Ongoing European Debt Crisis

What does "forced out" entail, anyway?

Told to pack its bags and leave. Dust off the drachma.

That blog post (relink for page toppers) is instructive. It makes the point that the ECB has successfully acted to contain the risk of bank failures from a Greek default, and so Tspiras has no hope of making his bluff of forcing concessions with the threat of destroying the euro succeed.

Instead, he's presented with three scenarios: fold under pressure and resume the status quo ante, force Brussels to expel Greece from the Eurozone, act crazy enough to get concessions without a Greek exit.

edited 27th Jan '15 2:39:50 PM by Fighteer

Personally, I think the author ignores a fourth possibility - some sources are reporting that Tsipras has been doing as much negotiation as campaigning in the run-up to the election. Potentially the bare bones of a deal already exist and Greece will be offered some kind of modest writedown and stimulus whilst broadly remaining on the course that has already been set for it.

We shall see.

edited 27th Jan '15 2:49:14 PM by Achaemenid

That would fall under the first outcome, because there is no way that Brussels would accept any deal that substantially alters the terms of the bailouts.

edited 27th Jan '15 3:16:57 PM by Fighteer

Publically.

You're a bit pessimistic on that, Fighteer.

1. The ECB may have less incentive to keep Greece in the eurozone, but Greece has fewer negative incentives to stay. If Greece is tossed out of the euro, they aren't going to suffer as critically from the fallout of that as they would have in 2011. They're at primary surplus and their debt is owned by the ECB, so going the full Argentina is more palatable (though Tsipiras would have to work hard to keep Syriza from crumbling if that really became the best option). Because of this, Greece has more room to bargain, because...
2. The EU has more incentive to keep Greece in the eurozone than a purely economic one. The euro is a symbol of European unity, and a neo-drachma would be a sign that the euro is a failed experiment. No direct contagion but quite a humiliating failure for the European project.
3. I actually disagree with the statement by Matthes in Achaemenid's article that Spain and Italy won't coalign with Greece because they've got skin in the Greek game too - if anything, it's the opposite. Spain and Italy, and to a lesser extent France, have no real investment in Germany's austerity-or-else policy, and to the extent they're dealing with Greek debt, they want as much of it as possible repaid; they sure as hell don't get anything from a Grexit.

Incidentally, what body would decide that, if Greece defies the Powers that Be, Greece will be thrown out of the Eurozone?

edited 27th Jan '15 7:05:03 PM by Ramidel

I'm not even sure if it's actually possible, several countries use foreign currency as their standard currancy without the permission of the country from which the currancy originates.

So even if Greece was formally kicked out it could continue to use the euro anyway and tell everyone to shove it.

Now a formal removal, there's no system in place for that (or a formal withdrawl). So it would likly require amending whatever treaty saw Greece join in the first place, which would be hella complicated and probably impossible without Greek consent.

I mean the ECB could stop minting Euros for Greece and ignore it when considering how to act. But that requires the ECB to make such a move and that seems unlikely, since it looks to be impossible to expel Greece from the Euro zone.

Hell even with Greek permission it looks impossible. The Euro was established with the Maastricht Treaty, so you'd have to amend it (well its current successor the Lisbon Treaty) to add in a provision for exit from the Euro, to do that you need the permission of every single EU country.

From a legal standpoint it's impossible for Greece to either leave or be expelled short of Greece formally withdrawing from the EU (something that itself is covered in legal minefields) Now it can be done in practice by either the ECB acting as if Greece isn't there's anymore or Greece just stoping using Euros, but that would still be informally.

edited 28th Jan '15 2:17:30 AM by Silasw

Which would require referenda in several Member States, wouldn't it?

I believe so. And that's not counting the possability of several european goverments going "O as we're amending the treaty why don't we..."

I should point out that Greece leaving the Eurozone but keeping the euro as its currency entirely misses the point of such an action, which would primarily be to allow it to conduct its own fiscal policy. A "hostile" exit would necessarily include a repudiation of all euro-denominated debt, otherwise Greece would be in a worse position than it is now.

edited 28th Jan '15 4:41:05 AM by Fighteer

"...have a referendum on continued membership of the European Union?"

Does Greece need an independent monetary policy?

Fiscally, Greece can repudiate its euro-denominated debt while not repudiating the Euro. Based on what Silas said, the ECB can't do anything about that except not loan Greece any more money-and Greece is at primary surplus.

For now, Greece is running a surplus, but that may not persist. Not having an independent currency invites a repeat of the crisis, especially given the problem of getting aid from a bloc that you recently told to shove it.

Assuming Syriza doesn't misappropriate the surplus trying to do several major projects at once....

edited 28th Jan '15 4:47:33 AM by FFShinra

What, you mean conduct the fiscal stimulus that Greece so desperately needs to revitalize its economy?

One can still screw up the execution of good actions.

As long as it doesn't rile up Montenegro^note  They have a naming dispute, combined with fears of irredentism from Montenegro or Turkey^note  Concerning Cyprus, at least. It's almost come to blows more than once . The change of Government shouldn't create trouble with Turkey, since they're on board.

edited 28th Jan '15 5:01:21 AM by Greenmantle

You mean Macedonia....

Yes, yes I do. The Balkans are bloody complicated...

So, why are markets panicked about Greece? Krugman opines that it's because the question that now hangs over Europe is whether its leaders will betray their democratic principles by deliberately undermining the Greek economy if Greece moves to exit the Eurozone or refuses to comply with bailout terms.

He reiterates the principle that Greek debt is, at this point, basically meaningless: it's a trivial amount to the creditors; rather, it acts as an excuse to siphon almost 5% of Greece's GDP for the indefinite future. A comparison was made in the comments to German war reparations, and it's remarkable how similar the situations seem, save that Greece didn't kill millions of people in a war.

edited 28th Jan '15 7:40:14 AM by Fighteer

Funnily enough, some have called the current situation The Forth Reich, and you'd be unsurprised to hear that there's plenty of anti-German sentiment (and racism, no doubt) in Greece.

With the converse against the Greeks, no doubt. European unity is shaky and will remain so until this nationalistic crap works its way out of the culture, but the crap is now creating its own problems.

And not just in Germany, or even the Eurozone:

That isn't going to happen any time soon. If anything nationalism, in part due to the Economic crises within Europe, is increasing within the EU, including at a regional level (e.g. Scotland^note  I'm sure you'll love the SNP's Economic Policies & Catalonia) within some member states.

edited 28th Jan '15 8:22:10 AM by Greenmantle

There is no doubt that Greece's financial woes going into 2010 were largely self-inflicted. That does not, however, justify the ire being thrust at them.

edited 28th Jan '15 9:05:45 AM by Fighteer

OK, I am going to completely humiliate myself and ask a bunch of dumb questions. I have been following this situation for quite a while and I can't make heads or tails of it so I would like for someone to inform me in an unbiased fashion (or point me to some where where I can inform myself) about this:

1) My first question went all the way back to the infamous bailouts: everyone keeps saying we should have let the banks fail. But (and forgive me if this sounds stupid) banks are where people's MONEY is. Isn't letting them go bankrupt bad for business? 2) People saying Portugal or Grece should not pay the debt or submit to austerity. But in that case won't people stop lending them money and things falling apart? And if they leave the Euro won't most people's savings lose a lot of value?

I'm sorry if this all seems asinine, I just can't seem to understand economics. "Household debt isn't country debt". Fine, but what does that MEAN? Doesn't money have to be repaid? Where can the average citizen know about these things? If there even an unbiased way to learn economics' The whole field seems filled with ideology.

edited 28th Jan '15 9:47:24 AM by Psyclone