So it's a new day for Athens and for Europe, with a resounding NO vote from the Greek people against austerity measures demanded by their creditors. While Greek policy makers lead by Prime Minister Tsipras flood their victory cries and calls to resume negotiation, and Germans voice their outrage and call to their government and Euro-peers to cut off said negotiations, I feel like no one is sufficiently addressing the fallout and what comes next-- probably because it's hard to say what'll happen; but also because the potential directions of this could cause a mass panic on a scale that no one wants to see.
Many articles going around now end off their analysis with "...which could result in Greece leaving the Eurozone"
But that's just one likely result of the No vote, and one that doesn't really let people conceptualize what that means for their own world and lives around them. What could happen in real life, to real people.
For the Greeks
First off, from my own single individual view-point, I think they probably made the right decision. I read a quote from a youth saying "I would rather suffer for a few years than forever"-- which is something I think is actually right, though we're probably not looking at "a few years", and I hope she has a conception of what is entailed by "suffering" here. Staying with Germany and with the EU, honoring creditors means continuing to be attached to a debt spiral that ultimately looks impossible to get out of, with austerity that will simply ring the country dry until there is really nothing left. For Greece to revive, bold reforms must be made, even if it means starting with nothing.
But what do we mean by nothing? What kind of "suffering" could be in-store as Greece looks at an isolated re-build? Well, more correctly, "nothing" would mean "with just the assets inherent to Greece." Natural resources, man power, the fruit of the land, non-liquifiable assets and infrastructure.
By voting No yesterday, the Greek people essentially re-buffed the IMF's weak label of calling Greece "in arrears" and essentially puts them in full-blown Bankruptcy (though this little fact seems to escape the headlines...), or close to it with their already delinquent payment to the IMF. Greece is in Default-- but Greece is a sovereign country in a global world; it's quite a bit different from when an individual defaults.
When an individual or company goes bankrupt, their creditors seize all their assets, which are then generally liquified and divided amongst creditors in order of priority. If an individual refuses to hand over its assets, law-enforcement steps in, the authorities seize the assets and forces the handover. But with a country? I don't expect the Germans to role up their tanks and jets to the Greek boarder tomorrow and demand Athens to hand over their land and country to Germany's ownership for refusing to pay up. Unless Germany wants to seize Greece by force and make it a German colony (and let's face it, the international community pretty much makes this impossible even if the German's wanted to--which they don't), Greece will retain its sovereignty, and there for the right to (or obligation to?) manage their own national assets and people.
This pretty much leaves the creditors out on conventional recourse, but of course removes Greece from the Eurozone (cutting them off from all relief, the ECB, and out of Europe's monetary policy), and likely leads to grave trade sanctions from Germany and other nations. More than punitive action from its creditors, Greece’s bigger problem is the complete collapse of Greek trust, which if it was in its final comatose death throes last week, is now cremated and awaiting burial.
When trust collapses, it means you can’t borrow money from anyone— you can’t get foreign money, which means no foreign goods. Greece will be without imports (outside of massive amounts of food and medical aid coming from relief and aid groups), and left to rebuild its economy with whatever’s on hand—its owned infrastructure, natural assets, and people.
Putting food aside for a second, (since we can expect some degree of relief to come in), let’s talk about possibly the most needed import—energy. From a cursory search on Google (since I’m no expert in Greek resources) Greece is a country that counts its daily production of oil in the thousands of barrels, and counts its consumption in the hundreds of thousands. Reserves in the millions won’t last out a year. So to get the first glimpse of what a defaulted-Greek-recovery would look like, imagine a Greek recovery where trains don’t move, houses don’t light or heat themselves, and where TVs, Radios, computers, and smart phones won’t turn on for the average Greek. A Greece cut off from the world in this age of information and globalization, and with a logistics and communications infrastructure that has completely collapsed.
A return to farms, living off the land, and using physical transfer of information to coordinate (ie. You end up with a mailman on a horse instead of e-mail).
Of course, I could be exaggerating on how bad it could get—or, it could get a whole lot worse. Energy is just one vital import for Greece, and dried up liquidity, zero capital/investment, and widespread poverty are all things that would drive social unrest and strain the process of even a domestic-focused rebuilding.
If it doesn’t go that way, it really depends on how merciful the rest of the world wants to be to Greece. That’s why this whole discussion has been about bailouts, aid, and debt cuts. One thing for sure, if I were a German creditor, or even an everyday Joe German—I would be absolutely furious right now. The reason so many see Tsipras as fool-hardy is because at this point, it’s a choice between a flat-lined Greece, and getting help. Frankly, I think his recent behavior of waving around the word “Democracy” (which has nothing to do with debate of economic ideologies) and demanding/urging of “Return to Negotiations” probably isn’t having the desired effect of warming people up to help Greece...
In the case that Greece’s creditors refuse Greece’s demands for debt cuts, Greece will have no course of action but to start again, with just Greece. Then it will be a test of the Greek people, to see if their resolve holds on a daily basis when everyone is poor, and the government becomes too weak to instill (too poor to pay for) its own order. From what I do know about Greek values, virtues of sharing, and compassion, it might actually be possible for them to succeed here (where we Americans would definitely fail, lol).
For the Germans
If I were a German policy maker overseeing the economy and Germany’s financial industry, at some point I’d have to ask myself—at what point does it make more sense to bail out the banks, and not the Greeks?
What do I mean by this?
As a German policy maker, my interest in having Greece bailed out would be in protecting Germany’s financial industry—the soundness of German banks and investors that hold a lot of Greek debt. If those debt obligations go bad, the banks’ assets and liquidity take major hits, and ultimately the banks become unable to lend, which freezes the economy. This is what they want to avoid—writing off the principle, the base value of the debts.
By bailing out Greece, they can enable Greece to pay off the interest on those debt obligations without eliminating them, allowing the German banks to keep the debt on their balance sheets as “good” assets (good in the sense that they are still expected to be paid off, and therefore keep their value). In other words, you’re helping Greece pay off the interest (while giving them more debt) in order to avoid writing off the principle.
Greece is saying they can’t make it without demanding writing off some portion of the principle.
Remember, as Germany, the whole purpose of bail outs is to avoid writing off principle...
There’s another thing you could do with your money, as a German policy maker. You could pay off the banks. You could let Greece go bankrupt, let all the debt get written off, and instead of bailing out Greece, bail out the banks. Inject them with liquidity and to maintain their financial soundness in the face of Greek debt going bad, and tell the European Central Bank to lower interest rates in order promote lending. Sound familiar? It should... it's only been 7 years since 2008...
If you don’t got the cash from your own Tax collections, use your political sway as Germany--after all, you're Germany--to make the ECB print out the cash you need to hand over to German banks.
As Germany, having to forgive too much of Greece’s debt is the same thing as taking the above course of action anyway. From your own financial soundness, forgiving 100% of the debt and letting Greece go bankrupt would be the same thing—it’s a question of how much you want to trust the Greeks to pay off, and how much debt write-off do you want to deal with.
Which comes to the final question of a Greek bail-out, after all that’s happened, as a German policy maker, how much would you trust Greece to make good on its debt? Even if you do bail them out, do you really think the government, economy, and people of Greece are going to be able to pay you back one day? ....
German Policy Maker: "If we give you more cash, will you be able to pay off your debts?"
Greek Referendum: "NO!! We refuse to pay off all our debts!" (but give us more $$ anyway)
German Policy Maker: "... so, that's a 'no' then I presume?"
Spanish Prime Minister: "So Germany, let's go ahead and quickly restart talks about you giving them more of your money!"
Uh... clearly, the answer should be no... you know, considering that the people’s vote of NO to greater austerity and demand for debt write-off.
If it were a 1 on 1 conversation between two joes on the street, the outcome of this conversation would be pretty clear.
I guess what I’m getting at is that if I were Germany, at some point you have to step away from the slot machine and stop trying to throw good money for bad at Greece, but instead look at what can be done (also, with $$) to instead protect the soundness of the German financial system.
Greece is in for real tough times ahead, as is all of Europe, but maybe the No vote and a Grexit are in fact what’s best for everyone...
What would TRULY be best for everyone is if people the world over stopped voting for politicians promising more than what the people can pay for. If people voted for politicians that would tax more (especially of the super wealthy), spend less, and reform our obligations, pensions, meds, and the rest. Policy makers who will think about the long-term, both for the economy/private sector, and for the environment (yeah I know that's an opposing objective, but just my general point of politicians who serve the people beyond their terms).
The US, Japan, and UK, are really no better off than Greece is... And even a country like China’s exposure to them makes a major risk. I guess in the decades ahead, we will see if these countries too are in fact “too big to fail.”
What would you do if you were Greece?
What would you do if you were Germany?
How do you think things will play out?
What does it mean for the rest of Europe, and in fact, the whole world economy?
Many articles going around now end off their analysis with "...which could result in Greece leaving the Eurozone"
But that's just one likely result of the No vote, and one that doesn't really let people conceptualize what that means for their own world and lives around them. What could happen in real life, to real people.
For the Greeks
First off, from my own single individual view-point, I think they probably made the right decision. I read a quote from a youth saying "I would rather suffer for a few years than forever"-- which is something I think is actually right, though we're probably not looking at "a few years", and I hope she has a conception of what is entailed by "suffering" here. Staying with Germany and with the EU, honoring creditors means continuing to be attached to a debt spiral that ultimately looks impossible to get out of, with austerity that will simply ring the country dry until there is really nothing left. For Greece to revive, bold reforms must be made, even if it means starting with nothing.
But what do we mean by nothing? What kind of "suffering" could be in-store as Greece looks at an isolated re-build? Well, more correctly, "nothing" would mean "with just the assets inherent to Greece." Natural resources, man power, the fruit of the land, non-liquifiable assets and infrastructure.
By voting No yesterday, the Greek people essentially re-buffed the IMF's weak label of calling Greece "in arrears" and essentially puts them in full-blown Bankruptcy (though this little fact seems to escape the headlines...), or close to it with their already delinquent payment to the IMF. Greece is in Default-- but Greece is a sovereign country in a global world; it's quite a bit different from when an individual defaults.
When an individual or company goes bankrupt, their creditors seize all their assets, which are then generally liquified and divided amongst creditors in order of priority. If an individual refuses to hand over its assets, law-enforcement steps in, the authorities seize the assets and forces the handover. But with a country? I don't expect the Germans to role up their tanks and jets to the Greek boarder tomorrow and demand Athens to hand over their land and country to Germany's ownership for refusing to pay up. Unless Germany wants to seize Greece by force and make it a German colony (and let's face it, the international community pretty much makes this impossible even if the German's wanted to--which they don't), Greece will retain its sovereignty, and there for the right to (or obligation to?) manage their own national assets and people.
This pretty much leaves the creditors out on conventional recourse, but of course removes Greece from the Eurozone (cutting them off from all relief, the ECB, and out of Europe's monetary policy), and likely leads to grave trade sanctions from Germany and other nations. More than punitive action from its creditors, Greece’s bigger problem is the complete collapse of Greek trust, which if it was in its final comatose death throes last week, is now cremated and awaiting burial.
When trust collapses, it means you can’t borrow money from anyone— you can’t get foreign money, which means no foreign goods. Greece will be without imports (outside of massive amounts of food and medical aid coming from relief and aid groups), and left to rebuild its economy with whatever’s on hand—its owned infrastructure, natural assets, and people.
Putting food aside for a second, (since we can expect some degree of relief to come in), let’s talk about possibly the most needed import—energy. From a cursory search on Google (since I’m no expert in Greek resources) Greece is a country that counts its daily production of oil in the thousands of barrels, and counts its consumption in the hundreds of thousands. Reserves in the millions won’t last out a year. So to get the first glimpse of what a defaulted-Greek-recovery would look like, imagine a Greek recovery where trains don’t move, houses don’t light or heat themselves, and where TVs, Radios, computers, and smart phones won’t turn on for the average Greek. A Greece cut off from the world in this age of information and globalization, and with a logistics and communications infrastructure that has completely collapsed.
A return to farms, living off the land, and using physical transfer of information to coordinate (ie. You end up with a mailman on a horse instead of e-mail).
Of course, I could be exaggerating on how bad it could get—or, it could get a whole lot worse. Energy is just one vital import for Greece, and dried up liquidity, zero capital/investment, and widespread poverty are all things that would drive social unrest and strain the process of even a domestic-focused rebuilding.
If it doesn’t go that way, it really depends on how merciful the rest of the world wants to be to Greece. That’s why this whole discussion has been about bailouts, aid, and debt cuts. One thing for sure, if I were a German creditor, or even an everyday Joe German—I would be absolutely furious right now. The reason so many see Tsipras as fool-hardy is because at this point, it’s a choice between a flat-lined Greece, and getting help. Frankly, I think his recent behavior of waving around the word “Democracy” (which has nothing to do with debate of economic ideologies) and demanding/urging of “Return to Negotiations” probably isn’t having the desired effect of warming people up to help Greece...
In the case that Greece’s creditors refuse Greece’s demands for debt cuts, Greece will have no course of action but to start again, with just Greece. Then it will be a test of the Greek people, to see if their resolve holds on a daily basis when everyone is poor, and the government becomes too weak to instill (too poor to pay for) its own order. From what I do know about Greek values, virtues of sharing, and compassion, it might actually be possible for them to succeed here (where we Americans would definitely fail, lol).
For the Germans
If I were a German policy maker overseeing the economy and Germany’s financial industry, at some point I’d have to ask myself—at what point does it make more sense to bail out the banks, and not the Greeks?
What do I mean by this?
As a German policy maker, my interest in having Greece bailed out would be in protecting Germany’s financial industry—the soundness of German banks and investors that hold a lot of Greek debt. If those debt obligations go bad, the banks’ assets and liquidity take major hits, and ultimately the banks become unable to lend, which freezes the economy. This is what they want to avoid—writing off the principle, the base value of the debts.
By bailing out Greece, they can enable Greece to pay off the interest on those debt obligations without eliminating them, allowing the German banks to keep the debt on their balance sheets as “good” assets (good in the sense that they are still expected to be paid off, and therefore keep their value). In other words, you’re helping Greece pay off the interest (while giving them more debt) in order to avoid writing off the principle.
Greece is saying they can’t make it without demanding writing off some portion of the principle.
Remember, as Germany, the whole purpose of bail outs is to avoid writing off principle...
There’s another thing you could do with your money, as a German policy maker. You could pay off the banks. You could let Greece go bankrupt, let all the debt get written off, and instead of bailing out Greece, bail out the banks. Inject them with liquidity and to maintain their financial soundness in the face of Greek debt going bad, and tell the European Central Bank to lower interest rates in order promote lending. Sound familiar? It should... it's only been 7 years since 2008...
If you don’t got the cash from your own Tax collections, use your political sway as Germany--after all, you're Germany--to make the ECB print out the cash you need to hand over to German banks.
As Germany, having to forgive too much of Greece’s debt is the same thing as taking the above course of action anyway. From your own financial soundness, forgiving 100% of the debt and letting Greece go bankrupt would be the same thing—it’s a question of how much you want to trust the Greeks to pay off, and how much debt write-off do you want to deal with.
Which comes to the final question of a Greek bail-out, after all that’s happened, as a German policy maker, how much would you trust Greece to make good on its debt? Even if you do bail them out, do you really think the government, economy, and people of Greece are going to be able to pay you back one day? ....
German Policy Maker: "If we give you more cash, will you be able to pay off your debts?"
Greek Referendum: "NO!! We refuse to pay off all our debts!" (but give us more $$ anyway)
German Policy Maker: "... so, that's a 'no' then I presume?"
Spanish Prime Minister: "So Germany, let's go ahead and quickly restart talks about you giving them more of your money!"
Uh... clearly, the answer should be no... you know, considering that the people’s vote of NO to greater austerity and demand for debt write-off.
If it were a 1 on 1 conversation between two joes on the street, the outcome of this conversation would be pretty clear.
I guess what I’m getting at is that if I were Germany, at some point you have to step away from the slot machine and stop trying to throw good money for bad at Greece, but instead look at what can be done (also, with $$) to instead protect the soundness of the German financial system.
Greece is in for real tough times ahead, as is all of Europe, but maybe the No vote and a Grexit are in fact what’s best for everyone...
What would TRULY be best for everyone is if people the world over stopped voting for politicians promising more than what the people can pay for. If people voted for politicians that would tax more (especially of the super wealthy), spend less, and reform our obligations, pensions, meds, and the rest. Policy makers who will think about the long-term, both for the economy/private sector, and for the environment (yeah I know that's an opposing objective, but just my general point of politicians who serve the people beyond their terms).
The US, Japan, and UK, are really no better off than Greece is... And even a country like China’s exposure to them makes a major risk. I guess in the decades ahead, we will see if these countries too are in fact “too big to fail.”
What would you do if you were Greece?
What would you do if you were Germany?
How do you think things will play out?
What does it mean for the rest of Europe, and in fact, the whole world economy?
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