Grexit

Willem Buiter writes in the FT on the odds and consequences of Greece exiting the eurozone: see here

The piece draws on a longer article by Buiter and Rahbari from last week. 

From the longer article:

[T]he positions of the main EA policymakers seem to have evolved and now suggest a greater willingness by EA creditors and the ECB to support vulnerable, but compliant EA member states under attack. In our view, EA leaders have come to the understanding that the financial, economic and political cost to the whole EA (and indeed to the EU and the global economy) of material EA break-up (that is exit of other nations than Greece) is substantially larger than the cost of extending conditional support. But EA creditor countries have also made increasingly clear that they no longer believe that the costs to the creditor countries of EA break-up or EA exit by one EA country would exceed the costs of creating a one-side fiscal union, a transfer-Europe without a commensurate quid pro quo as regards fiscal austerity and structural reform in the beneficiary countries, underpinned if necessary by far-reaching and unprecedented transfer of fiscal and wider economic sovereignty by the beneficiary countries. The EA creditor countries undoubtedly view the cost of providing unconditional and/or unlimited or open-ended fiscal and financial support to fiscally vulnerable EA countries as a price not worth paying to keep a single non-performing EA member state in the club.

103 thoughts on “Grexit”

  1. By this stage, the Greeks should have given themselves a right fright.

    It is clear that Germany and the other hardline countries will not budge until all the political parties sign on the dotted line and undertake not to campaign on any form of re-negotiation of the deal in the forthcoming general election. (Some elements of the foregoing may sound familiar).

  2. Predictable response from John Mchale.
    If in doubt use the fear card – always gets them.

    Also if a bank troll withen the bowls of finance events such horrible expressions as Grexit – you can take it as a given that Greece is out of here.
    But it must be made a example of if the 1000 year Banking Imperium is to sustain itself.

    Cui Bono.

    One must ask what exactly are yee guys trying to do ?
    Is your monetory & scientific foundation fundamentally unsound ?

    http://www.youtube.com/watch?v=JhS35f015SQ

  3. Sadly, but, at long last, inevitably, Greece is being forced to confront the profound dysfunction in its economy and society that is the bitter legacy of the unresolved post-war conflict. Since its accession in 1981 it has been indulged by the naive and sentimental other members of the EU.

    To place the problem in an Irish context and, perhaps, to make it more explicable, it would be necessary to consider the situation that would have arisen if FF, like the left in Greece, had been excluded from power and economic access for a generation and then, following a brutal dictatorship, secured the ability to alternate power with FG, similar to the centre-right New Democracy in Greece, and was able to reward its supporters with the largesse of the state grudgingly financed to a considerable extent by the centre-right.

    But, in Greece, in the absence of any meaningful national common bond, the rich on the right and centre-right increasingly refused to pay taxes to finance this largesse. And so Greece has ended up where it is.

    It’s been a long time coming.

    Ireland has yet to confront its much less serious, but equally debilitating, dysfunction.

  4. @Plato

    “Democracy passes into despotism.”

    @Paul Hunt (not every day you get placed alongside Plato!)

    “the rich on the right and centre-right increasingly refused to pay taxes to finance this largesse”

    I reckon it was more likely they refused to pay taxes simply because they knew they could get away with it 😉

  5. I just noticed the title of this thread.

    Grexit? Dear me John. You’ve obviously been speaking to too many traders and other bank wallahs.

  6. @ Paul Hunt

    “Ireland has yet to confront its much less serious, but equally debilitating, dysfunction.”

    Ireland’s response to the crisis, as you have written about a thousand times, has been to try and copper fasten the dysfunction with which this state is riven. Then, it has tried to try and persuade the rest of the population that, this is not really a halter, not really a bridle, not really a saddle etc.

    Thank god for the likes of yourself of Constantin, Kelly and the all too few conscientious bloggers who realise that Ireland is on the slippery slope constantly being greased up by our financial illiterates some of whom, mercifully will be retiring from politics after the next election. The 67.5bn bail out is shielding us from their decisions. We can all be brave little spinners when we are hiding behind a wall of borrowed money 35bn now used up.

  7. “The EA creditor countries undoubtedly view the cost of providing unconditional and/or unlimited or open-ended fiscal and financial support to fiscally vulnerable EA countries as a price not worth paying to keep a single non-performing EA member state in the club. ”

    Greece spent the last 18 months being waterboarded by people who thought they knew what they were doing. Sure, blame Greek dysfunction but when the big boys took Greece into the ICU they assured the world that they had the matter in hand and nobody was making excuses about the Greek civil war. It really does look like a big name GAA manager signed for big bucks promising an all-Ireland and then getting dumped out of the qualifiers by Longford (FFS!) and then blaming everyone but himself.

    The clowns who thought austerity would deliver growth need to take a good look at themselves. This crisis will roll on regardless of what happens to Greece. The leadership guarantees it . I think the people of Greece deserve a break.
    European solidarity was the big loser after Greece.

    And the Olympics are a curse .

  8. If Greece goes I don’t see the firewall working. Italy is 25% Greece. So is Spain. The odds will all change.

  9. Is it true that Finland has thrown the ‘collateral for its contribution’ spanner into the Greek bailout works again? I swear there are a lot of people out there (i.e. Germany and some of its buddies) who actually want to see a default despite all the EU officials desperately trying to push it over the line.

    Or is it all just a game of poker?

  10. I don’t really believe that Eurozone leaders believe we can weather a Greek Default.

    But it is important that they say they do, and important that they convince private bondholders that they are seriously contemplating it. The level of voluntary private sector involvement being offered at the moment is not very serious, and EZ leaders need to toot the trumpet of default convincingly if that is to change.

  11. A pattern seems to be emerging. Bailout funds are available and the political elite, establishment press, professional classes, banking lobby and public sector want them. The standard opposition stance is to want the cash, but claim they would renegotiate a more favourable deal. There is no real mainstream opposition. The other lot are ‘dangerous malcontents’ – and they are a rabble anyway.

    So far, so predictable. Currently Greece is performing the ritual.

    The likelyhood is that Greece will agree to do whatever it is told to. Where it gets a little more interesting is that as these periphery states do the bidding of the core “Corsterity” (copyright grumpy 2012, not as god as Grexit admittedly) it is quite likely at least some will eventually demonstrate that Corsterity leads to gdp declines, wishy-washy, half-baked, easy option reforms and an increase in the perceived debt problem.

    What happens then is admission that the strategy didn’t work, directed Germanification reforms of lots of things that actually do require reform but the domestic set-ups will not address, or a popular undermining of the don’t-rock-the-boat elites.

    Many EZ political and economic analysts think that these are so much closer to being realised in Greece, that it would actually be preferable for them to be shunted into a position of failing to jump through all the required hoops. With that one bound, the can could be kicked a long way up the road.

    If Greece stays in the Euro and does what it is told, it could be very inconvenient.

  12. I look forward to Willem Buiter’s follow pieces:
    Grachma – leaving the Euro.
    Or
    Greuro – staying in.

    If he’s drunk on his new found literary power, then expect:
    Gyros money – no bailout agreed
    Or
    Ouzo-ing money – bailout agreed.

    Wow! Denigrating countries for their economic malfeasance is fun!

    Do Ireland! Do Ireland!

  13. @ seafóid

    It’s so easy to ventilate pub-style about ‘austerity,’ and how much would you be prepared to pay yourself to support what has been in effect a kleptocracy for a section of the population?

    What is the choice?: try to contain the fallout from a disorderly default and leave the population fight it out in a failed state; feed the system with funds from Europe and hope for the best; try to force some reforms in endemically corrupt areas like medicine, tax collection, cut numbers in the politically overstaffed public service, modernise labour law etc.

    They are getting more cash and a writeoff of debts and you want the insiders to have a break?

    Nikos Konstandaras, Kathimerini newspaper:

    The consequences of strategic mistakes and political paralysis are worsened by the sloppiness of our state — a sloppiness that betrays the great indifference that our politicians and state officials showed the citizens over many years. Before the crisis, this indifference was papered over by excessive spending, by the “generosity” of a disorganized country. Today we see all the weaknesses in their full glory: Back taxes and pay cuts result in empty pay packets, electricity production is uncertain, prisons are overflowing, the health and pension systems are depriving citizens at precisely the time that they need them most, the country’s finances depend not on our partners’ solidarity but on their fear of our collapse, the recession is deepening, and state and individual incomes are down while expenses are rocketing.

  14. @ Gavin

    David Blanchflower was the only member of the Bk of England MPC to see the severe downturn coming. They refused to listen to him til they had no choice. Take notice.

    @ Seafoid

    “Italy is 25% Greece. So is Spain.”

    They key difference is that both Italy and Spain have fully functioning (and tax compliant for the most part), advanced Northern economies, which act as crucial economic stabilisers for the rest of the economy. The rich Greeks managed to move most of their money out of the EZ in case we had a Grexit, Spanish and Italians cant move their houses, factories and infrastructure out as easily.

  15. @Mr. Bond,

    Variations of the arrangement in Greece to deal with the legacy of the post-war conflict, whereby voters on the right of the spectrum subsidised the livelihoods of voters on the left – supplemented in the last 30 years by EU transfers, and which is breaking down, may also be seen in Italy, Spain and Portugal. The left and its supporters had been excluded from power and economic access for generations; their consent to be governed was bought by a massive extension of the state apparatus. And when they eventually had the opportunity to grasp the levers of power they copperfastened the role of the state in the economy and ossified the labour markets. And there were many on the right who also profited from the propagation of this convenient fiction.

    In contrast the legacy of the civil war in Ireland generated two catch-all groupings, FF + various opportunists on one side and FG + Lab on the other, with both seeking to boost and distribute the largesse of the state (again supplemented with EU transfers).

    Greece will have a long road back because any national common bond between those who should pay taxes and those who wish to spend and enjoy the proceeds has been shattered. I agree that the common bonds in Italy and Spain have been weakened, but they will pursue sufficient structural reform and will bounce back. Portugal may struggle a little, but, in Ireland, there seems to be little recognition of the nature and extent of the structural reform required.

  16. @ BEB

    “The key difference is that both Italy and Spain have fully functioning (and tax compliant for the most part), advanced Northern economies”

    http://en.wikipedia.org/wiki/Christ_Stopped_at_Eboli

    Spain is a stretch as well. Take out the north and Madrid and Catalunya
    and things are not ideal.

    I just think that if they do the unspeakable with Greece the bucks in the market will look at Italy and Spain in a different light.

    Gomorrah muid beo ar an am seo aris

  17. @ Seafoid

    sorry, i should have slightly rephrased – i meant to say the Northern parts of both Spain and Italy are advanced, fully functioning economies!

  18. @ Grumpy

    “Corsterity” makes more sense in an English accent .
    With the Dort twang it sounds like “car stereo”.

  19. @ Gavin
    Thanks for the link – good article.

    @ BEB
    You know how bond yields rise when the stock market recovers…..I’d have a worry that if the US economy starts to recover it will become harder for the govt there to finance its debt – so the whole thing gets dragged back down again. Is that a reasonable worry.
    Also some of the data from Canada not as rosy as previously. When you add municipal, provincial and federal debt their stimulus has lead to quite a build up of debt – paying this off could lead to problems later.

  20. It was refreshing to read Karl Whelan’s article in yesterday’s times on the Fiscal Compact and in particular his recognition of the limitations of forecasting macroeconomic outcomes. There is far too much being written by commentators today in definitive terms in vaccums of their own construct i.e. ignoring exogenous factors that don’t fit their diagnosis/prognosis.

    With respect to signing up to the FC, I would tend to agree with his analysis that purely on the basis that there is little to be achieved by opposing it at this stage there is no point not getting on board if it is going to antagonise its authors.

    Nevertheless, the government needs to do much more in terms of appealing to our EZ partners about the pacts/treaties they have already signed up to going all the way back to Maastricht. Leo Varadkar finally appears to have copped this with respect to his remarks on a call for greater “solidiarity” from our partners. If Germany/France are really serious about the necessity for fiscal harmony across the EU, it ought to show its committment to the monetary harmony it has already agreed – the Anglo promissory note is a breach of the commitment to that harmony.

  21. PH,
    You ruin your arguments with some untidy fact checking. The left have not been excluded in Europe.
    Mitterand, Wilson, Blair, Schroeder, Schmidt & of course Bertie all come from the left.
    Pandering to populism in Europe has led to the build up of unaffordable liabilities. The pols have been writing cheques that nobody will honour. Arguments over the merits of the fiscal pact are pointless. It is austerity or hyperinflation????

  22. @ Tull
    Bertie is from the left?

    FF have no Ideology. They are personification of all our gombeen desires.
    What other political party could accommodate Charlie McCreevey and Eamonn O Cuiv?
    Their attempts at re-branding at the moment are merely a marketing exersize.

  23. Buiter and Rahbari make a glaring omission. They do try to be comprehensive. I was thinking they were going to skip the detail of individual country by country bank exposures, but fair dues, they did the work and have the graphs for Greece – Total cross-border claims of foreign banks (bn
    EUR), 2006 – 2011 : So where’s the glaring omission, if there is one?

    Consider this:

    “6. Strengthened business continuity measures. TARGET2 will respond to the new threats in the post-September 11 world by offering the highest possible level of reliability and resilience, as well as sophisticated business contingency arrangements which are commensurate with the systemic importance of the TARGET infrastructure.”

    Above quote, not from their piece, but from:http://www.ecb.int/pub/pdf/other/target2_brochure_update_2004en.pdf

    You see there is quite a bit in their piece on how ECB banks outside Greece are being cushioned against Greek Default.

    There is nothing on the actual Target 2 payment transfer implications of the Greek Default involving the cushioning and support of European banks eg in Germany and France.

    It appears to me the only ‘real’ bailouts re Greece and the peripherals happening at ECB and EMU level are the bailouts of German and French banks. This is under the radar. Its being done without political involvement of member states.

    It is a great pity we have not benefited re IBRC re these current bailout arrangements that are not only bailing out ‘independent’ private banks in Europe, that tide didn’t lift our boat, but also sovereign TBonds with LTRO funding measures used to stimulate these banks.

    What Buiter and Rahbari fail to measure is how these measures to assist banks of exposed EMU countries to Greek default, further distorts internal balances in the euro area, in favour of the core, at expense of the periphery, a la peripherique !

  24. @Tull,

    Can’t recall any of these gentlemen being PMs in the PIIGS. The left was excluded in Portugal until the post-1974 dispensation, in Italy until the Christian Democrats imploded and the PCI went through its post-Soviet implosion spasm in the early ’90s, in Greece until the 1975, post-Colonels settlement and in Spain until Gonzalez replaced the vaguely democratic residue of Franco’s regime. In Ireland it was never excluded in a similar manner, but never fully included either – it was involved either as the minority player with FG or implicitly with FF claiming to look after the interests of the ‘men of no property’.

    France and Belgium sit somewhere between these and the better governed northern states.

    I agree that the pols have been writing bigger and bigger cheques to secure the consent to be governed, but they have also facilitated the expansion of a sclerotic and inefficient public administration throughout the sheltered sectors – and this is no where more evident than in the PIIGS.

  25. Eurozone industrial production figures out this morning show a 1.1% decline across the region in December compared to November (down 2.7% in Germany). Do those figures include any decline in Greece and if yes, does that distort the overall figure or are they too small to have any significant impact on it?

    Crikey! As I was writing the above I saw the falls in Q4 GDP for Greece and Portugal. Remind me….. who said this austerity thing was a good idea?

  26. PH,
    apologies, I thought the reference was Europe wide rather than porcine.

    Grumpy,
    look at the expnasion of entitlements and public expenditure in the UK and you will see that Bertie’s pal was on the left of the spectrum. He may have talked New Labour but he walked Old Labour.

  27. @Tull,

    Re “Pandering to populism in Europe has led to the build up of unaffordable liabilities”

    Nope, pandering to political cronies, FIRE economic policies, bank bailouts, socialism for the banks has led to build of unaffordable liabilities.

    Passing the bill onto the public service through your arguments tend to cloud and fog up the real issues.

  28. @ Colm

    we have 110bn of unfunded public sector pension liabilities (probably higher now cos yields are lower). It has absolutely nothing to do with any of the issues you raise above.

  29. @Tull,

    No problems. But the EU’s problems are porcine with the PIIGS and lupine with the better-governed northern ‘creditor nations’. France, Belgium and, a little uncomfortably, Britain have various combinations of porcine and lupine tendencies. I’m sure Irish people will be able to empathise with the Czechs’ desire not to be treated as just a region of a much larger and more powerful neighbour and the rest of the eastern member-states, with the possible exception of the Magyars, are simply organising themselves to cope with the emerging economic reality.

    The PIIGS need a regime of diet and exercise, but the wolves need to curtail their lupine tendencies. The PIIGS, understandably, strongly resent the diet being imposed (fiscal adjustment) and are very reluctant to consider exercise (structural reform). The wolves unfortunately fail to see that aspects of their behaviour which has resulted in what they see as major achievements (economic competitiveness based, to an extent, on wage repression and current account surpluses) have contributed to the PIIGSs unhealthy diet and lack of exercise – and continue to restrict any benefits the PIIGS may secure from a more healthy regime.

  30. @Bond Eoin Bond

    “we have 110bn of unfunded public sector pension liabilities ”

    Do you know how much we actually pay out in public sector pension payments each year? I was looking for the figure but can’t find it to hand.

    @All

    Can anyone explain to me why in many articles I’m reading (this link is an example) I have one EU leader saying that it’s no big deal if Greece defaults and leaves the Euro while another is saying it will cause an ‘explosion’. I don’t really know anything about ‘game theory’ or card games – is this regular contradiction just some form of ‘going blind’ to up the ante/confuse the enemy? I would have thought they would all be singing from the same hymnsheet?

    http://www.irishtimes.com/newspaper/breaking/2012/0214/breaking8.html

  31. Hmmm, suggestions the Greek situation is going rather pearshaped today. Domestic media saying Germans are putting up more and more fresh demands, in a bid to push Greece out of the EZ. Danger Will Robinson…

  32. @ Seafoid

    of course, Herr Bosch forgets that “changing EU laws” would face a rather difficult hurdle in the Greek veto…

  33. @ Tull
    I beg to differ. It takes two to tango.
    Financial markets are given money to “invest” to generate a return. Money in itself does not grow – its what people do with it.
    What financial institution in the world could have thought that public expenditure to pay doctors and nurses could increase the value of money lent out in the first place? They were dumb and greedy. Politicians too. But this crisis is a failing on the part of finance

  34. @ Eureka

    most of our public sector promises (2002-2007) were born out of surpluses, not debt-fuelled deficits. Difficult to see how the markets were at fault for that.

  35. @Bond Eoin Bond

    “putting up more and more fresh demands, in a bid to push Greece out of the EZ”

    That’s my take on it… and they are being given moral support by the likes of Finland, Luxembourg, Holland too.

    More contradiction (to the ‘Europe can handle a Greek default and exit’ message that’s being pumped out as part of the poker game).

    Olli Rehn this afternoon says a disorderly default would devastate Greeks and ‘harm Europe’. The pattern that seems to be emerging is that EC officials and southern periphery politicians are saying one thing and core/northern politicians are saying another (I’m classing Rehn as an EC official in that pattern).

    Rehn also says it is essential that EZ ministers meet tomorrow to finalise the second bailout – but I thought the decision on doing that had now been put back to the meeting of leaders on 1 March?

    Just getting a flash across my screen: “The Irish government has warned that downside risks to the economy have increased.” Who’s saying that then?

  36. @ PR

    in fairness, apparently Juncker (Lux) disagreed very strongly with the new German hardline, and a split has emerged with basically the Schauble wing of the German govt on one side, Merkel somewhat in the middle, and Juncker leading the other side that just wants to get a deal done.

    re Irish govt warning – its the updated MOU, think its just saying they downside is bigger vs last MOU in Nov. Not exactly surprising statement.

  37. Eurogroup meeting looks like it aint gonna happen tomorrow. “Paperwork not ready”. I aint kidding.

  38. @pr guy, bond

    Hmm, that’s what I was getting at above. There is a view that Greece is going to sully the reputation of whichever ‘option’ (default / de-Euro / de-EU / stick like limpet to bailout instructions) it takes, ie proponents of the other options will claim it would have been more sensible for their option to have been followed.

    Looks like Greece have not got their paperwork ready and the meeting is postponed. Reaction to that by some might be revealing.

  39. @ bond 12:24

    Re “we have 110bn of unfunded public sector pension liabilities (probably higher now cos yields are lower). It has absolutely nothing to do with any of the issues you raise above.”

    You must be confusing my post with another and have too many balls in the air, I’ve not listed any issues or made comment re Ireland, I was commenting on the Buiter Rahbari article and a specific banking related issue in EZ; but you make a good point re unfunded public sector pension liabilities 🙂

    On topic looks like the Bundestag see their money to save Greece getting burnt on the Greek pyres of debt; their hesitance shows the Bundestag doesn’t swallow its own propaganda and knows given the shape of the Greek economy, further capital/debt infusions may only make the patient worse.

  40. @ Colm

    re my comment re your comment:

    “Re “Pandering to populism in Europe has led to the build up of unaffordable liabilities” (from Tull)

    Nope, pandering to political cronies, FIRE economic policies, bank bailouts, socialism for the banks has led to build of unaffordable liabilities.

    Passing the bill onto the public service through your arguments tend to cloud and fog up the real issues.”

  41. @ BEB
    Because the surpluses were generated from tax off stamp duty etc – linkable to increased credit . VAT was too.

  42. @ Bond

    OK, I’ll add your point to that list:-( Helps to identify/track comments if you give the 00:00 time I find, helps me if I’m away doing other stuff, understand your point now.

  43. Juncker says further “technical work” between Greece and Troika needed.

    Sounds like more than a photocopying delay in Greece.

  44. Colm B,

    It looks increasingly likely that the Greeks are going to be invited to exit the Euro and possibly even the EU* at the same time that the Germans are cozying up to the MAcedonians. How embarassing. We will then see how rosy life will be for them.

    How will the pay for basics like oil and pharmacuticals. I doubt anybody will accept Drachma Nuas for the forseeable. A mid size Swiss biotech company took a write down on receivables from the Greek healthcare system. The Greeks have been paying in IOUs for a while. I would doubt they will receive further supplies of pharmacuticals.

  45. @ Eureka

    your first comment was:

    “What financial institution in the world could have thought that public expenditure to pay doctors and nurses could increase the value of money lent out in the first place?”

    your second comment was:

    “Because the surpluses were generated from tax off stamp duty etc – linkable to increased credit . VAT was too.”

    These are two entirely different, if related, indirectly, issues. Markets in the 2002-2007 era did not lend to the Irish government to pay doctors and nurses salaries. You cannot blame the markets for what the Irish government irresponsibly did with surpluses generated off the taxable elements of private sector economic activity.

  46. Paperwork not ready?

    The last time I used that one was to a teacher, giving it the old: “I left my homework on the bus miss”. We couldn’t afford a dog in my childhood. I suppose I could have said my little sister ate it.

  47. PR Guy,
    Given that France has run a budget surplus one year out fo the last thirty five, I would be supremly confident that this vote would pass.

  48. ‘The point we cannot emphasize sufficiently is that Greece is not being bailed out. Workers are losing their jobs, wages and pensions. Taxes are rising. The economy is contracting. We learned today that GDP was 7% smaller in Q4 2011 than in Q4 2010. For the entire year, the economy contracted 6.8%. The government has assumed a 6% contraction in 2011 for this year’s budget forecasts.

    The fact that the VAT proceeds fell 18.7% in January is unlikely to reflect tax evasions as much a dramatic compression of demand.

    If Greece is not being bailed out, where are the funds going? The vast majority of the aid money is going to service Greece’s debt. It the German proposal to set up an escrow account materializes, it would tear the veneer of illusion off the Greek bail out story and reveal the true beneficiaries of the aid is not Greece but its creditors’

    http://www.creditwritedowns.com/2012/02/there-is-no-closure-in-greece-whatsoever.html

  49. @Tull

    Re “How will the pay for basics like oil and pharmacuticals. I doubt anybody will accept Drachma Nuas for the forseeable.”

    A very good question. The Greeks have it within their power to manage the crisis. There will be enormous problems to overcome. There are potentially huge mistakes that can be made as well. Argentina is a case in point:

    http://findarticles.com/p/articles/mi_hb6669/is_3_19/ai_n28957224/pg_7/?tag=content;col1

    “The new toughen-as-you-sink policy is dangerous. Although it increases the incentives for governments to embark on serious adjustment efforts, it also carries a high risk of failure for two reasons. First, it sends mixed signals to the market. Bondholders are less inclined to trust the Argentine government because there are no assurances that the IMF or the U.S. Treasury will come to its aid. That is one reason why Argentina’s country risk, which had been high but relatively stable during much of Argentina’s recession, skyrocketed after April 2001.”

    1. It should seek assistance from the IMF.

    2. It should seek assistance from China, India and emerging African and Bric countries.

    3. It should set up its own independent, public banking system and issue its own DrachmaNua.

    4. It should seek to preserve its public health and educational system.

    5. IT should introduce a fair system of taxation and tax the rich

    6. It should introduce a tariff system to protect indigenous industry if necessary.

    7. It should embark on a programme of import substitution and raise taxes on oil and petroleum products.

    8. IT should develop its tourism industry and stimulate bilateral trade with countries inside and outside the euro such as UK.

    9. It should reduce its CT to 0% and guarantee its level to remain at this level for 5 years.

    10. It should stimulate the voluntary sector to protect and foster communities and welfare of the vulnerable

    Sure there’s a few heads up to goFor. Also first out of the euro should give it a heads up on the rest to follow later 🙂

  50. @BEB
    In Greece they recklessly lent to the sovereign – in Ireland to the private sector (indirectly inflating the coffers of the sovereign creating a virtuous (now vicious) circle where the increased revenues fed wage inflation and further increases in credit.
    History is written by the winners and finance is winning. So it can say what it wants. There are some of us who dont accept the version.
    Nobody should get off the hook here – it really does take two to tango. How sad I’m talking about tangos between markets and sovereigns tonight. Shows me where my life has gone. Amazing how when you type aging into predictive text you get agony followed by aching. My iPhone is quite the philosopher.

  51. @Grumpy

    “If Greece stays in the Euro and does what it is told, it could be very inconvenient.”

    Spot on and good analysis.

  52. @ Colm

    “4. It should seek to preserve its public health and educational system. ”

    If it cant afford drugs and medical equipment, i dont see how the health system can be maintained. It can barely be maintained right now.

    “5. IT should introduce a fair system of taxation and tax the rich”

    You can only tax economic activity. There will be little or none for some time. And “the rich”? Eh, they’ll be in Switzerland.

    “6. It should introduce a tariff system to protect indigenous industry if necessary.”

    I don’t get this. The FX devaluation will discourage imports, and what was the point of the crucifying devaluation if you’re going to scare off foreign investment?

    “7. It should embark on a programme of import substitution and raise taxes on oil and petroleum products.”

    Why would you do that? Wouldnt the 300-400% overnight increase in the cost of oil be enough to destroy the economy by itself?

    “8. IT should develop its tourism industry and stimulate bilateral trade with countries inside and outside the euro such as UK.”

    Wouldnt this require some sort of investment this side of 2020?

    If Greece exits the EZ and re-Drachmatises it will regain much of its sovereignty (being unable to import anything will ever so slightly erode that in reality), but will lose around 30 years of economic development and standard of living increases. Or it can remain in the EZ, sell off a lot of its sovereignty and only lose around 10-15 years of economic development and standard of living increases. They’re basically the choices facing it. Neither are pretty, but at least their more honest than the “leave the EZ, devalue and you’ll be grand”. Devaluing only works if you are capable of selling something, or are self sufficient in things like food n energy. Its debateable that Greece is either of those at this moment.

  53. @ BEB
    The Goldman Sachs cooked Greeces books to get it into the Euro. Another great moment for the financial sector!
    Everyone should just default – jubilees are natural and good. Let’s all just default together

  54. @ Eureka

    “The Goldman Sachs cooked Greeces books to get it into the Euro. Another great moment for the financial sector!”

    what proportion of Greece’s total debt was “hidden” by Goldmans? The 30yr government-sanctioned rampant corruption, systematic tax evasion and mind-boggling fiscal insanity have led Greece to where it is today, foolishly and willfully ignored by financial markets and EU leaders.

  55. @Tull
    ook at the expnasion of entitlements and public expenditure in the UK and you will see that Bertie’s pal was on the left of the spectrum. He may have talked New Labour but he walked Old Labour.

    Not the place to really discuss this but there is a tendency to define left and right in terms of public sector spending excluding military. I think there is a fair amount more to it than that. I would also note that Blair was not independent of Brown.

  56. Greek traders and seafarers operate all over the world. You will find Greeks and Lebanese operating businesses in small towns all over Africa and Latin America. They have a long history of operating their businesses in a way that minimises taxes both personal and corporate. I have personally benefited from their expertise when I was young and intent on accumulating enough to survive the next two potato famines. Greeks who operate within Greece are subject to paying taxes unless they have contacts and bribe the appropriate civil servants. The civil servants do not come cheap so only the relatively well off can avail of low tax rates. There is no great gulf between tax evasion/avoidance conditions in Ireland and Greece. Activities that would get you shunned by society in Germany or France are perfectly respectable in Greece and Ireland. I do not think that Ireland is in a position to get righteously indignant toward Greeks.

    Now that Greece is edging closer to societal collapse I wonder how Gresham and Trier’s laws will play out inside and outside the EZ, The NY Times infographic I linked to shows liquid assets flooding into Germany. Now that Switzerland is drowning in liquid foreign assets its unemployment rate is at a 10 month high and rising although it is now only 4.1%, as the Swiss franc appreciates it will continue to deteriorate. A form of Dutch disease without the gas. We once enjoyed a rate that low, them were the days.

    We could use Delia Murphy now to come up with a spirit lifting ballad such as. “I’m a rambler, I’m a gambler, I’m a long way from home. If you don’t like me you can leave me alone. I eats when I’m hungry and I drinks when I’m dry and if moonshine doesn’t kill me I will live ’til I die.”

  57. @ Bond,

    You have a fundamental problem not getting this that ? The reason is you can’t take those points in isolation. They are predicated on the fact that severe devaluation eg 75% in the Argentine case will limit the possibility of paying for imports; so import substitution will become a necessity. 300-400% increase in the price of oil would indeed collapse the economy, but not if its already collapsed. The price of oil is going to jump with devaluation; so best to wean the country from its oil dependence in the short term. Of course tourism and other parts of the economy will require investment, that’s the role of assistance from the sources I mention including the IMF.

    Re “sell off a lot of its sovereignty and only lose around 10-15 years of economic development and standard of living increases.” that’s rubbish, not on the cards. Its economy is being sterilised and neutered as we speak, its being looted to save the Greek elite and foreign banks, its democracy is at risk.

    But I’ve left out the most important ingredient to its survival, politics. Political upheaval of one kind or another is at the root of most economic meltdowns. Read the link to research article above in earlier comment. I’m not that au fait with Greek political life so for me this is a wild card. If there is a democratic will and cohesion among the Greek people to reform, to make the sacrifices, to assist in rebuild, it can succeed but will need many more tools in the chest than I have described. If political cohesion exists, the international community and the markets will, I’m sure, come to help. If not, abandonment to what, military takeover, anarchy, who knows?

    The IMF were not totally to blame in the meltdown in Argentina circa 2000, but they made fundamental mistakes. Its interesting to read the final paragraph in that article replicates the mess the politicians led by the nose by the rip off banks and financial sector, as follows:

    There is no denying that governments must be encouraged to engage in difficult reforms through a policy of carrot and stick. But the new technocrats at the helms of the IMF and the U.S. Treasury should rethink their toughen-as-you-sink approach. It converts the stick into a heavy club that pounds weak democracies far beyond what they can realistically sustain. It undermines the credibility of officials just when they need a boost. It treats democracies just as it would treat dictatorships, expecting a degree of policy correctness that ignores domestic political conditions. Officials at the IMF and the Treasury ought to study the political possibilities of the target countries as rigorously as they study their balance sheets.

    One further point re reform of the banks and the financial sector:

    http://en.wikipedia.org/wiki/Bank_of_North_Dakota

    Get the Chinese to invest in a publicly owned state banks run on these lines. Plus stay within the EU with the view to cementing trade links.

    Re “If it cant afford drugs and medical equipment, i dont see how the health system can be maintained. It can barely be maintained right now.”

    That scaremongering rubbish may gain traction elsewhere, to me it is an example of the ludicrous scaremongering that just really doesn’t deserve comment.

    I’m sure Ireland can make a contribution to the pharmaceutical needs with our corporate footprint and contacts.

    So, here’s the deal. as presently constituted how badly f/@!
    is Greece? Is the Bundestag propping up a useless, corrupt elite, siphoning off funds and depriving its country of true political and economic leadership? If not, if it has the democratic will and trained political savvy to manage a recoil out of the euro trap, it has a chance of democracy and New Drachma, but it will not be easy.

    Whichever ever way the ball bounces, dER euro ist Fertig 🙂

  58. @all

    Van Rompuy and the other guy (,well fed Portuguese chap who likes to shout at Irish MEPś,) are on an official visit to China possibly trying to get a “sub” on the 130 Bn Euro Greek cheque. Then again maybe they were “just passing” and decided to “pop in” for tea and a chat.

    Amazing :China is already starting to have serious economic problems of its own but apparently are ready “to help solve” the EU crisis. I suppose China will print money lend it to Europe so that we can continue importing their stuff and the ECB can “bailout ” Greece so that country can pay off some creditors.

    At this stage it would not surprise me if the ” help” visit may have something to do with the “cancellation” of the Greek talks.

    However we may rest assured we have no need to be worried (even if Europe can no longer even afford to pay for half decent spin doctors) because according to Van Rompuy “…we have turned a corner…”. 🙂

  59. @ Livonian

    Maybe the other fella was Klaus Regling….they were rebuffed before by Pres Hu Jintao…are they selling Greece to them ? China better off investing in Greece 🙂

  60. @ Colm

    “The price of oil is going to jump with devaluation; so best to wean the country from its oil dependence in the short term”

    Can you give me an example of any even semi-advanced economy that has ever “weaned itself off oil independence”? Whats it going to use to keep the economy, and indeed society, going? Feta?

    And how is pointing out that absent any hard foreign reserves, following the mass default against many international medical/pharma companies, that acquiring many advanced medical supplies (ie not the stuff the WHO deals in) is going to be close to impossible “scaremongering rubbish”?

    Im pointing out real problems that face Greece the day after devaluation, problems that will likely lead to an even greater disintegration of Greek society for something more like the medium term, not the short term. The IMF can only be a limited help for a problem which is very much a European problem. What you are suggesting has never been tried, in terms of the overnight reduction in standard of living, anywhere, EVER. Your answer amounts to “Ireland can help it” and “they need a substitute for oil”. Best of luck with those.

  61. @ BEB

    “You cannot blame the markets for what the Irish government irresponsibly did with surpluses generated off the taxable elements of private sector economic activity”

    Maybe the markets could have figured out where the surpluses were coming from. But I suppose when all losses are socialised who cares anyway 😉
    Trichet will ring FF won’t he ?

  62. @Colm

    I double checked again and the other fella seems to be that Portuguese chap (one of the Presidents in Brussels ) who apparently went hysterical in the European Parliament when he was asked a question by an Irish MEP in relation to Irelands stitchup ,sorry bailout, just over a year ago prompting John Bruton to write a public letter to him. 🙂

    On a more serious note: when I was double checking I also found the wording by the Chinese seems to be “more deeply involved” which my simple reasoning leads me to consider how “deeply” is China already involved. Hopefully this never ending Euro crisis is not dragging everyone deeper into the economic swamp in front of our very eyes.

  63. @ Bond

    ‘If Greece exits the EZ and re-Drachmatises it will regain much of its sovereignty (being unable to import anything will ever so slightly erode that in reality), but will lose around 30 years of economic development and standard of living increases. Or it can remain in the EZ, sell off a lot of its sovereignty and only lose around 10-15 years of economic development and standard of living increases. They’re basically the choices facing it.’

    On that logic, what are Ireland’s likely options ?

  64. The post on the Action Plan For Jobs has attracted lesser scrutiny and only a quarter of comments as this speculative piece on Greece leaving the eurozone. Hardly confidence inspiring.

    Dissonance or denial about Ireland’s challenges?

  65. @Alchemist

    Maybe it is because we realise while we may be able to tackle domestic problems (comparatively) quite well, once we come to terms with our domestic challenges, we also have to take into consideration wider EU problems which we can not solve on our own.

    IMHO we might be able to export our way to recovery but we cannot “export” our democracy.

  66. @ PQ

    “On that logic, what are Ireland’s likely options ?”

    There was an interesting article in the FT last week (linked below on this site), by some Harvard guys, who said that for all of Ireland’s problems, by their calculations we still had the ability (the knowledge to produce and export) to be as wealthy as we are today (there may be an adjustment period in balancing the economy to that level), while the Greeks, at this moment, did not, they had to take a significant step down in their standard of living based on current abilities, though they could learn from us in terms of going forward.

    The only question is the magnitude of Greece’s reduction in living standards – the argument would be that for all the flaws of the EZ, if you have aspirations be a wealthy, advanced economy, you have far more chance of attaining it within the EZ rather than outside.

    http://www.irisheconomy.ie/index.php/2012/02/09/ireland-can-show-greece-a-way-out-of-the-crisis/

  67. The EU is China’s largest overseas market and business continues to decline. It is in China’s interest to prop up the EU. It is not likely to assist the smaller countries directly. It is more likely to encourage imports from the EU, Germany. France and Italy are now doing well with high value goods. The domestic dairy business in China is in disarray after the melamine contamination scandals. Imports of powdered milk and baby formula are doing very well with NZ in the lead. A major marketing campaign for Irish whiskey would probably pay off better than Tourism marketing. Loans directly to France, Italy and the over arching institutions such as ECB, EFSF are likely. There are opportunities for Ireland in China, there are Irish business people in China already. The learning curve is steep and the results in the short term will be meagre but it is essential to get in for the medium to long term. This St. Patrick’s day send a delegation to Peking and have an Irish/Chinese celebration complete with stout, beer, whiskey, smoked salmon, smoked ham, Denny’s sausages and Irish Coffee. Back a present and future winner.

    To picture China and predict what it will do you have to be aware that it is run by a meritocracy with doctorates in the hard sciences. The depth of knowledge of the supporting structures and their intelligence gathering abilities are nonpareil. They can be trusted to say it is in our mutual interest but they will back winners even if to an outsider it first appears questionable. Could we be a Chinese aircraft carrier or a platform to launch Chinese direct investment in the EU. We should at least establish a relationship and explore the possibilities.

  68. @ Paul Hunt

    “I agree that the pols have been writing bigger and bigger cheques to secure the consent to be governed” – This comment seems to cover EZ countries in general but I could be wrong.

    Looking at this document from Eurostat: the figures here don’t seem to support that assertion, but I have not had time to look in detail.

    Overall, though, in the run up ro the crisis the ratio of government spending as a proportion of GDP was falling not rising. Government (however efficient or not) was getting smaller not bigger.

    Also Mr Bond’s point about unsecured promises for future spending needs to be looked at across Europe.

    But the meme that overall this is a government problem caused by excessive spending fuelled by borrowing binges – as has been sugested elsewhere on this blog – needs to be scrutinised.

    http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-SF-11-013/EN/KS-SF-11-013-EN.PDF

    PS There are some stats in there that I think the Dork would be interested in.

  69. @Gavin Kostick,

    As Lord Marshall is alleged to have said: ‘all generalisations are wrong; except this one.’ The latest post on macroeconomic imbalances provides more granularity. All unhappy families are unhappy in their own ways. Not all countries danced at the edge of the cliff by facilitating a huge expansion of private sector credit and an expansion of public expenditure based on volatile tax revenues, but very few had sufficient fiscal space to deal with the impact of the credit crunch.

  70. @ Paul Hunt

    “The latest post on macroeconomic imbalances provides more granularity.”

    And where’s your market on the number of posts that that thread gets?

  71. @ Livonian

    Ah, that would be José Manuel Barrosso seen below working on hos chinese

    http://ec.europa.eu/commission_2010-2014/president/index_en.htm

    It was sooo exciting to hear from the Rabbit this morning they may allow some portion of asset sales to be spent on jobs/investment; we can’t expect to escape scot free you know, look at Greece/Portugal. Speaking of which looks like bad news for the PN kite, negotiators don’t like New Democracy in Greece and want their finger prints on written promises (not promissory notes) to man the guillotine cuts; some chance they will make an exception for us and grant PN cuts with New Democracy knocking on their door 🙂 The Rabbit will make sure we’re not digested in one big gulp, but slowly, bit by bit.

  72. @Mr. Bond,

    “And where’s your market on the number of posts that that thread gets?”

    Ah now, Mr. Bond, surely you don’t want to be exposing those who prefer to rant to facts and figures.

    But these illustrate the challenges at one level. I’m keen to drill down a bit deeper. I’m still waiting for a response to my simple question re the NTMA’s investor presentation: what percentage increase in real disposable income per capita (p15) would we see if the Irish price level were reduced to the Euro Area average (p28)?

  73. @ The Alchemist

    Your point on the contrasting level of interest in drama – – bondholder burning (even for idiots who may lose out pensions wise) default, mayhem, the prospect of countries like Germany being humbled; ditto for leaders, in Ireland will always trump what is perceived as boring: reform of failed systems, job creation, accountability.

    All hasn’t changed utterly — what sustained machine politics endures.

  74. The Chinese probably want port facililties to ship in goods for onward transmission to European markets. I believe they were looking at a site in Iceland.

    The previous government has earmarked a site in Athlone. Arklow, Baltray or Foynes would be better.

  75. @ Bond 9:41

    Re “The only question is the magnitude of Greece’s reduction in living standards – the argument would be that for all the flaws of the EZ, if you have aspirations be a wealthy, advanced economy, you have far more chance of attaining it within the EZ rather than outside.”

    Greece should take hope and inspiration from Ireland’s economy 🙂 Join a currency with a strong industrial core with huge trade surpluses, to lend out to peripheral countries, to purchase its goods and install banks and a financial sector and politicos to harvest the profits from the goody loans. Then, when peripheral countries can no longer pay back loans they’ve squandered, send in the bailiffs and debt extractors, to give them bailout loans to pay back the loans they can’t pay back; but police them, take control of their budgets, reduce their public services, cut away at infrastructure, health and education, exact further tribute in return for further bailouts eg with a fiscal ‘Compact’ well on the way towards a Vichy France WW11 armistice initiative type administration of offender peripheral economies, http://en.wikipedia.org/wiki/Vichy_France

    Nope, that’s not welcome to advanced economics, that’s going back to Stalinist socialism for the banks, or WW11 Germanic hegemony; this is no blueprint for a wealthy, advanced economy, think of satellite states of Russia during the cold war and their carrots, worry about the sticks coming later 🙁

  76. @ Tull, I’m not aware of any great port facilities in Athlone unless they’re going to barrow goods to there from Drogheda or Dublin, but choice of site on par for choices made by previous Gov 🙂

  77. @Colm@Tull

    As I understand it the idea for Athlone is not “port facilities” but “shop front” (and when necessary) “deal making” facilities which requires a central location within Ireland. Apart from samples I cannot see many goods being shipped into Athlone.

    Potential European buyers need to be able to fly into Dublin, potential US buyers need to be able to fly into Shannon and (when products are chosen) sales and shipping contracts need access to the services in Dublin.

    If Ireland is the best choice for such a “shop front” centre than Athlone can actually be the only logical choice because of location, pre/post sale logistics etc. A second logical reason would also be that it has probably been “planned” for a long time.:)

  78. @ Livonian, Tull

    I have followed the progress of the China hub in Athlone project and, as Livonian says, it has nothing to do with shipping goods into Ireland other than samples. The idea is for Chinese suppliers and manufacturers to showcase their wares to European or US buyers. Athlone, for one reason or another, had some business people who spotted the opportunity and were able to assemble a land bank. I don’t believe the previous Government had any influence in the matter because no tax incentives are being offered and, in any event, it would have been in Clara, Co. Offaly had that Government waded in.

    The project is currently under appeal to An Bord Pleanala and, if it passes, it will then be in competition with other potential sites in Europe. So it is early days.

    I don’t agree that Athlone necessarily has the transport advantages Livonian talks about. He must obviously have never driven from Shannon to Athlone. If so, you would encounter some of the worst stretches of road you are ever likely to see. On the other hand, there is a motorway all the way to Dublin now. I would have thought the most obvious site in the country was some place in North County Dublin close to the airport. But, Athlone had some entrepreneurs who spotted the opportunity and I understand it has advantages in terms of a pristine environment, room for expansion, College on its doorstep, etc. So well done to the businesspeople who have put their money where their mouth is. It has cost a lot of money to get the project this far in the planning stage and it potentially is the ideal fit for Ireland bringing year-round business tourism to the centre of the country.

  79. BREAKING – looks like deal WILL be done on Monday. ECB swaps existing Greek bonds for new secured ones ones, books a profit of 10bn, gives this to national governments, they give this to Greece. PSI deal to proceed as planned, still open question on “escrow account”. Looks like a lot of people stepped back from the edge over the last 24 hrs.

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