.
Where’s the incentive to do that when they know the money will come straight back in exchange for German cars? And knowing how the German business works, I doubt Deutschbank was doing this in isolation of German car manufacturers.
There’s something BiG wrote above, struck a chord with me.
“Biggest complaint is that the kids think an easy life is heading their way. And this is a relatively nice school, not without its problems but mostly aspirationals, and parents who had it really easy. So the attitude is “get into a half-decent uni, get your Desmond, and you are made.” As we keep telling them, there are two billion people in China and India. And they will all work harder than you. For less money.”
There’s a tendency to treat countries as societal monoliths. We talk about Italy, Greece etc. But they’re not. I don’t think what you’d call the “working classes” in many of these countries have been particularly profligate. The Spanish from the bottom of the heap, I know, seem pretty decent people. They work hard, expect & get the same from their kids. They don’t build up massive debt. Actually, as far as I can see they’re better people than many of their northern equivalents. Certainly more self reliant. They don’t get much alternative. The social security net down here is pretty flimsy. You don’t lie around in luxury on bennies here.
It’s actually the middle-classes with their glaring sense of entitlement, their crookedness, their basic laziness, incompetence & downright selfishness are the rotten apples in the barrel. And they’re the ones have run up all the debt but are the last to suffer.
Yes, they care because if the money is not repaid it is lost. And honestly, what proportion of Greek government borrowing was spent on Mercedes rather than Renault? The Greek government spends 20% of its income on pensions, I rather doubt it spends more than 0.2% on Mercedes cars. I think this is a red herring without numbers, and there is no reason to believe that the euro made much difference in either (a) German banks lending to Greek government, pssst, you will buy Mercs with it, yes? (b) the proportion of Mercs bought relative to other cars. What it did do is change the currency the Greeks borrowed in, sparing them the “Hungarian” problem of having to pay hard currency back in a devalued currency, but instead making the problem much more obvious – i.e. that income is not sufficient to service the debt (that which can be briefly hidden by inflation).
And honestly, what proportion of Greek government borrowing was spent on Mercedes rather than Renault?
Cars are just one example.
>I think this is a red herring without numbers, and there is no reason to believe that the euro made much difference in either (a) German banks lending to Greek government, pssst, you will buy Mercs with it, yes? (b) the proportion of Mercs bought relative to other car
Yes, it’s a mere coincidence that German manufacturing did incredibly well exporting to the countries that were running up massive Euro-denominated debts. It’s also a coincidence that German banks lent massively to those same people running up the debts.
“The Euro is very much an EU project driven mainly by the Germans for their benefit,”
As BiG says, the German’s didn’t want it and feared, and still fear, it will lead to a fiscal union and they’ll end up paying Greek/Italian etc pensions. Mitterrand pushed it through as the price of German reunification but Germany wrote the rules, which is why they benefit, for now.
All the EU Commission is waiting for now is the expected crisis that will allow them to rewrite the rules and impose a fiscal union. That’s one reason Germany held its ground so hard during the financial crises.
Maggie saw all this coming which is why she fought so hard for the permanent opt out.
All the EU Commission is waiting for now is the expected crisis that will allow them to rewrite the rules and impose a fiscal union. That’s one reason Germany held its ground so hard during the financial crise
I’m surprised you can discern a difference between the EU Commission and Germany’s ruling class. With Martin Selmayr in charge, it’s hard to see how their respective interests will ever diverge.
If this was caused by the Euro then please explain how Hungary’s personal debt crisis was caused by the Euro.
It is (except that in Greece the government is bankrupt and households have low debts, Hungary is the other way around) exactly the same scenario, but with different currencies.
Swiss banks lending to Hungarians. They care not what the money is spent on*, only that it is repaid. Only the currency moved and that was a big problem. Now had Greece not been in the Euro (or Germany), exactly the same thing would have happened. IN ADDITION to banks refusing further lending. The funding would have dried up and the existing debts would have become far more expensive. As it was, the flight of confidence made those existing debts much cheaper for Greece.
*: It certainly wasn’t spent on Swiss chocolate, skiing holidays, or pharma products.
If this was caused by the Euro then please explain how Hungary’s personal debt crisis was caused by the Euro.
I don’t believe I’ve mentioned Hungary at all, so I don’t see why I’m obliged to explain bits of it. You seem to be the one making the connection.
Swiss banks lending.
Yeah, Swiss banks aren’t German banks.
Because you are defending the proposition that the Euro is the cause of irresponsible cross-border lending/borrowing (whether there is or is not a financial-industrial-complex conspiracy, it’s not relevant).
And I am illustrating that irresponsible cross-border lending/borrowing is a perfectly normal, widespread, everyday activity, and has been for centuries, regardless of the currency involved and nationality of the borrower or lender, and even their being in the same currency or economic union or not.
Because you are defending the proposition that the Euro is the cause cause of irresponsible cross-border lending/borrowing
A cause, one from which German businesses have benefited greatly.
Of course, those ~8800 cars per year* that Merc sold in Greece pre-crisis were worth the multi-billion-dollar financial-industrial-complex conspiracy that nearly plunged the entire European Union into economic armageddon**.
Do you have any idea how many of those 8800 cars were bought by the Greek government? And what the contribution of their cost was to the €250 billion debt?
*: https://www.statista.com/statistics/416510/mercedes-car-sales-in-greece/
**: I have the misfortune of bumping into financal “industry” types fairly regularly, and most of them would sell their mothers, wives, sisters, and their own children into slavery for a slightly more expensive rolex, but this would be taking things a bit far.
Of course, those ~8800 cars per year* that Merc sold in Greece
1. It’s not just Mercedes. I believe it was you who focussed on that.
2. It’s not just cars. I confess, I used that to illustrate the point.
multi-billion-dollar financial-industrial-complex conspiracy that nearly plunged the entire European Union into economic armageddon
What, you mean like what will happen if the likes of Deutschbank and BNP came clean about their financial positions caused in no small part by reckless lending, knowing full well nobody would complain provided their respective countries’ industries were doing okay (e.g. German car manufacturers) and the government would hide the rot and bail them out if need be?
I think the first mention of German cars was you at 15:00, please correct me if I am wrong.
The number is obviously trivial. Even if the government bought all of those cars (more likely they only bought a fraction of them) and they were all fully-specced S class or Maybachs, and we double the number because there is BMW as well*, the one-off cost is a rounding error on their daily interest payments. The money was not spent in any great measure on German industrial goods. The data is out there, the economic stats the EU keeps are second to none. Most Greek government borrowing was spent on transfers. Pensions, welfare, subsidised electricity, subsidised bloody everything.
Germany does corruption, and theft from the taxpayer, at the top levels, absolutely – you understand I’m not talking about a specific bank you might have mentioned here ;-). But not so much at the low levels (especially tax evasion, at which Greeks, so I am told by a very good Greek friend, excels).
And the euro makes absolutely no damn difference to this. The banks would actually have been happier lending Deutschemarks to Greeks to buy German cars, just the default on the loan would have happened by a slightly different mechanism. And the government could have bailed out the banks far more easily with its own currency to print, and free of rules against state aid and the Commission prodnosing and trying to take over.
And Greece would have continued the same trick, ad infinitum, instead of what it has done, in making at least slow and unsteady progress towards having a functional market economy.
*: We won’t consider sales of VW, Opel and so on because their cars are cheap and apparently that would have been OK.
I think the first mention of German cars was you at 15:00, please correct me if I am wrong.
Yes, I did. But you decided to narrow it down to Mercedes, apparently not understanding:
1. Germans make other cars beside Mercedes.
2. The cars was an illustration, albeit a very visible one, of a wider problem.
The money was not spent in any great measure on German industrial goods.
Then who bought all those German goods in the Eurozone? Just private businesses?
Most Greek government borrowing was spent on transfers. Pensions, welfare, subsidised electricity, subsidised bloody everything.
Yes, Greece was awash with Euros, lent to them by German and French banks. Subsidised electricity, you say? I wonder how many juicy contracts Siemens got out of the generation and distribution? They seem to do rather well in Greece, after all.
The banks would actually have been happier lending Deutschemarks to Greeks to buy German cars
I very much doubt it, or this German-Greek debt crisis would have happened before the Euro.
This is nothing new and nothing to do with the Euro.
I recommend a book, heavy-going in places, called “This time is different: Eight centuries of financial folly”.
Its quite simple – no-one used to want to lend the Greek government money (ie buy its debt) when they used the lira, because although the interest rates were very attractive, you lost out on the lira devaluing all the time (plus there was a decent change of default). So the Greeks couldn’t borrow much money. Occasionally they would stiff the lenders by defaulting or the lira would lurch down suddenly and some banks had to write off some debts, which put a severe damper on enthusiasm to lend to the Greeks.
Fast forward to Greece joining the euro. Suddenly the lira was no more, so no more devaluation risk, euro zone banks were lending in their own currency. After all Barclays don’t worry about currency devaluation when they lend to Liverpool do they? And everyone knew that the EU wouldn’t let Greece default and leave the euro (and they were proved right). So they could shovel euros down Stavros’s throat faster than he could spend them on workers doing nothing, and then retiring on full pensions at age 55. And not have to worry about not getting their money back, it was someone else’s problem. As proved to be the case.
None of which would have happened if Greece had been told that it didn’t meet the eurozone criteria, which it didn’t, which was another example of the EU ignoring its own rules when it suits them to.
This is nothing new and nothing to do with the Euro.
The introduction of the Euro also removed interest rate setting from national central banks and meant that individual States could no longer devalue their currency as a corrective measure if they became uncompetitive.
Instead of having 3 levers to manage the economy (budgetary, interest rates and exchange rates) each county now had control of just one lever- budgetary.
Interest rates were set relative to the economic cycle of the northern EU states which were then in very low growth.
The economies of Ireland, Spain, Portugal and Greece (PIGS) were all growing and the countries’ interest rates should have been raised in recognition of this.
Instead, low interest borrowing was used to finance a property boom and, to a lesser extent, personal consumption. The boom produced increased taxes and fuelled unsustainable Govt expenditures.
When the banking collapse happened, it hit banks almost all over the world. However few countries were as badly exposed as the PIGS.
In the normal course, under an IMF-supervised bailout, the money owed by these countries would have been repaid at heavy discount and their bankrupt banks likewise (or allowed to go bust). The EU would not allow it, so the European Central Bank created bonds which were used to finance national debt, ensure liquidity and to repay the German (and other northern European) banks.
What Jim said, except it’s drachma not lira.
The Greeks were known to be a bad credit risk and letting them join the Euro didn’t change that. Nor should anyone have expected it to; they’re Greeks! Lending them large amounts at low interest rates was bound to end up badly.
Martina Markota of The Rebel.media explains why Croatia should not adopt
the Euro as their currency.
https://www.youtube.com/watch?v=J6jD94OInO4
Merry Christmas
” it’s drachma not lira.”
Doh! Blonde moment.
“individual States could no longer devalue their currency as a corrective measure if they became uncompetitive.”
Yes, this is a feature, not a bug. You can’t inflate/devalue away external debt anyway, so why bother trying? A euro of external debt is lower risk to the Greek government than a deutschemark of external debt. It is also not a solution to lack of competitiveness. The only effective solution to lack of competitiveness is to become more competitive.
It’s also the height of ignorance to imagine that Greece was not lent money before the euro. Greece spent the best part of a century (to ca. 1914) in more or less constant default. The central government debt ratio was also similar to other European countries from at least the 1970s through around 1995.
Interest rates on government lending are set by the market, not by central banks. The Eurozone interest rate is what the ECB will give you for a deposit, not what you should charge the Greek or German governments for borrowing your money. If bankers didn’t know that before the crisis they certainly do now.
Oh, silly me, just look at what wonders inflation worked for Venezuela, Brazil, Zimbabwe, Weimar Germany, etc, and how strong and dominant their economies became because of their periods of inflation/devaluation!
“repay the German (and other northern European) banks.”
IIRC, the haircut on privately owned Greek bonds was 50%. On an outstanding ~€250bn. The banks got hit pretty badly actually. The EU would not, however, accept a haircut on the bonds the ECB had acquired (at a knock-down rate). The idea this is some kind of German conspiracy is to imagine our criminals are stupid enough to believe they can get rich by robbing deadbeats rather than millionaires.
“After all Barclays don’t worry about currency devaluation when they lend to Liverpool do they?”
Exactly. But the risk in Liverpool (sorry, Thud), is therefore a higher risk of default compared to other parts of the country, not a hypothetical “Liverpool Pound” being devalued to oblivion. The consequence is banks need to consider the default risk and set interest rates to cover their likely losses. In fact, if the Liverpool Pound existed banks would still insist you borrow in Bank of England Pounds. And would still have to consider the default risk when agreeing an interest rate.
Which is exactly what banks did with bad risks. Countries like Greece had their debts denominated in hard currencies anyway, Pounds and Dollars. This is long before the Euro. And the contracts written in London and New York because the courts there are happy to enforce contracts. A Drachma bond under Greek law was riskier and came with a higher interest rate of course.
When Greece had its own currency it couldn’t borrow in it anyway, so it borrowed in a hard currency and defaulted. Exactly what it did when the Drachma was abolished. Since 1800, Greece has spent over 50 years in default, defaulted nine times in all and come close a lot more. It’s not like investors weren’t warned.
When Greece had its own currency it couldn’t borrow in it anyway, so it borrowed in a hard currency and defaulted. Exactly what it did when the Drachma was abolished. Since 1800, Greece has spent over 50 years in default, defaulted nine times in all and come close a lot more.
Indeed, it’s almost as if there was a compelling reason for German banks to lend Euros to Greeks and other deadbeats other than an expectation they would get their money back.
Give it up Biggie–you lose. Your EU pals are going down the toilet one way or another.
Good riddance and serves ’em right.
My only regret is that their hierarchy will likely escape the date with the noose that they so richly deserve.
I have to love the logic, Fecks:
X did Y lots of times when Condition A was in state A1.
Condition A is now in state A2.
X just did Y.
Therefore, X doing Y was caused by changing to state A2.
“Indeed, it’s almost as if there was a compelling reason for German banks to lend Euros to Greeks and other deadbeats other than an expectation they would get their money back”
There is indeed, isn’t there? Since none of us here are bankers, let’s put it in everyday terms. Let’s say you’re standing in the pub & this bloke shuffles up to you. He’s already well pissed, He’s holes in the elbows of his jumper & soles hanging off his shoes. “Lend us a tenner” he asks.
Now you know from other regulars he’s a long history of borrowing money & paying it back late or not at all.
Do you cough up?
If so, how much interest do you charge? Bearing in mind that a rate of interest, reflects the risk of default, will increase the difficulty he has of repaying to the point he may never do.
(Sounds of glasses being replaced on bar, jingling of car keys, hurried footsteps, opening & closing of pub door)
But you’re not bankers, are you?
“There is indeed, isn’t there? Since none of us here are bankers, let’s put it in everyday terms. Let’s say you’re standing in the pub & this bloke shuffles up to you. He’s already well pissed, He’s holes in the elbows of his jumper & soles hanging off his shoes. “Lend us a tenner” he asks.
Now you know from other regulars he’s a long history of borrowing money & paying it back late or not at all.
Do you cough up?”
No, of course not.
But if you happen to know that he’s just married a wealthy heiress and she won’t want the bad publicity of you telling the world that she won’t stump up a few quid for her beloved, then you might think it a better bet.
But if you happen to know that he’s just married a wealthy heiress and she won’t want the bad publicity of you telling the world that she won’t stump up a few quid for her beloved, then you might think it a better bet.
Or if you’re the landlord who is paid a fat salary no matter what plus a fat bonus if you sell every last drop of beer in the cellar by year-end, you might want to lend the guy a tenner out of the till. This is especially true if the debt won’t be written off for a few years.
Please explain how the Euro caused Greece to default eight times between its independence from the Ottoman Empire (and introduction of the Drachma, in 1832) and 2001.
Please explain how the Euro caused Greece to redenomimatethe Drachma at 50,000,000,000 to 1, in 1944.
Please explain how the Euro caused Greece to redenominate the already-redenominated Drachma at 1,000 to 1, a mere four years later, in 1953.
Please explain how any of Greece’s defaults and redenominations enabled it to ( 1) escape its intolerable external debt burden (2) modernise and reform its economy to become the global powerhouse it is today.
@bis,
Because you have a ton of cash burning a hole in your back pocket and the piss artist is offering 30%.
It’s cause to lend him a tenner, not ten billion. And you know who I think should carry the losses? The lenders.
In Bigistan, it would be illegal for banks to issue shares. Private ownership. Without limited liability.
You want a license to print money, you stake everything you own on it.