greek bailout

[973beachbum]

Horatio you are correct that it is the banks that would be bailed out. That is why so many of the Greek people are so pissed. (I am not excusing violence) The people are getting their taxes raised, their sales tax almost doubled, their "benefits" cut and for gov workers their pay slashed. The banks owed the money are not going to have to take on penny of a loss.

Personally I would have let AIG crash and burn into a thousand pieces. ;D

[973beachbum]

From www.zerohedge.com/article/breakdown-greek-austerity-measures

These are some of the austerity measures planned.

TAXATION

• Taxes will increase by 2.32bn euros this year, with additional taxes of 3.38bn euros in 2012, 152m euros in 2013 and 699m euros in 2014.
• A solidarity levy of between 1% and 5% of income will be levied on households to raise 1.38bn euros.
• The tax-free threshold for income tax will be lowered from 12,000 to 8,000 euros.
• There will be higher property taxes
• VAT rates are to rise: the 19% rate will increase to 23%, 11% becomes 13%, and 5.5% will increase to 6.5%.
• The VAT rate for restaurants and bars will rise to 23% from 13%.
• Luxury levies will be introduced on yachts, pools and cars.
• Some tax exemptions will be scrapped
• Excise taxes on fuel, cigarettes and alcohol will rise by one third.
• Special levies on profitable firms, high-value properties and people with high incomes will be introduced.

PUBLIC SECTOR CUTS

•The public sector wage bill will be cut by 770m euros in 2011, 600m euros in 2012, 448m euros in 2013, 300m euros in 2014 and 71m euros in 2015.
•Nominal public sector wages will be cut by 15%.
•Wages of employees of state-owned enterprises will be cut by 30% and there will be a cap on wages and bonuses.
•All temporary contracts for public sector workers will be terminated.
•Only one in 10 civil servants retiring this year will be replaced and only one in 5 in coming years.

[973beachbum]

SPENDING CUTS

•Defence spending will be cut by 200m euros in 2012, and by 333m euros each year from 2013 to 2015.
•Health spending will be cut by 310m euros this year and a further 1.81bn euros in 2012-2015, mainly by lowering regulated prices for drugs.
•Public investment will be cut by 850m euros this year.
•Subsidies for local government will be reduced.
•Education spending will be cut by closing or merging 1,976 schools.
CUTTING BENEFITS

•Social security will be cut by 1.09bn euros this year, 1.28bn euros in 2012, 1.03bn euros in 2013, 1.01bn euros in 2014 and 700m euros in 2015.
•There will be more means-testing and some benefits will be cut.
•The government hopes to collect more social security contributions by cracking down on evasion and undeclared work.
•The statutory retirement age will be raised to 65, 40 years of work will be needed for a full pension and benefits will be linked more closely to lifetime contributions.
PRIVATISATION

•The government aims to raise 50bn euros from privatisations by 2015, including:
•Selling stakes this year in the betting monopoly OPAP, the lender Hellenic Postbank, port operators Piraeus Port and Thessaloniki Port as well as Thessaloniki Water.
•It has agreed to sell 10% of Hellenic Telecom to Deutsche Telekom for about 400m euros.
•Next year, the government plans to sell stakes in Athens Water, refiner Hellenic Petroleum, electricity utility PPC, lender ATEbank as well as ports, airports, motorway concessions, state land and mining rights.
•It plans further sales to raise 7bn euros in 2013, 13bn euros in 2014 and 15bn euros in 2015.

I have no idea how that is classified as the Greek people not being the taxpayers.

[973beachbum]

I agree that I would let the banks fail just like I would have let AIG fail here. But with AIG we lost and the rest of the world was happy. Now with the Greek banks we still lose. You would think with the law of averages we would win sometime.

[Savoir Faire-Demogague in NJ]

Here is an article from Bloomberg this morning:

www.bloomberg.com/news/2011-06-28/greek-vote-obscures-the-european-union-s-unsavory-choices-view.html
Greek Vote Obscures Europe’s Unsavory Choices: View
The Greek government is poised to push through Parliament an austerity package needed to avert a default on billions of euros in government debt. Success, though, will only postpone an unsavory choice that the euro area’s leaders will face sooner or later: Let Greece go and put both the European experiment and the global economy at risk, or forge a deeper union in the face of opposition from their voters.
The Greek crisis has become a defining moment in a project that traces back to the 1950s, when a small group of politicians started what would eventually be known as the European Union. Their aim was to form such strong political and economic ties that the horrors of World War II could never happen again.
Now that experiment hangs in the balance. Germans are seething over having to help what they view as Greek freeloaders. Greece’s trade unions are striking, and citizens are rioting over measures that will increase taxes, reduce pensions and slash incomes. Markets are gyrating amid fears that the conflict between Europe’s core and periphery will lead to financial disaster.
The wrangling in the Greek parliament over the $112 billion (78 billion euro) austerity package, and European officials’ efforts to bring private creditors into a new bailout, obscures the magnitude of Greece’s problems. The government simply can’t pay its debts, now more than 150 percent of gross domestic product.
Three Decades
Even if Greece gets its bailout and its economy rebounds, the government would have to run a budget surplus, excluding debt-service costs, of 5 percent of GDP for about three decades to bring down debt to the 60 percent maximum allowed by euro- area rules. Achieving such a fiscal feat for even five years is extremely rare for any government, let alone Greece’s.
The Greeks, of course, bear the main responsibility for their predicament. They effectively lied their way into the euro, presenting deficit figures that were wildly understated. The country consumed far more than it earned and borrowed to make up the difference. Tax evasion is a national sport.
Greece’s foibles, though, would not have led to a crisis without the help of Germany and France. They set the precedent when, for three years beginning in 2002, they exceeded the prescribed budget-deficit limits with impunity.
Leading Role
What’s more, France and Germany played the leading role in setting capital rules that encouraged German and French banks to finance Greece’s profligacy, and then required too little equity to absorb the potential losses. Because of lax oversight of derivatives markets, regulators now have little idea where the losses will turn up if Greece reneges on its debts.
There are two ways the responsible parties can rectify their mistakes. One is to recognize that Greece should never have joined the euro. If it can’t or won’t swallow austerity measures, let it leave and default on its debts.
But the risks of allowing Greece to fail are similar to what the U.S. faced with the 2008 Lehman Brothers Holdings Inc. bankruptcy. Uncertainty about losses would very likely undermine confidence in European banks and in the governments that would have to bail them out. If Greece’s failure led to a credit freeze, that would threaten banks with insolvency and cause losses for institutions that hold those banks’ debts, including the money-market mutual funds entrusted with $2.7 trillion in U.S. savings.
Financial Mayhem
It’s easy to picture an outcome in which credit-starved companies started firing workers, economies headed back toward recession and governments’ own parlous finances prevented officials from stepping in to restore confidence. The financial mayhem would put pressure on Portugal and Ireland -- and possibly also Belgium, Italy and Spain -- to follow Greece into default and out of the euro, splitting Europe along economic fault lines.
The alternative path is only slightly less ugly and unfair. It would require the euro area, led by Germany and France, to assume much of Greece’s $495 billion (345 billion euros) in debt indefinitely and be prepared to take on the debts of Portugal and Ireland as well. The Greeks, for their part, would have to suffer deep wage and benefit cuts to restore their country’s competitiveness.
To help make such adjustments bearable, euro-area nations would have to provide money to support social-safety nets, most likely through a unified finance ministry that many voters would consider a loss of sovereignty.
Even if Europe’s leaders managed to overcome the political obstacles, there’s no guarantee that a deeper union would solve the immediate crisis. Taking on the debts of strapped governments would push up borrowing costs for major European economies. That could prove painful for countries with large debt burdens -- particularly Italy, where government debt exceeds 100 percent of GDP.
Risky as it may be, taking responsibility for Greece’s problems is the least bad option for Europe. This is no longer about saving Greece. This is about self-preservation.

[resolution]

There is an interesting article on BBC that implies a Greek default would be worse for the French and German banks, and worse for Ireland and Portugal than it would be for Greece itself. www.bbc.co.uk/news/business-13956331

[yogiii]

Converting to the euro crushed the Greek economy. A large part of their economy was tourism. Before Europeans could travel there and buy goods for cheap, hotel stays were cheap etc. The euro ruined that for them

[jk70]

wait, wait, wait....so it seems the trend here is that any country can just borrow, borrow, and borrow more from banks and most of you think, "oh well the banks took the risk"?

ummm, Greece is the problem. More than 50% of the country works for the gov't. retirement age is 18 (just kidding), pensions are unbelievable, they hid their deficit problems from the EU and ran up even more debt.

which in the end is unsustainable. I am no fan of the banks but this is Greece's problem (banks shouldn't get hit just because we didn't like them for something before). I am guessing that Greece may be the first to get pushed out of the EU.

[Deleted]

Throwing on my conspiracy hat for a moment - this is all Germany and France's plan. They want to cripple enough EU countries that these countries are forced to go along with whatever they want - which is even a larger role for EU institutions. This was the only way to crush all these bitter national rivalries to form a stronger central government.

[BeenThere...DoneThat...]

Jun 29, 2011 20:50:49 GMT -5 Savoir Faire-Demogague in NJ said:

Here is an article from Bloomberg this morning:

www.bloomberg.com/news/2011-06-28/greek-vote-obscures-the-european-union-s-unsavory-choices-view.html
Greek Vote Obscures Europe’s Unsavory Choices: View
The Greek government is poised to push through Parliament an austerity package needed to avert a default on billions of euros in government debt. Success, though, will only postpone an unsavory choice that the euro area’s leaders will face sooner or later: Let Greece go and put both the European experiment and the global economy at risk, or forge a deeper union in the face of opposition from their voters.
The Greek crisis has become a defining moment in a project that traces back to the 1950s, when a small group of politicians started what would eventually be known as the European Union. Their aim was to form such strong political and economic ties that the horrors of World War II could never happen again.
Now that experiment hangs in the balance. Germans are seething over having to help what they view as Greek freeloaders. Greece’s trade unions are striking, and citizens are rioting over measures that will increase taxes, reduce pensions and slash incomes. Markets are gyrating amid fears that the conflict between Europe’s core and periphery will lead to financial disaster.
The wrangling in the Greek parliament over the $112 billion (78 billion euro) austerity package, and European officials’ efforts to bring private creditors into a new bailout, obscures the magnitude of Greece’s problems. The government simply can’t pay its debts, now more than 150 percent of gross domestic product.
Three Decades
Even if Greece gets its bailout and its economy rebounds, the government would have to run a budget surplus, excluding debt-service costs, of 5 percent of GDP for about three decades to bring down debt to the 60 percent maximum allowed by euro- area rules. Achieving such a fiscal feat for even five years is extremely rare for any government, let alone Greece’s.
The Greeks, of course, bear the main responsibility for their predicament. They effectively lied their way into the euro, presenting deficit figures that were wildly understated. The country consumed far more than it earned and borrowed to make up the difference. Tax evasion is a national sport.
Greece’s foibles, though, would not have led to a crisis without the help of Germany and France. They set the precedent when, for three years beginning in 2002, they exceeded the prescribed budget-deficit limits with impunity.
Leading Role
What’s more, France and Germany played the leading role in setting capital rules that encouraged German and French banks to finance Greece’s profligacy, and then required too little equity to absorb the potential losses. Because of lax oversight of derivatives markets, regulators now have little idea where the losses will turn up if Greece reneges on its debts.
There are two ways the responsible parties can rectify their mistakes. One is to recognize that Greece should never have joined the euro. If it can’t or won’t swallow austerity measures, let it leave and default on its debts.
But the risks of allowing Greece to fail are similar to what the U.S. faced with the 2008 Lehman Brothers Holdings Inc. bankruptcy. Uncertainty about losses would very likely undermine confidence in European banks and in the governments that would have to bail them out. If Greece’s failure led to a credit freeze, that would threaten banks with insolvency and cause losses for institutions that hold those banks’ debts, including the money-market mutual funds entrusted with $2.7 trillion in U.S. savings.
Financial Mayhem
It’s easy to picture an outcome in which credit-starved companies started firing workers, economies headed back toward recession and governments’ own parlous finances prevented officials from stepping in to restore confidence. The financial mayhem would put pressure on Portugal and Ireland -- and possibly also Belgium, Italy and Spain -- to follow Greece into default and out of the euro, splitting Europe along economic fault lines.
The alternative path is only slightly less ugly and unfair. It would require the euro area, led by Germany and France, to assume much of Greece’s $495 billion (345 billion euros) in debt indefinitely and be prepared to take on the debts of Portugal and Ireland as well. The Greeks, for their part, would have to suffer deep wage and benefit cuts to restore their country’s competitiveness.
To help make such adjustments bearable, euro-area nations would have to provide money to support social-safety nets, most likely through a unified finance ministry that many voters would consider a loss of sovereignty.
Even if Europe’s leaders managed to overcome the political obstacles, there’s no guarantee that a deeper union would solve the immediate crisis. Taking on the debts of strapped governments would push up borrowing costs for major European economies. That could prove painful for countries with large debt burdens -- particularly Italy, where government debt exceeds 100 percent of GDP.
Risky as it may be, taking responsibility for Greece’s problems is the least bad option for Europe. This is no longer about saving Greece. This is about self-preservation.

...I hope you don't mind, but I'm going to borrow this article for a P&tM thread...

[gs11rmb]

I seem to remember that at the time of Greece joining the Euro, the stronger economies (in particular, Germany) were very reluctant to allow admittance because of the fear that Greece would acquire too much debt and pull the Euro into trouble. This viewpoint was derided as being unfair to weaker countries.... In general bank bailouts annoy me but I have very little sympathy for Greece. The Greek government borrowed money to finance (among other things) paying government workers and pensions, rather than borrowing to improve infrastructure, provide incentives to new businesses, etc.

[BeenThere...DoneThat...]

Jun 30, 2011 8:20:37 GMT -5 gs11rmb said:

I seem to remember that at the time of Greece joining the Euro, the stronger economies (in particular, Germany) were very reluctant to allow admittance because of the fear that Greece would acquire too much debt and pull the Euro into trouble. This viewpoint was derided as being unfair to weaker countries.... In general bank bailouts annoy me but I have very little sympathy for Greece. The Greek government borrowed money to finance (among other things) paying government workers and pensions, rather than borrowing to improve infrastructure, provide incentives to new businesses, etc.

...sure sounds familiar...

[Wisconsin Beth]

Jun 30, 2011 14:57:04 GMT -5 @horatiolegrand said:

If Greece owes billion$ maybe they should start thinking a little bit that they have some power. The banks cant repossess Greece.

God, can you imagine walking up the Acropolis and going to all the ancient sites in Greece and seeing signs saying "operated by harris bank (or whomever) with scaffolding to block you from seeing it (or the view) until you pay them their fee...

ETA I've never been to Greece and have no idea how one goes to see the sites there.

[formerexpat]

I realize it sucks for the banks to lose money, but they did take the risk. Capitalism will eventually fail if govt insures success.

Be careful what you wish for here.

Are you or citizens across the world ready to pay the actual risk premium [i.e. interest rate] up front for the debt that they assume? You really think that the US's current risk is as low as the current treasury yields?

How many percentages are shaved off of mortgage rates by the implicit guarantee made by the GSE's?

If, after banks charge the appropriate risk premium up front, are you going to accept the profits that they receive in the good times [when there aren't many any defaults] so that they can have the appropriate capital when the recessionary times come and they no longer have the support of governments?

This is a glimpse of what is to come here in the US; likely not as severe. Promises have been made but will never and can never be kept. There will be cuts and the longer we wait, the more severe and deep they will have to be. And they're not only going to touch the "jet setters" or those with over $250k in income - that's political talk or stupidity .

Every single person in the US will be affected in one way or another by the measures that are required to get out from the mountain of LT debt the country has. We're seeing it here with Greece and we've seen a number of companies struggle too through post retirement employee benefits.

[formerexpat]

eta: I dont understand why the United States doesnt just pay the bill to bail out Greece. It is an insignificant amount, really just chump change, if you compare it to what we owe on unfunded liabilities. Just pay it and get it off the news I say.

Keep that talk up and you'll be offered a position in Obama's cabinet in no time!

And via the IMF, the American tax payers have bailed out Greece.

[Deleted]

I saw we bail out Greece to insure a steady supply of gyro meat and feta.

[robbase]

Converting to the euro crushed the Greek economy. A large part of their economy was tourism. Before Europeans could travel there and buy goods for cheap, hotel stays were cheap etc. The euro ruined that for them

who's fault was that? did someone FORCE Greece to join the EU?

[robbase]

If Greece owes billion$ maybe they should start thinking a little bit that they have some power. The banks cant repossess Greece.

no, but their credit rating can go to carp with a quickness. And if your problem is that you spend more than you make (Greece), that will be a death spiral for you

[Havoc]

[quote author=horatiolegrand board=finance thread=10678 post=434121 time=1309552153
eta: I dont understand why the United States doesnt just pay the bill to bail out Greece. It is an insignificant amount, really just chump change, if you compare it to what we owe on unfunded liabilities. Just pay it and get it off the news I say. [/quote]

Horatio, are you nuts?? We NEED Greece to be in the news - the story of another country being in worse economic shape than the US is a blessing... what do you think will happen when the international community really starts to look at US finances?

[Havoc]

Jun 30, 2011 21:53:39 GMT -5 formerexpat said:

I realize it sucks for the banks to lose money, but they did take the risk. Capitalism will eventually fail if govt insures success.

Be careful what you wish for here.

Are you or citizens across the world ready to pay the actual risk premium [i.e. interest rate] up front for the debt that they assume? You really think that the US's current risk is as low as the current treasury yields?

How many percentages are shaved off of mortgage rates by the implicit guarantee made by the GSE's?

If, after banks charge the appropriate risk premium up front, are you going to accept the profits that they receive in the good times [when there aren't many any defaults] so that they can have the appropriate capital when the recessionary times come and they no longer have the support of governments?

I understand your point, but I am still wishing for it. If banks actually have to do REAL risk analysis on the loans they make, they will be more prudent with their loans... or, as you correctly point out, they will charge a "risk premium" in either fees or, most likely, substantially higher interest rates. But the fees and higher interest rates will be socked to the higher risk debtors... and the lower risk creditors will finally have some reward for being "lower risk".

In the process that seems to be repeating itself around the globe, all of us (as taxpayers) are paying the "risk premium" for the loans these banks made because politicians are effectively nationalizing the losses on bad investments, all in the name of "financial stability", which brings us the stories of Tim Geithner making AIG paying off their investors in full when some of them offered to take a haircut... Britain making whole on the losses of individual British citizens who lost money in Icelandic banks with taxpayer money despite not even being officially involved in the matter, and now suing Iceland to get the money back... Indy Mac bank being taken over by the feds, then sold to a bunch of Goldman Sachs alumna in a deal that GUARANTEED - with US taxpayer money - that the buyers would make a hefty profit on every mortgage that the bank had above and beyond the discount to market value that the mortgages were sold at... the mind-boggling insanity just goes on and on.

The simple truth is that we have to stop nationalizing losses and privatizing gains. That just isn't capitalism, and I think that the fact that these acts are being termed as "capitalism" just because the US and Western Europe are doing them is giving capitalism a bad name... The sooner that lenders and investors realize that there are real consequences for their actions, and that those consequences include losing their shirts, the sooner global markets will return to some semblance of health.

[formerexpat]

I understand your point, but I am still wishing for it. If banks actually have to do REAL risk analysis on the loans they make, they will be more prudent with their loans... or, as you correctly point out, they will charge a "risk premium" in either fees or, most likely, substantially higher interest rates. But the fees and higher interest rates will be socked to the higher risk debtors... and the lower risk creditors will finally have some reward for being "lower risk".

That's all fine and well, and I don't necessarily disagree but a low risk home loan might be at a 7-8% interest rate [i.e. 2-3% higher] without the implicit guarantees from the US government.

Like all other nations, they certainly won't be 30 year fixed mortgages, or even 15 yr. They'd all be adjustable rate mortgages and the central bank would increase interest rates to control inflation [taking away your disposable income in the good times].

Or, what if we went back to the time when mortgages were given via a demand loan - i.e. the bank could come tomorrow and call your loan...which, by the way, is how the paid off home became popular and a sense of security for many despite it not necessarily being the best financial choice one can make.

The simple truth is that we have to stop nationalizing losses and privatizing gains. That just isn't capitalism, and I think that the fact that these acts are being termed as "capitalism" just because the US and Western Europe are doing them is giving capitalism a bad name...

What we have now isn't capitalism. Our interest rates aren't determined without government intervention to suppress them. Our nation is the only one that has a 30 year fixed rate loan; pushing the interest rate risk entirely on the bank and allowing the homeowner to fix their largest expense for their entire adult life, making way for them to increase their standard of living with the resulting savings.

It almost seems like a payback from the government for the arrangement that banks give to the US customers, which, by far are better than any other nation.

Again, I'm not saying I disagree, I'm just pointing out some specifics about our nation which are unique and benefit the US taxpayers and citizens significantly.