time to let Greece exit the Euro zone?

[Anonymous]

I remember when they entered it and a lot of people questioned whether that was a good idea.

Now this little country where people brag about not paying their taxes and expect outsize benefits is broke and their troubles have been wreaking havoc on the world economy for months. They are offered an unbelievably generous bailout package considering the magnitude of their problems, and now they are saying, "oh, but wait a couple of months, we have to wait and see if our people like it"???

Is it time for them to go, and hopefully to not let the door hit them on the way out?

[jsteele]

I'd put it a bit differently. Greece should stop letting the bankers call the shots. If Greece defaults, the entire Euro Zone could crumble. Since it's the one holding the cards, Greece should be dictating terms.

[Anonymous]

jsteele wrote:I'd put it a bit differently. Greece should stop letting the bankers call the shots. If Greece defaults, the entire Euro Zone could crumble. Since it's the one holding the cards, Greece should be dictating terms.

True, but doesn't that assume a prisoner's dilemma situation with a single trial (i.e, Greece won't need to rely on foreign banks again for a loooong time)? If they're planning receiving credit again at some point, shouldn't they be a bit more reasonable?

[Anonymous]

jsteele wrote:I'd put it a bit differently. Greece should stop letting the bankers call the shots. If Greece defaults, the entire Euro Zone could crumble. Since it's the one holding the cards, Greece should be dictating terms.

hmmm. without being a part of the Euro Zone, do you think there is a good chance a post-default Greece could have a revolution or military coup? I certainly do. History repeats itself. I've been stunned that this worldwide recession/depression hasn't resulted in more political turnover. I'd be careful about dictating terms. It is in Greece's best interest (i.e., the greeks themselves) to be part of the overall euro community.

[jsteele]

It is in Greece's interest to remain in the Euro Zone, but only in the right circumstances. The Greeks can threaten to default in order to get the best terms possible until someone calls their bluff. At that point, the Greeks need to decide if they are bluffing or not. I don't think Germany, or to a lesser extent France, will allow Greece to default. Instead, they will concede to Greece's demands.

This situation again highlights the problem of "too big to fail" banks. If this was just an issue of allowing Greece to default, very few would care. But, if Greece goes down, it takes Germany's banks with it. Then, the Germans will have to bail out their banks in order to avoid much bigger problems.

If Greece does default and leave the Euro Zone, it will devalue the drachma and increase its exports. Once its back on its feet, the banks will be there with money bags. Bankers aren't not known for passing up a chance to make a buck (or a drachma). Nor, as we have seen much more than we would wish, are they known for avoiding risky loans.

[Anonymous]

If the eurozone ejects countries as soon as they have problems then the eurozone will die. What is the point In a monetary system if it can't handle it's own problems? The point of the system is to provide stability to a wide economic zone. If you pick off the developing members in bad times then you have a few rich nations who eventually decide that a zone of three big and two small nations isn't worth squat.

[Anonymous]

Beware of Greeks carrying debts.

You'll face some degree of unhappiness from countries like Finland, Austria, etc., who've kept their houses in order, from Estonia/Slovakia, who sacrificed a fair bit to make the Eurozone, and then Ireland and Portugal who have followed the banker advice ...

As an aside, maybe Macedonia can give Greece some money, and get the right to actually !@#$ name their country whatever the hell they want to name it. I understand that's still pretty high up on the Greek government's to do list, keep Macedonia out of NATO, the EU, everything.

Can't Germany decide to let Greece go to hell and then figure out what to do with its own banks?

At least there, you're only bailing out one set of dumbasses and it can be painted as a "we're saving our own/protecting widows' savings" issue instead of a "hey widows, put your savings at risk to help these Greeks who don't pay their taxes."

I agree with Jeff, that the bankers will come back in 3-4 years even after a default.

@18:52, the alternative is that the Greeks (who fudged the numbers to get in the Eurozone) will just be the welfare cases of Europe, getting bailed out every 25-30 years, and being subsidized pretty much forever by the wealthy North.

[takoma]

The whole Greek government appears to be reaching a crux, with Papandreou's future to be determined within the next half hour.

[Anonymous]

It is in Greece's interest to remain in the Euro Zone, but only in the right circumstances. The Greeks can threaten to default in order to get the best terms possible until someone calls their bluff. At that point, the Greeks need to decide if they are bluffing or not. I don't think Germany, or to a lesser extent France, will allow Greece to default. Instead, they will concede to Greece's demands.

Oops.

[Anonymous]

Anonymous wrote:

It is in Greece's interest to remain in the Euro Zone, but only in the right circumstances. The Greeks can threaten to default in order to get the best terms possible until someone calls their bluff. At that point, the Greeks need to decide if they are bluffing or not. I don't think Germany, or to a lesser extent France, will allow Greece to default. Instead, they will concede to Greece's demands.

Oops.

yeah that quote is pretty misinformed. They already agreed to a huge "default". What do you think a 50% haircut on Greek debt is? A default of course.

[jsteele]

Anonymous wrote:

Anonymous wrote:

It is in Greece's interest to remain in the Euro Zone, but only in the right circumstances. The Greeks can threaten to default in order to get the best terms possible until someone calls their bluff. At that point, the Greeks need to decide if they are bluffing or not. I don't think Germany, or to a lesser extent France, will allow Greece to default. Instead, they will concede to Greece's demands.

Oops.

yeah that quote is pretty misinformed. They already agreed to a huge "default". What do you think a 50% haircut on Greek debt is? A default of course.

The problem was that the banks were redefining the haircut so that it wasn't 50% anymore. Let's wait until we hear the details of what has been worked out in Cannes before you start claiming quotes are misinformed. Besides, canceling the referendum doesn't mean that Greece can't continue to threaten to default.

[Anonymous]

even if the haircut is 33%, it is still a huge default. That ship has sailed, they are just trying to contain it to Greece so the interest rates for Italy and Spain do not go through the roof.

[jsteele]

Anonymous wrote:even if the haircut is 33%, it is still a huge default. That ship has sailed, they are just trying to contain it to Greece so the interest rates for Italy and Spain do not go through the roof.

No, it's not a default. Defaults don't happen with the banks' consent.

[Anonymous]

jsteele wrote:

Anonymous wrote:even if the haircut is 33%, it is still a huge default. That ship has sailed, they are just trying to contain it to Greece so the interest rates for Italy and Spain do not go through the roof.

No, it's not a default. Defaults don't happen with the banks' consent.

well we can agree to disagree on that. in my experience, banks routinely enter into forbearance or workout agreements agreeing to things like this in connection with a default. In fact, I'd argue that banks would never ever ever agree to any haircut absent a default.

[Anonymous]

Anonymous wrote:

It is in Greece's interest to remain in the Euro Zone, but only in the right circumstances. The Greeks can threaten to default in order to get the best terms possible until someone calls their bluff. At that point, the Greeks need to decide if they are bluffing or not. I don't think Germany, or to a lesser extent France, will allow Greece to default. Instead, they will concede to Greece's demands.

Oops.

The oops referred to "Instead, they [the EU] will concede to Greece's demands." It took about 15 hours from the time of this post for the EU to call the Greek bluff. Of course, all that can change in the next hour, so who knows?

I do think it's somewhat misguided to think that Greece holds the whip in this situation.