We should be clear: almost none of the huge amount of money loaned to Greece has actually gone there. It has gone to pay out private-sector creditors -- including German and French banks. Greece has gotten but a pittance, but it has paid a high price to preserve these countries' banking systems. The IMF and the other "official" creditors do not need the money that is being demanded. Under a business-as-usual scenario, the money received would most likely just be lent out again to Greece.

Or we could have given Greece the money and then Greece would have had to pay it right back to the creditors. Whether you move it through Greece first, or send it straight to the people who Greece owes a lot of money, whats the difference? Its still a loan given out to Greece.

But, again, it's not about the money. It's about using "deadlines" to force Greece to knuckle under, and to accept the unacceptable -- not only austerity measures, but other regressive and punitive policies.

But why would Europe do this? Why are European Union leaders resisting the referendum and refusing even to extend by a few days the June 30 deadline for Greece's next payment to the IMF? Isn't Europe all about democracy?

Why are they using deadlines? Seriously? Well sure, we can start extending deadlines, pushing them back, and back, and back. But that would simply extend the uncertainty and it would give the Greek government a wonderful delaying tactic. They have been negotiating for months now, numerous deadlines have already been crossed. Extending the deadlines even more is not helpful past a certain point. On top of that, there are also the financial markets. They don't tend to act well on uncertainty. Waiting to long, missing to many deadlines will only increase the chances that the financial markets are going to act negatively and that could damage what little economic recovery has been made in other European countries.

Now why don't they want to wait until after the referendum? Because they are pretty angry, thats why. Again, from a political perspective what Greece did was pretty unacceptable. You don't walk away from unfinished negotiations and say you will hold a referendum on whats been on the table. From the EU's perspective, it doesn't make any sense, its seen as a delaying tactic and honestly, its Greece that requires billions in a bailout packages again, its Greece that needs European support, holding a referendum when its to late and suspending the negotiations, eh, thats a very big political middle finger to the EU. Greece pissed them off.

Which is why a lot of economists inside and out of the EU where FURIOUS. That tends to happen when you insult the intelligence of a smart person :) The fact that the long list of arbitrary demands was not backed by ANY kind of analysis (not to mention we've all completely forgot what guarantees mean) screams of hubris.

Again, this is politics. I agree with you that from an economic point of view this whole austerity is questionable. But you have to look at this from the rest of Europe's perspective. For one, a lot of Europeans feel tricked by Greece, because they should have never been allowed to join the Euro in the first place and because Greece has consistently lied (with the helps of a number of banks) about its economy. Then we paid billions of euros into a bailout fund, which paid for some of Greeces debt. It meant that in a lot of countries, the governments had to enact austerity measures as well. The Netherlands had to cut back 18 billion euros over the past few years. Our social security took a major hit as well. In other countries that required the bailout fund as well, they also took drastic reform measures and also instituted major austerity measures. And their economies are recovering now, and they are recovering hard. But after 5 years and billions of euros in support, Greece is still not really recovering, they still need more bailout support, and now the Greek government comes to us, asks for more money but at the same time says they don't want to reform anymore.

Even if that makes total economic sense, 80% of the people don't understand economics. To them it does not make sense to spend more money than you have. Their economic understanding is that of how you run a household, which means you don't spend more than you have and when you got debt you try to repay that debt asap. Politicians must be able to explain to those people that they just send another few billion euros of their money to help out Greece. They cannot explain that to those people if they say that Greece is going to use that money to do the things those people feel is what got them in economic trouble the first time.

And in countries such as the Netherlands, Germany, France and Finland, anti European parties are already making a strong push. A deal that makes economic sense but doesn't make sense to a lot of voters will make them stronger.

Which is why we see this. The problems in Greece have become politicized and that means that practical solutions are off the table and we will only see political solutions, which are impractical and even counter productive. We have left the realm of economics and entered the realms where feelings reign supreme. Northern Europeans feel tricked by Greece and so they act in this idiotic manner. Greece in feels that they are being unfairly punished (and they are) so they start acting like they are acting now.

But don't worry... the core of the EU is going above and beyond the call of duty to install a technocrat that will hammer out all the craziness through in days. At which point Golden Dawn and other lunatics watch their popularity skyrocket while the EU (maybe even you too Michiel) washes their hands of having anything to do with it.

The alternative is that we see Front Nationale, the PVV, AfD, True Fins, etc watch their popularity skyrocket. We have already reached a point where there are no more good options to pick from. All we have left are terrible solutions with terrible consequences.

The alternative is that we see Front Nationale, the PVV, AfD, True Fins, etc watch their popularity skyrocket. We have already reached a point where there are no more good options to pick from. All we have left are terrible solutions with terrible consequences.

& whose fault is that? The Greeks?

The EU is the biggest Ponzi scheme that ever existed. It should have stayed as the EEC. All the rest that has been done is pure B/S by greedy corrupt unelected bureaucrats.

Which is why we see this. The problems in Greece have become politicized and that means that practical solutions are off the table and we will only see political solutions, which are impractical and even counter productive. We have left the realm of economics and entered the realms where feelings reign supreme. Northern Europeans feel tricked by Greece and so they act in this idiotic manner. Greece in feels that they are being unfairly punished (and they are) so they start acting like they are acting now.

100% correct.

As an 'Outsider': Both sides are at fault, and have lost each other's trust (for good reason).

Now what?

Thats the multi billion euros question...
As put by The Independent's economics editor Ben Chu:
"It has been one of the biggest economic disasters since the Second World War."

Thats the multi billion euros question...
As put by The Independent's economics editor Ben Chu:
"It has been one of the biggest economic disasters since the Second World War."

Since Greece's Economy is Relatively small, compared to The EU:
Why an 'Economic Disaster'?
Could it be, the foundation of The EU, is sand. And Greece is being used to cover-up that fact?

It's Greece that having an Economic Disaster.
For 15 years they have borrowed more and more.
The last 5 years they had owe more money than the state of Greece is worth.
About 70% more.

The crisis of Greece is not really an EU issue.
It's the Eurozone EMU who have lent to much money to Greece.
The European Monetary Union:

13th May 2012

Getting more closer by the day......

EU Leaders set for showdown

My prediction....

1st out is Greece
2nd out is Spain
3rd out is Portugal
4th out is Ireland

....Then if Italy says "enough is enough, we are gone", France will soon follow, so where will that leave Germany & the Mekon(that is if she wins the next election of course)?

Now it's not if but when :-)

New helmsman on the Greece financial wreck is Eucleides Tsakalotos.
https://en.wikipedia.org/wiki/Euclid_Tsakalotos

Alex speaking as an economist the Euro is a bad idea without a central bank and a common government. As far as the consequences of the demands being put on Greece they are so recessionary the failure of the economy is guaranteed.
On the other hand Greece does need to clean up it's act. There is too much tax evasion, too many non competitive factors, and too much corruption. The traditional way of doing business in Greece can not survive against a more robust EU.

Political theater at its finest!

Betreger,

While I may have some few issues with the rest of your statement, the part I put into bold I am in 100% agreement with.

Even the man who could, with a lot of justification, be said to have invented the Euro has said much the same thing...

In an interview in the Telegraph published Dec. 2, 2011, Jacques Delors (President of the European Commission from 1985 to 1995) stated:

The euro can emerge from this crisis only if two conditions are met. “The first is that the firemen must put out the fire. The second is that there must be a new architecture. If you have one of these things without the other, the markets will be sceptical.”

The choice is “either to accept a greater transfer of sovereignty or to submit to a common discipline”.

http://www.telegraph.co.uk/finance/financialcrisis/8932640/Jacques-Delors-interview-Euro-would-still-be-strong-if-it-had-been-built-to-my-plan.html

The choice for the EU is to either transfer more sovereignty to Brussels over their fiscal/government spending matters, or to act as if they did in a binding way -- which is very much the same thing.



@ Everyone:

I find it funny in the extreme that many here fail to see the parallels between the USA and the EU.

The group of States currently known as the USA had to reboot itself back in 1788/1789. Our initial experiment (post-independence from Britain), the so-called 'Articles of Confederation' had its flaws. We went from a confederation of States to a shared-sovereignty Federal Republic under the US Constitution. We had to.

Now there is some disagreement as to just how much sovereignty got transfered, with those such as myself arguing that a lesser amount got transferred, and others arguing it was a greater amount, but that is neither here nor there.

The point is that (even according to me) *ENOUGH* got transferred to make a 'common currency' (The US Dollar) sort of work.

For the Euro to work, the EU is going to have to reboot itself also, ceding more power to the EU Government in Brussels over the currency and government spending.

No, it won't prevent ALL problems, it has not done so here... In the USA, we do have some economically stronger States (such as Texas) helping to subsidize States with weaker economies, as in the EU those such as Germany are doing to those such as Greece.

Social Welfare States can be VERY expensive, especially in economic bad times. The EU needs to come up with more of a common level of Social Welfare State that the EU, as a whole, can afford, then mandate that level across the EU. It is likely to be a LOT less than what Greece has now. What Greece has now is a big part (if not all) of the problem.

Greece DOES need to ditch the culture of corruption. Greece DOES need to curtail tax evasion in a rather drastic way. Perhaps Greece also needs a tax increase, but there is a limit on how much of that can be done without causing too much harm to their economy. But any way you slice it, Greece needs to curtail spending in a rather drastic way so their government spending will be a lot closer to their tax income. Not doing that will just mean one bailout after another. And much of Europe is getting tired of over 5 years of Greek bailouts, as the Greek Government resists making the needed cuts.

Now, the Greek people have said NO to further spending cuts, thereby removing the incentive for the rest of the Eurozone/the EU to keep bailing them out.

About the best (perhaps the only) option that Greece has left is to exit the Eurozone (and perhaps the EU as well), restore their national currency, the Drachma, and employ the time-honored method used by Governments to rescue themselves from a crushing debt-service load... Inflate their way out of it.

Political theater at its finest!

Political theater at its finest!

Yes. The Greece public like it very much now. Well 60% are.
The reviews are however not so good from all the other EMU countries.

Going back to the Drachma will devalute their currency by 30% to 80% depending what financial institute you ask.
Importing revenues will perhaps be halfed when they exit the euro.
Exports will rise of course but that will take time.
Will the Greece people accept that?

@ Everyone:

I find it funny in the extreme that many here fail to see the parallels between the USA and the EU.

The group of States currently known as the USA had to reboot itself back in 1788/1789. Our initial experiment (post-independence from Britain), the so-called 'Articles of Confederation' had its flaws. We went from a confederation of States to a shared-sovereignty Federal Republic under the US Constitution. We had to.

Again, that parallel doesn't really work. The EU was designed to keep Brussels weak and the Member States strong. And thats where the parallel kind of ends. Because where in the US, the 'Member States' were colonies who only recently had gained their independence, in Europe we are talking about established Nation States, many of them having a history that goes back thousands of years ago.

You are asking countries such as Germany, France, Spain, Italy and even Greece to essentially give up thousands of years of independence. You are asking them to vote to sort of dissolve themselves.

And to make matters worse, where the early United States were a fairly homogeneous society, in Europe we are talking about cultures that vary quite widely in a number of areas. Languages are radically different in almost every country (and try as you might, but regional accents don't constitute as different languages).

For the Euro to work, the EU is going to have to reboot itself also, ceding more power to the EU Government in Brussels over the currency and government spending.

Yes, in a perfect and ideal world, that would be the case. But in this world, that is nearly impossible to accomplish. Some sovereignty will be transferred to Brussels, but it will only be the most minimal amount as possible.

About the best (perhaps the only) option that Greece has left is to exit the Eurozone (and perhaps the EU as well), restore their national currency, the Drachma, and employ the time-honored method used by Governments to rescue themselves from a crushing debt-service load... Inflate their way out of it.

Doing that would devalue all the life savings of everyone in Greece. For Greece it would be an economic disaster, and possibly a far bigger disaster than accepting more spending cuts from the EU. If they are going to leave the EU as well, their economy will completely cease to exist and Greece will become an impoverished third world nation. Most likely the Greek state will begin to fail, Greeks will migrate to Europe as much as possible, and we will have another humanitarian disaster happening on Europe's doorstep. It would be best if they stayed in the EU.

Doing that would devalue all the life savings of everyone in Greece. For Greece it would be an economic disaster, and possibly a far bigger disaster than accepting more spending cuts from the EU. If they are going to leave the EU as well, their economy will completely cease to exist and Greece will become an impoverished third world nation. Most likely the Greek state will begin to fail, Greeks will migrate to Europe as much as possible, and we will have another humanitarian disaster happening on Europe's doorstep. It would be best if they stayed in the EU.

Then the EU is going to have to grow a spine and have some EU banks fail by declaring the Greek debt void. I suspect it would cost less in the long term to do so. As you point out the other option is also get noting and have a refugee disaster.

---

The Big Spending Leaders, in this case Left, will have to go first.

In this case they left [no pun intended] and are mostly dead and buried. That is how old the issue with pensions is. OBW are you drawing a left wing pension?

---

As the great grandson of a Greek Orthodox Priest I am appalled at what has happened to Greece.

I see the same problems occurring here in the United States--No work ethic, fewer and fewer jobs for the few people who want to work as we regulate and tax all manufacturing and corporations to relocate overseas. Increasing socialist entitlement payments and subsidies force massive borrowing. This is a true "Death Spiral". There comes a time when the music stops--you have to pay the piper or they will not lend you any more money.

The party's over and one morning we will all wake up with a massive hangover.

My favorite international economist/macroeconomist, Nobel Prize in Economics winner 2008, MIT graduate, and New York Times columnist has nailed it once again. This was written right after Greece's NO vote:

Ending Greece's bleeding


Europe dodged a bullet on Sunday. Confounding many predictions, Greek voters strongly supported their government’s rejection of creditor demands. And even the most ardent supporters of European union should be breathing a sigh of relief.

Of course, that’s not the way the creditors would have you see it. Their story, echoed by many in the business press, is that the failure of their attempt to bully Greece into acquiescence was a triumph of irrationality and irresponsibility over sound technocratic advice.

But the campaign of bullying — the attempt to terrify Greeks by cutting off bank financing and threatening general chaos, all with the almost open goal of pushing the current leftist government out of office — was a shameful moment in a Europe that claims to believe in democratic principles. It would have set a terrible precedent if that campaign had succeeded, even if the creditors were making sense.

What’s more, they weren’t. The truth is that Europe’s self-styled technocrats are like medieval doctors who insisted on bleeding their patients — and when their treatment made the patients sicker, demanded even more bleeding. A “yes” vote in Greece would have condemned the country to years more of suffering under policies that haven’t worked and in fact, given the arithmetic, can’t work: austerity probably shrinks the economy faster than it reduces debt, so that all the suffering serves no purpose. The landslide victory of the “no” side offers at least a chance for an escape from this trap.

----
Didn't bother putting anything in bold 'cause half the text would be black!

Will try to reply to a few questions later today:)

- Alex

Je suis Varoufakis!!! :)

The Varoufakis clown is out. That case is closed.

Btw, if I had any debt, do you really think I could possibly state, that I just had a Greek style referendum, and decided unanimously to not pay back my debts?

No. Welcome to the real world.

Actually you can. Though you would have to file for bankruptcy.

But more importantly, you are not a state. And as some people have pointed out already, states don't follow the same rules as individuals. Where for an individual it makes sense to keep debt to a minimum and pay off whatever debt you have as soon as possible, that just does not apply in the same way to states. If a state where to run its finances in the same way someone runs their household finances, that state would fail and fall apart rather quickly.

Which is why this whole austerity operation in Greece doesn't work.

That said, people like you are the reason why politicians are pretending to be economists and why they are pushing for austerity. To appeal to voters who think like this.

Apologies Clyde, my bad. That's all Krugman from his article, not me!!! :) I wish! Anyway... I should have made that clearer by using italics or quotes or something. I'll do that now 'cause this next piece is by someone else.

On another note, I owe you guys (Michiel, Janne just to name a few) answers to:
Why bail out Greece in the first place?
Why should Finland (or anybody) take a hit?
and many others...

Not ignoring you guys, I promise to when I've got some time :) I already know the answers but I'd like to dig up my sources first (and I have NO idea where to go back to)

Well here's an article that should clear up a lot of confusion and answer a few of the questions you guys have been asking. A lot of what's in here is what 60% of the Greek population knows that you don't (I've got a long list of more but that'll have to wait).

And since most of you are struggling (and failing) to figure out where I'm coming from, well I'm just here to cry "wolf". And I've never done that before in my life.

And a piece of advice to all: next time you guys are reading up on crisis of this magnitude that's happening in your own back yard (and not way over in Syria for example), you'd be wise to kick it up a notch regarding your sources. It would also be wise to double-check your facts before you perform a knee-jerk slice 'n' dice reply (Michiel;) dismissing someone like Stiglitz. Why? Because if you could pull that off successfully then you don't belong on these forums and deserve to be famous! :)

"Jeffrey D. Sachs is a world-renowned professor of economics, leader in sustainable development, senior UN advisor, bestselling author, and syndicated columnist whose monthly newspaper columns appear in more than 100 countries. He has twice been named among Time Magazine’s 100 most influential world leaders. He was called by the New York Times, “probably the most important economist in the world,” and by Time Magazine “the world’s best known economist.” A recent survey by The Economist Magazine ranked Professor Sachs as among the world’s three most influential living economists of the past decade."

My favorite part of the article below is in bold and is but just one reason why neither 60% of the Greeks nor I are crazy. Confirmed. Enjoy.

---

A Corpse Can't Carry Out Reform in Greece. Here's What Can.

- by Jeffrey D. Sachs

"The Greek crisis is a tragedy for the country and a danger for the world economy. Germany is demanding that Greece continue to service its debts in full, even though Greece is clearly broke and the International Monetary Fund has noted the need for debt relief. The collision of reality (Greece's insolvency) with politics (Germany's demands) was bound to create a disaster. And, indeed, it has: the shocking collapse last week of the Greek banking system.

Yet there still is a way out of this mess. Greece's debt should be cut sharply, and the country should remain within the eurozone.

In negotiations with its creditors this spring, Greece recognized this, insisting that its debt be reduced. Germany refused. Though the United States and the IMF privately sided with Greece, Germany prevailed, as creditors usually do.

Yet creditors sometimes prevail to their own detriment; by pushing the debtor to the breaking point, they end up bringing about a complete default. Germany's mistake this was to push the Greek economy -- already in conditions rivaling those of the Great Depression -- into a complete financial collapse.

German Finance Minister Wolfgang Schäuble has a clear negotiating strategy, aimed at getting Greece to agree to leave the eurozone. Unfortunately for him, Greece does not want to exit, and it cannot be forced to do so under the treaties governing the European Union. What Greece wants is to remain in the eurozone, with a lower debt burden -- a position that is both economically astute and protected by treaty.

Indeed, a euro exit would be remarkably costly for Greece, and would almost certainly create political and social chaos -- and perhaps even hyperinflation -- in the heart of Europe. The value of Greek residents' savings would be slashed, as euros were suddenly converted into new Drachmas. The middle class would be eviscerated. And the currency conversion would not save the country one cent with regard to its external debt, which would, of course, remain denominated in euros.

Still, Greece's debt burden is unsustainable. Last week, Greece defaulted on its payments to the IMF, rightly choosing pensions over debt service. The country's creditors should now negotiate a consensual debt reduction through some combination of lower (and fixed) interest rates, reduced face value of debt and very long maturities.

There are plenty of precedents for such a course. Sovereign debts have been restructured hundreds, perhaps thousands, of times -- including for Germany. In fact, hardline demands by the country's U.S. government creditors after World War I contributed to deep financial instability in Germany and other parts of Europe, and indirectly to the rise of Adolf Hitler in 1933. After World War II, however, Germany was the recipient of vastly wiser concessions by the U.S. government, culminating in consensual debt relief in 1953, an action that greatly benefitted Germany and the world. Yet Germany has failed to learn the lessons of its own history.

I propose a four-step path out of the Greek crisis.

First, I recommend that the Greek people give a resounding "No" to the creditors in the referendum on their demands. This has already been achieved.

Second, Greece should continue to withhold service on its external debts to official creditors in advance of a consensual debt restructuring later this year. Given its great depression, Greece should use its savings to pay pensioners, provide food relief, make crucial infrastructure repairs and direct liquidity toward the banking system.

Third, Prime Minister Alexis Tsipras must use his persuasive powers to convince the public, in the style of U.S. President Franklin D. Roosevelt, that the only thing they have to fear is fear itself. Specifically, the government should make clear to all Greeks that their euro deposits are safe; that the country will remain within the eurozone (despite the false claims by some members of the Eurogroup that a no vote means a Greek exit); and that its banks will reopen immediately after the referendum.

Finally, Greece and Germany need to come to a rapprochement soon after the referendum and agree to a package of economic reforms and debt relief. No country -- including Greece -- should expect to be offered debt relief on a silver platter; relief must be earned and justified by real reforms that restore growth, to the benefit of both debtor and creditor. And yet, a corpse cannot carry out reforms. That is why debt relief and reforms must be offered together, not reforms "first" with some vague promises that debt relief will come in some unspecified amount at some unspecified time in the future (as some in Europe have said to Greece).

To be sure, in the Greek debacle, both sides have made countless mistakes, misjudgments and misdeeds over the last decade, and even before. A country does not reach Greece's parlous state without a generation of egregious mismanagement. But nor does a country go bankrupt without serious mistakes by its creditors -- first in lending too much money, and then in demanding excessive repayments to the point of the debtor's collapse. With both sides at fault, it is important for them not to lose the future by squabbling endlessly over the past.

Easing Greece's debt burden while keeping the country within the eurozone is the correct and achievable path out of the crisis, and it can be accomplished easily through a mutual accord between Germany and Greece, to which the rest of Europe will subscribe. The result would be a win not only for those countries, but also for the world economy."

Why should Finland (or anybody) take a hit?

Finland is one of the countries in relation to their population lent huge sums to the crisis-hit Greece. According to the Finnish Ministry of Finance's claims on Greece now up to just over EUR 7 billion and the repayment period is expected to be in 30 years.
And after Greece yesterday voted no in the referendum on the proposed austerity demands are now growing unrest in Finland that the loans will never be repaid.
http://www.svt.se/nyheter/utrikes/finsk-oro-for-greklandskris
Finland already in 2011 started to wonder.
But Greece didn't do anything to reform their finances.
And still dont do...

Jann read the statement made by Jeffrey D. Sachs as quoted by Alex. As an economist that makes sense to me and agrees what I have heard and read over the years.
Yes Greece needs reforms and totally killing the Greek economy WILL NOT get any of your money back!

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With all due respect to the learned economist. Perhaps he can answer : Should Greece be given extended credit and cash from industrious nations to allow Hellas to continue to pay disability pensions to those thousands who falsely claim to be blind. If so ; then why?? How will reforms of living off of the dole be forthcoming. I am afraid that Greece has committed economic suicide, and has achieved the end result of socialism in a setting where people realize they don't have to work to eat. Politicians who advance the idea that you are owed a living by the State (as we see here in the United States) secure their power from the indolent classes who think that a somewhat comfortable life without having to expend any work effort is a keen idea.

Jann read the statement made by Jeffrey D. Sachs as quoted by Alex. As an economist that makes sense to me and agrees what I have heard and read over the years.
Yes Greece needs reforms and totally killing the Greek economy WILL NOT get any of your money back!

Apart from Finland the Scandinavian countries are not in the euro-zone:)

Sachs doesn't meantion anything about the Greece taxation system.
Unpaid taxes are a big black hole in Greece's economy. In 2012 the Greeks got help from the Swedish Enforcement Authority and the Tax Agency to learn how to collect taxes.
The outstanding tax liabilities amounted to EUR 60 billion, but only 8 billion counted as possible to recover.

US media is now criticizing Germany for having forgotten the great debt forgiveness which they received after World War II.
https://www.washingtonpost.com/blogs/worldviews/wp/2015/07/07/germany-has-defaulted-on-its-debts-too/&usg=ALkJrhjhWTvNgbXxPolH-z7vdwc8nT4JNQ
According to the EU, government debt must not exceed 60 percent of GDP.
Germanys government debt is now 77%