Greece Won't Exit the Euro

[Jack o'Clubs]

The definitive opinion on Greece... A lot of nonsense on the other thread, so here’s an attempt at a clean start.

· ‘Core’ Europe, and particularly those who are now advocating a hard line, were utterly complicit in Greece’s current predicament. Therefore it is neither moral nor, more importantly, logical to insist that Greece just shuts up, adheres to the current debt plan and sucks up more austerity. The EU positively courted Greece’s acceptance of the euro and were willing to turn a completely blind eye to the myriad ways – including blatant breaking of required budget deficit and debt/GDP ratio rules – in which Greece was shown as completely unsuitable for monetary union. This is because the EU was driven by political desires for a modern empire, rather than economic imperatives. The blame sits with Brussels, Paris and Berlin just as much as it does with Athens.
· Over the next few years Greece grew strongly as cash flowed into the country. In reality this was trade finance. German and French banks lent Greece money with which to buy German and French exports. The German and French banks were reckless in this since there was so much support both political and from the export industries in their respective countries.
· When, inevitably, things went belly up instead of the French and German banks wearing the pain – which would have been impossible given they were in the throes of a wider financial crisis, a bail out was orchestrated which ostensibly was directed at Greece but in reality simply replaced private sector sour loans to Greece with those from the Troika. The Troika bailed out reckless French and German banks not Greece. 90% of that bailout either directly or indirectly (interest payments rather than capital) went towards this socialization of French and German private bank debt.

So that’s the history. With that in mind, what now?

· Debt relief or euro exit are unavoidable. Greece is in a ‘debt trap’ where it is now mathematically impossible for it to grow out of its liabilities. It’s not a question of the Greeks’ unwillingness to shoulder the burden, ‘more austerity’ will not now work.
· If Greece gets debt relief, so argues Germany, that opens the floodgates to similar pleas from Portugal, Spain, Ireland etc. However, this is a red-herring since none has implemented austerity to the same degree as Greece, which can then be set as the ‘precedent’ level required before negotiation can even start.
· The US has weighed in, worried that Greece will turn to Russia or China for a solution. The EU won’t admit it, but they must also worry about this (especially Russia).
· The current hardline taken by the ECB and Germany is posturing, and partly influenced by the positive reception gained by the Greek Finance Minister (and game theory expert). They won’t have enjoyed reading press reports about how Varoufakis has ‘run rings' around them.
· Without debt relief, Greece will have to leave the euro, devalue, and chance its luck with an independent drachma. Its creditors will lose from this at a minimum to the same degree as the currency devalues, but probably much more as they will likely suffer total loss on some of their loans as the Greek banks collapse. So, creditors have a choice between i) offering debt relief and keeping Greece within the euro; and ii) denying relief and taking a big haircut anyway as Greece devalues, and probably defaults, on existing debt.
· The EU will also be mindful that after a brief period of (undoubtedly intense) pain as the currency and economy resets, Greece will then be in a strong position to resume economic growth given considerable productivity gains through the existing period of austerity, and a newly competitive currency. In two to three years time Greece could be doing quite well, outside the euro. The EU will be terrified about the impression this will set to the other peripheral Eurozone countries, who no doubt will still be struggling with austerity and crippling debt loads.

Conclusion?

Greece and its creditors will reach an agreement on debt relief. It is simply the least-bad outcome for all parties – including and maybe especially the EU and existing creditors. Therefore you buy: Greek equities (if you’re brave, especially the banks), the euro, Eurozone equities.

I'm afraid that Pat494 and others banging on about Greece having to man up and pay their own way completely miss the point

 

[spinola]

50-70 year lay-a-way Greek debt plan . The Germans have to do everything to keep their EU master plan rolling along.

 

[Fugazsy]

The definitive opinion on Greece... A lot of nonsense on the other thread, so here’s an attempt at a clean start.

· ‘Core’ Europe, and particularly those who are now advocating a hard line, were utterly complicit in Greece’s current predicament. Therefore it is neither moral nor, more importantly, logical to insist that Greece just shuts up, adheres to the current debt plan and sucks up more austerity. The EU positively courted Greece’s acceptance of the euro and were willing to turn a completely blind eye to the myriad ways – including blatant breaking of required budget deficit and debt/GDP ratio rules – in which Greece was shown as completely unsuitable for monetary union. This is because the EU was driven by political desires for a modern empire, rather than economic imperatives. The blame sits with Brussels, Paris and Berlin just as much as it does in Athens.
· Over the next few years Greece grew strongly as cash flowed into the country. In reality this was trade finance. German and French banks lent Greece money with which to buy German and French exports. The German and French banks were reckless in this since there was so much support both political and from the export industries in their respective countries.
· When, inevitably, things went belly up instead of the French and German banks wearing the pain – which would have been impossible given they were in the throes of a wider financial crisis, a bail out was orchestrated which ostensibly was directed at Greece but in reality simply replaced private sector sour loans to Greece with those from the Troika. The Troika bailed out reckless French and German banks not Greece. 90% of that bailout either directly or indirectly (interest payments rather than capital) went towards this socialization of French and German private bank debt.

So that’s the history. With that in mind, what now?

· Debt relief or euro exit are unavoidable. Greece is in a ‘debt trap’ where it is now mathematically impossible for it to grow out of its liabilities. It’s not a question of the Greeks’ unwillingness to shoulder the burden, ‘more austerity’ will not now work.
· If Greece gets debt relief, so argues Germany, that opens the floodgates to similar pleas from Portugal, Spain, Ireland etc. However, this is a red-herring since none has implemented austerity to the same degree as Greece, which can then be set as the ‘precedent’ level required before negotiation can even start.
· The US has weighed in, worried that Greece will turn to Russia or China for a solution. The EU won’t admit it, but they must also worry about this (especially Russia).
· The current hardline taken by the ECB and Germany is posturing, and partly influenced by the positive reception gained by the Greek Finance Minister (and game theory expert). They won’t have enjoyed reading press reports about how Varoufakis has ‘run rings' around them.
· Without debt relief, Greece will have to leave the euro, devalue, and chance its luck with an independent drachma. Its creditors will lose from this at a minimum to the same degree as the currency devalues, but probably much more as they will likely suffer total loss on some of their loans as the Greek banks collapse. So, creditors have a choice between i) offering debt relief and keeping Greece within the euro; and ii) denying relief and taking a big haircut anyway as Greece devalues, and probably defaults, on existing debt.
· The EU will also be mindful that after a brief period of (undoubtedly intense) pain as the currency and economy resets, Greece will then be in a strong position to resume economic growth given considerable productivity gains through the existing period of austerity, and a newly competitive currency. In two to three years time Greece could be doing quite well, outside the euro. The EU will be terrified about the impression this will set to the other peripheral Eurozone countries, who no doubt will still be struggling with austerity and crippling debt loads.

Conclusion?

Greece and its debtors will reach an agreement on debt relief. It is simply the least-bad outcome for all parties – including and maybe especially the EU and existing creditors. Therefore you buy: Greek equities (if you’re brave, especially the banks), the euro, Eurozone equities.

I'm afraid that Pat494 and others banging on about Greece having to man up and pay their own way completely miss the point

I am long...

 

[counter_violent]

The definitive opinion on Greece... A lot of nonsense on the other thread, so here’s an attempt at a clean start.

· ‘Core’ Europe, and particularly those who are now advocating a hard line, were utterly complicit in Greece’s current predicament. Therefore it is neither moral nor, more importantly, logical to insist that Greece just shuts up, adheres to the current debt plan and sucks up more austerity. The EU positively courted Greece’s acceptance of the euro and were willing to turn a completely blind eye to the myriad ways – including blatant breaking of required budget deficit and debt/GDP ratio rules – in which Greece was shown as completely unsuitable for monetary union. This is because the EU was driven by political desires for a modern empire, rather than economic imperatives. The blame sits with Brussels, Paris and Berlin just as much as it does with Athens.
· Over the next few years Greece grew strongly as cash flowed into the country. In reality this was trade finance. German and French banks lent Greece money with which to buy German and French exports. The German and French banks were reckless in this since there was so much support both political and from the export industries in their respective countries.
· When, inevitably, things went belly up instead of the French and German banks wearing the pain – which would have been impossible given they were in the throes of a wider financial crisis, a bail out was orchestrated which ostensibly was directed at Greece but in reality simply replaced private sector sour loans to Greece with those from the Troika. The Troika bailed out reckless French and German banks not Greece. 90% of that bailout either directly or indirectly (interest payments rather than capital) went towards this socialization of French and German private bank debt.

So that’s the history. With that in mind, what now?

· Debt relief or euro exit are unavoidable. Greece is in a ‘debt trap’ where it is now mathematically impossible for it to grow out of its liabilities. It’s not a question of the Greeks’ unwillingness to shoulder the burden, ‘more austerity’ will not now work.
· If Greece gets debt relief, so argues Germany, that opens the floodgates to similar pleas from Portugal, Spain, Ireland etc. However, this is a red-herring since none has implemented austerity to the same degree as Greece, which can then be set as the ‘precedent’ level required before negotiation can even start.
· The US has weighed in, worried that Greece will turn to Russia or China for a solution. The EU won’t admit it, but they must also worry about this (especially Russia).
· The current hardline taken by the ECB and Germany is posturing, and partly influenced by the positive reception gained by the Greek Finance Minister (and game theory expert). They won’t have enjoyed reading press reports about how Varoufakis has ‘run rings' around them.
· Without debt relief, Greece will have to leave the euro, devalue, and chance its luck with an independent drachma. Its creditors will lose from this at a minimum to the same degree as the currency devalues, but probably much more as they will likely suffer total loss on some of their loans as the Greek banks collapse. So, creditors have a choice between i) offering debt relief and keeping Greece within the euro; and ii) denying relief and taking a big haircut anyway as Greece devalues, and probably defaults, on existing debt.
· The EU will also be mindful that after a brief period of (undoubtedly intense) pain as the currency and economy resets, Greece will then be in a strong position to resume economic growth given considerable productivity gains through the existing period of austerity, and a newly competitive currency. In two to three years time Greece could be doing quite well, outside the euro. The EU will be terrified about the impression this will set to the other peripheral Eurozone countries, who no doubt will still be struggling with austerity and crippling debt loads.

Conclusion?

Greece and its creditors will reach an agreement on debt relief. It is simply the least-bad outcome for all parties – including and maybe especially the EU and existing creditors. Therefore you buy: Greek equities (if you’re brave, especially the banks), the euro, Eurozone equities.

I'm afraid that Pat494 and others banging on about Greece having to man up and pay their own way completely miss the point

It's not that we don't get it Jack....but Europe is such a rich picking ground for the rants

 

[Atilla]

The definitive opinion on Greece... A lot of nonsense on the other thread, so here’s an attempt at a clean start.

..


..

Conclusion?

Greece and its creditors will reach an agreement on debt relief. It is simply the least-bad outcome for all parties – including and maybe especially the EU and existing creditors. Therefore you buy: Greek equities (if you’re brave, especially the banks), the euro, Eurozone equities.

Great write up JoC and all good intriguing points to ponder with value.

Few points from my perspective; the Economist magazine did a write up good many years ago on how much money companies/governments spend on "entertaining" buyers in selling their wares and if I recall correctly; Japan topped that league closely followed by Germany. UK was a trifle lower down that league after the French.

Bigger the contracts greater the "hospitality" expenditure. This was and is always the case. As it was when India was the pivot of the British empire and money lent could only be spent buying from the UK. This is BAU and shouldn't be contrived representing Germany as the bad guy in all this predicament in which the EU finds it self in.

France, Italy and the UK all work with same practices.

During the CAP era the Italians used to claim for vinyards on mountain slopes - designating it as agricultural land, perfectly endorsed by it's government. Dutch gardens used to get subsidies as farms with couple of chickens and goats in them.
It's simply business. Good business for many participants. Money changes hands and everyone is happy.


The European Monetary Snake was to get countries into some form of alignment prior to joining the eventual ECU. Sort of a pilot run to harmonise GDP, inflation, interest rates and budget defecits not exceeding 3% of GDP etc etc. However, if some countries bend and manipulate stats and their numbers then let it be on their head. Fiscal discipline and responsibility were left for governments to manage and deal with. (This is obviously a major flaw as things pan out)

In summary those points are retching up the pressure on the Germans and EU to sort out this mess and one I suspect the markets would like to see. As for whether it carries much weight I'm not sure.



1. Agree - there is no point in further austerity - as Greece's debts grown whilst economy contracted so that's not going to fix anything but enslave the whole country.

2. Without government/public/private/taxation reform there is not likely to be a solution either. So any money input into the economy is not likely to be retrieved.


Back to square one. Compromise between 1 & 2 leading to a win/win situ for both parties. Tough nut to crack. I suspect we are also looking at a good decade or two's time lag for these two points to converge on equilibrium somewhere down the line.


I'm also not convinced agreement is the best outcome for both parties either. Perhaps in the short term but without major reform ie point 2, long run will be worse for both parties.

 

[karmit]

Is it Germany then?

 

[Splitlink]

There is, also, the shadow of Putin in the background. This is a political problem that he would be quick to take advantage of. Would Greece kow-tow to the Russians, if she had to get outside help? Then, again, if she did, I can see the Americans entering the game.

 

[Fugazsy]

United Europe? lol.

http://www.abc.net.au/foreign/content/2014/s4106724.htm

 

[Pat494]

This Greek tragedy is likely to drag on for a long time. There are plenty of rich Greeks but they have hidden their wealth abroad. So the burden falls on the poor ones who are left. Huge gulf between rich and poor. If they do go independent of the greedy Brussell's elite then they may have to opt for an extremist solution, such as a 1 party state. That could give the rich an option of being expelled from their homeland for not being supportive enough and starting all over again without democracy.
Malta tried the Communists but didn't like it. At least they could keep money earned from tourism etc. in Greece, actually in and benefitting the country, not some fat cat bankers abroad.

As always there will be winners and losers.

 

[Splitlink]

It will all be the same in one hundred years and its not our country, anyway! Spain lent money--I don't know how much--but the real lenders are the Germans and IMF. Let them sort it out. Spain seems to be well managed, financially, at least, provided the same party stays in power. That seems to be a bit doubtful at present, I admit, but the elections are at the end of the year and a lot can happen in that time.

Hey, we have some nice, juicy, corruption scandals going on in at, least three local governments and a Royal princess and her husband are going to be sitting in the dock.

Andalucia, Cataluña, Valencia and Madrid for starters. The others are plentiful, but small fry. Who wants the Greeks?

Don't think that HSBC is all yours, either. The Spanish are busy digging away, to see what some of their nasty citizens have had salted away there and they are pleased to know that the Limeys can be a right dodgy lot , too, when they want,

 

[Pat494]

Don't think that HSBC is all yours, either. The Spanish are busy digging away, to see what some of their nasty citizens have had salted away there and they are pleased to know that the Limeys can be a right dodgy lot , too, when they want,

Nobody has much cred these days for honesty.
It used to be that a gentleman's word was his bond, but now since the riff raff have got rich .....?

 

[Fugazsy]

I am long...

yammy..

 

[MGuru]

Good post, and although I agree with most of it, I believe that Greece will exit. Maybe we'll get yet another 'agreement' out of the current negotiations but it's a lost cause and former FED chair, Alan Greenspan, suggested they should leave. Spain recently saw tens of thousands on the streets to protest austerity, so Spain is looking for its Tsapiras already. Italy won't be far behind. The austerity measures in other countries weren't as harsh but the continued downturn in the Eurozone risks a larger debt crisis. These countries were promised growth, and not just manipulated GDP figures.

The EU 'QE' is the last gasp of Europe and the ECB has just raised the ELA to counter capital flight in Greece also. Rates in the most stable countries are going negative as capital rushes to safe havens. The Smart money is showing their hand.

 

[Fugazsy]

Good post, and although I agree with most of it, I believe that Greece will exit. Maybe we'll get yet another 'agreement' out of the current negotiations but it's a lost cause and former FED chair, Alan Greenspan, suggested they should leave. Spain recently saw tens of thousands on the streets to protest austerity, so Spain is looking for its Tsapiras already. Italy won't be far behind. The austerity measures in other countries weren't as harsh but the continued downturn in the Eurozone risks a larger debt crisis. These countries were promised growth, and not just manipulated GDP figures.

The EU 'QE' is the last gasp of Europe and the ECB has just raised the ELA to counter capital flight in Greece also. Rates in the most stable countries are going negative as capital rushes to safe havens. The Smart money is showing their hand.

So true.

It will not last long, Italy in the last 5 years closed about 60000 businesses and many people took their own lives as a consequence of that.....the link I showed before about the immigrants just shows that when there is not money involved there is not Europe, even in circumstances where children and women loses their life every day:
http://www.abc.net.au/foreign/content/2014/s4106724.htm

This Europe things is a bluff, is a good business only for a few, Attila in his last good post used the world "enslave", in my view this what is about, in the past they used different methodology, nowadays they use money, the meaning is the same, they think they are better, are not corrupted and they are the only way, having all the money they are able to brainwash most of the opinions, but if some has a bit of common sense and the ability to filter the cr@p, they know is a scam:
http://www.spiegel.de/international...bribed-their-way-to-greek-deals-a-693973.html

Apparently Germany and Greece have been the greatest partners in the last years.

The Italians, the Spanish, the French as the Greeks, believe in fairy tales, they are romantic by nature and they wanted believe in this sh@t, the English are not and they smelled the rat.

The Mediterranean people have always being invaded by others one way or the other during the centuries, they are used to it and they can be very resilient at it. Patience, wisdom and time works in their favour.

Yes, Greece is a only small country but they can initiate something huge, they have given birth to democracy and they will make sure it will be kept at decent levels.

Yes, a bit harsh as a post, but it is also time to say enough is enough.

Trading wise I am looking for a rally right now, then I will short the sh@t out of this thing.

Only my view of course.