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Sun Apr 8, 2012, 09:22 PM

For those who don't know what the "Greece" problem in Europe is about - here's the explanation

This is an article by an Australian professor of social policy at the University of Sydney in Australia.

http://inequality.org/greek-debt-crisis/

Here are some excerpts:

What’s going on in Europe is: not much, really. Greece makes up less than 2% of the European Union’s combined national income. The German economy could eat 10 Greeces for breakfast and still have room left over to eat Finland for lunch. The problems of the Greek economy are only a big deal because a few politically powerful European banks made investments that they now regret. Not just banks, but hedge funds. So-called “vulture” funds have bought up troubled Greek bonds at a big discount. These hedge funds are now using their powerful political connections to lobby for full payment of Greece’s debt. In other words, these vulture hedge funds have bought Greek bonds at 25 cents on the dollar but are pushing for full payment. They’re not going to get full payment. It was reported in June that the French (it’s always the French, isn’t it?) floated the idea of just having the ECB buy back the bonds on the open market — that is, at 25 cents on the dollar — but the banks and hedge funds would have none of that. The French proposal was quickly shouted down. Full payment is the demand; wring your hands, talk a lot, and pay 50 cents is the current agreement on what will actually happen. And the banks and hedge funds are still pushing for at least a few more pennies.

The Greek government is being forced to raise sales taxes on the goods that ordinary people buy, but has been warned not to raise income or investment taxes on the rich. Government employees are having their salaries and pensions cut. People are being forced to work longer and retire later. And the government has been ordered to sell off state-owned companies.

A pro-worker solution to the Greek debt crisis would come in two parts. First, force those who have long evaded their taxes to start paying them. Millionaire shipowners, corporate executives, and highly-paid professionals should be the target. Second, let Greece reimburse bondholders the amounts they actually paid for their bonds. Then Greece could retire its debt in dignity instead of through begging from the ECB.

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Arrow 34 replies Author Time Post
Reply For those who don't know what the "Greece" problem in Europe is about - here's the explanation (Original post)
Sarah Ibarruri Apr 2012 OP
dkf Apr 2012 #1
Sarah Ibarruri Apr 2012 #4
dkf Apr 2012 #7
JDPriestly Apr 2012 #13
coalition_unwilling Apr 2012 #14
JDPriestly Apr 2012 #27
coalition_unwilling Apr 2012 #28
JDPriestly Apr 2012 #29
coalition_unwilling Apr 2012 #32
JDPriestly Apr 2012 #33
coalition_unwilling Apr 2012 #34
bongbong Apr 2012 #21
justice1 Apr 2012 #11
Sarah Ibarruri Apr 2012 #20
badtoworse Apr 2012 #2
Zalatix Apr 2012 #3
banned from Kos Apr 2012 #6
Sarah Ibarruri Apr 2012 #5
dkf Apr 2012 #8
badtoworse Apr 2012 #9
DallasNE Apr 2012 #10
Sarah Ibarruri Apr 2012 #25
badtoworse Apr 2012 #26
fasttense Apr 2012 #17
badtoworse Apr 2012 #18
Sarah Ibarruri Apr 2012 #22
leveymg Apr 2012 #23
Sarah Ibarruri Apr 2012 #24
kenny blankenship Apr 2012 #12
coalition_unwilling Apr 2012 #15
tsuki Apr 2012 #16
Sarah Ibarruri Apr 2012 #19
girl gone mad Apr 2012 #30
Sarah Ibarruri Apr 2012 #31

Response to Sarah Ibarruri (Original post)

Sun Apr 8, 2012, 10:01 PM

1. The vast majority of the bonds were exchanged for a significant haircut. This is outdated info.

 

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Response to dkf (Reply #1)

Sun Apr 8, 2012, 10:53 PM

4. Outdated? By how much is it outdated? Did you read the full article? nt

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Response to Sarah Ibarruri (Reply #4)

Sun Apr 8, 2012, 11:13 PM

7. The swap has gone through with CDS's triggered.

 

NEW YORK—Payouts on a net $3.2 billion of insurance-like contracts designed to protect against losses on Greek sovereign debt have been triggered, after the country forced certain private creditors into its debt restructuring who did not want to accept the terms of the deal, a committee of dealers and investors decided Friday.

The request made early Friday to the special committee of the International Swaps and Derivatives Association, which rules on such matters for the credit-default swaps market, was made following Greece's use of so-called collective-action clauses in its domestic-law bonds.

http://online.wsj.com/article/SB10001424052970204603004577271712189185578.html

The Greek government was able to legally strong-arm most of its private bondholders into accepting the debt reduction deal it completed Friday. But next time — and experts predict there will almost certainly be a next time — Greece might have much less leverage.

That’s because as a result of Friday’s deal, the bulk of Athens’s 260.2 billion euros ($341 billion) in remaining government debt will now be held by the International Monetary Fund, the European Central Bank and the individual European nations that have lent Greece money and contributed to the region’s bailout fund.

Politically, Greece would be hard-pressed to force debt losses on such a formidable international group, the way it did with the private banks and hedge funds that have just been forced to accept a 75 percent loss on their Greek bond holdings. Greece’s main creditors, in effect, are now foreign taxpayers — who are likely to be much less malleable than the private creditors if Greece needs to renegotiate its staggering debt load a year or two down the road.

“From now on, whatever happens in Greece, it will be a matter between Greece and the taxpayers of the rest of the euro area,” said Jacob F. Kirkegaard, an analyst at the Peterson Institute for International Economics in Washington.

http://www.nytimes.com/2012/03/10/business/global/greece-debt-restructuring-deal-private-lenders.html?_r=1&pagewanted=print

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Response to dkf (Reply #7)

Mon Apr 9, 2012, 03:01 AM

13. This kind of economic conflict lead to WWII. It could happen again.

Ordinary Greek people should not be required to sacrifice too much to pay the debt that is really owed by the very wealthy in Greece.

Other European countries manage to collect their taxes from the wealthy. In one country that I know of, the tax authorities used to actually look at the lifestyle and expenditures of people suspected of tax fraud. The Greek government could do the same thing.

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Response to JDPriestly (Reply #13)

Mon Apr 9, 2012, 03:25 AM

14. This kind of economic conflict did NOT lead to WWII. British and French guarantees of

 

Polish territorial integrity vis-a-vis the Danzig Corridor and Hitler's demand for German sovereignty over that same corridor lead to WWII. Economics had very little to do with the direct causes of WWII.

Am I missing something here? Onerous reparations were imposed on a defeated Germany by the Entente powers after Germany's defeat in World War I, but those reparations had pretty much stopped being an issue after the mid- to late 20s in Weimar Germany.

Now the causes of WWI are a whole different matter, if one accepts Lenin's analysis.

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Response to coalition_unwilling (Reply #14)

Wed Apr 11, 2012, 01:23 AM

27. Yes. This kind of economic depression and class differences lead to the rise of Hitler.

The German inflation impoverished so, so many.

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Response to JDPriestly (Reply #27)

Wed Apr 11, 2012, 04:08 AM

28. I think you are confusing chronological proximity with

 

historical causality. The hyperinflation of which you speak was largely over by the late 20s. It cannot be repeated often enough that the Nazi Party never received a majority in any free and fair election. Hitler was appointed Chancellor by a senile Hindenburg with the connivance of conservative lackey van Papen but after the Nazi Party's share of electoral returns had actually declined in the most recent parliamentary elections. IOW, Hitler was appointed, not elected.

The economic cause most closely correlated with Hitler's rise to power was rising unemployment, not inflation or class conflict. And even that 'cause' is tenuous at best. Hitler's rise to power is as much the result of the failure of Prussian institutions and political parties that failed to recognize the mortal threat to liberal democracy that fascism represented.

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Response to coalition_unwilling (Reply #28)

Wed Apr 11, 2012, 07:01 PM

29. Having lived in Germany and Austria and having discussed this

with members of that older generation, I disagree with your textbook opinions. The great inflation was never forgotten.

The NAZIS covered up the unemployment problems by furloughing people with what we would call generous unemployment payments (my very elderly neighbor retired at 35 during the 1930s and never worked again) and hired people to work in the defense industry.

In fact, the NAZIs, if you recall, had labor camps in which they put all the people they didn't like forcing them to work until they succumbed to hunger and exhaustion or survived. So there was no shortage of work.

The effects of the great inflation were felt by the people long after the economists would say it had ended.

This is similar to our situation in which economists will tell you that we are no longer in a deep recession, but ordinary people are still suffering from the serious effects of the recession. If, in recent times, you lost your job and your house was foreclosed, and you were made homeless, you would blame the recession/depression, not subsequent economic events that you probably would not understand.

Historians' and scholars' analyses of history are often inaccurate because they cannot see events through the eyes of the ordinary people who remember how they saw them.

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Response to JDPriestly (Reply #29)

Thu Apr 12, 2012, 04:17 AM

32. I would never disparage social history and its various media (such as oral

 

histories), but I think any honest assessment of the causes for Hitler's rise would place anti-semitism and its appeal to the German middle and working class far above any direct macroeconomic cause. Anti-semitism could and did take root and sway large numbers of the German electorate because the economic situation in Germany was so fragile. But the fact remains that, even at the high point of its electoral arc, the Nazi Party never received more than roughly 33% of the vote in any free and fair parliamentary election. The Nazi Party only came to power because of the connivance and complicity of other power brokers on the German political scene. For example, Von Papen thought he and his party could 'control' and 'co-opt' Hitler, once Hitler held the Chancellorship, thus explaining Van Papen's deal with the Devil. We probably will never know exactly what the quasi-senile Hindenburg thought in agreeing to appoint Hitler Chancellor.

FWIW, my views on the causes of Hitler's rise to power are largely informed by the work of William Shirer, among others. Shirer lived and worked in Germany during Weimar and the early 30s and saw much of what he writes about at first hand.

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Response to coalition_unwilling (Reply #32)

Thu Apr 12, 2012, 04:57 PM

33. Have you read The Lost City by John Gunther?

It's about Austria on the evening of WWII.

Anti-semitism was a huge cause for the rise of Hitler but it was to a great extent related to the economic problems -- first inflation then bank failure then the shoring up of the job market through war and social programs.

Here is what I learned about it from talking to ordinary people in Germany and Austria. (I have to confess that I am very pro-tolerance and pro-Jewish for personal reasons, so I paid great attention to this.)

Germany and Austria like a lot of Europe became more tolerant about religion in the late 19th century. Evangelical Lutheran churches, at some point during that time were allowed to ring their church bells -- an act that had previously been forbidden.

Jews were allowed to attend at least some of the schools from which they had apparently been barred.

This is horrible to say, but what Germans and Austrians I met stated was that the Jews excelled in their classes making it hard for Germans and Austrians to compete.

Hitler is a good example, I was told, of an Austrian who really wasn't good enough to compete and who blamed his failures on the unwarranted successes of others he identified as Jews. So jealousy was a big factor with regard to anti-semitism on the personal level. Germans and Austrians were and still are to some extent addressed by the position they hold in terms of their career. So the wife of a man with a PhD is called Frau Doktor. That was weird to me, but that is the way it was. That may have changed since I was there. There is also Diplomkaufman ____, etc.

No doubt you are very familiar with the history of the role of the Jewish people, their ostracism, etc. prior to the late 19th century or so.

But, as we see in the US today, this kind of jealousy about the rise of minorities is most severe in economically difficult periods. When there are lots of jobs and opportunities, members of an erst-while dominant group, say a religious or racial majority do not perceive opportunities for other groups as a threat.

But when jobs are scarce and life is hard, when prices are rising all the while, religious and racial intolerance become expressions of the frustrations that are really due to economic problems. That is my view.

That is what we see in the US. Unless the availability of jobs and education improves for all Americans, we are in for a tough time in my view.

I know (and have a copy of) William Shirer's Rise and Fall of the Third Reich although I have not read all of it.

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Response to JDPriestly (Reply #33)

Thu Apr 12, 2012, 11:09 PM

34. Have not read that specific work by Gunther. I have read some of his

 

non-fiction, but cannot for the life of me bring anything specific to mind.

Re your argument about religious and racial intolerance and their origins in economic problems, German electoral returns would seem to support you. Specifically, in the latter half of the 20s when the Weimar Republic had largely stabilized and the German economy was performing well, the Nazi Party was a 'fringe' party in German electoral politics and did not start making serious electoral gains in the Reichstag until the German economy, shadowing that of Britain, France and the U.S., started to go south ca. 1929.

My view is that it lets Germans off the hook to ascribe Hitler's rise to power to anonymous economic forces. As Daniel Goldhagen has pretty definitively demonstrated in "Hitler's Willing Executioners," pre-1945 Germans were a particularly nasty bunch. Goldhagen's book profoundly altered my view of ordinary Germans and their role in the Holocaust (after I had written a senior thesis whose assumption is directly at odds with the argument Goldhagen directly advanced). And I'm not going to let them off the hook ever again.

If you've ever seen the graffiti in Germany saying 'Turks 'raus', you'll understand that old habits die hard for some of the Germans But that's grist for another thread, methinks.

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Response to JDPriestly (Reply #13)

Mon Apr 9, 2012, 09:59 AM

21. The new Standard Strategy of the 1%

 

Divide & Conquer. Used with great success by the ruling class since Roman (and probably before) times.

Get the common man of Greece vs. the common man of the rest of Europe. Once this settles out, rinse & repeat with another country. The media (incl. NPR) is the "grease" to make this happen.

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Response to dkf (Reply #1)

Mon Apr 9, 2012, 12:45 AM

11. As for the Greek hair stylist...

they were allowed to retire at age 50, with a full pension.

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Response to justice1 (Reply #11)

Mon Apr 9, 2012, 09:55 AM

20. With no funds in govt, since they weren't collecting taxes as they ought to have been. nt

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Response to Sarah Ibarruri (Original post)

Sun Apr 8, 2012, 10:09 PM

2. So it's only hedge funds that are holding Greek debt? Sounds like baloney to me.

Even if one accepted the argument that the contract should be negated because it was purchased at a discount, it doesn't address the fact that some holders of Greek debt likely paid full value for the bonds. How should they be compensated? Should they get the 25 cents on the dollar that you would give to the hedge funds? Doesn't sound very fair to me. Beyond that, only paying 25 cents on the dollar when the debt comes due is a default - period. What difference does it make what the bond traded for in the secondary market?

Yes, tax collection is a big problem, but from what I understand, cheating on taxes is a national pastime in Greece that spans all income brackets, not just the rich. Basically, if you are in a position to cheat, you do.

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Response to badtoworse (Reply #2)

Sun Apr 8, 2012, 10:14 PM

3. Higher sales taxes? I hope they cheat on that.

 

I hope they cheat until the system explodes. A collapse is EXACTLY what the 1% doesn't want.

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Response to Zalatix (Reply #3)

Sun Apr 8, 2012, 10:59 PM

6. Greece has already collapsed. This is what an orderly collapse looks like.

 

The bondholders took a big haircut and the Greece parliament was forced to "rightsize" their expenditures.

Their economy is in a full Depression.

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Response to badtoworse (Reply #2)

Sun Apr 8, 2012, 10:54 PM

5. Greece is not the problem for the EU that they make it out to be...

the problem is with those who hold the contracts.

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Response to Sarah Ibarruri (Reply #5)

Sun Apr 8, 2012, 11:21 PM

8. Read above...the debts are now mostly held by European taxpayers.

 

And they are not about to allow healthy early pensions if they themselves do not receive them.

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Response to Sarah Ibarruri (Reply #5)

Sun Apr 8, 2012, 11:35 PM

9. Yes and no.

Yes, in absolute terms, the amount of money lost because of Greece's inability to service its debt is not a huge problem. On the other hand, a loss of confidence in the strength of those contracts by purchasers of Euro denominated bonds would be a problem for other countries, like Italy and Spain, that need to issue bonds to manage cash flow. This past week, a Spanish bond offering did not do well at auction. IMO, this was at least partially due to higher concerns over default risk based on what happened in Greece. Translation: increased borrowing costs for countries like Spain and Italy will force those countries to implement more stringent austerity programs of their own. I think you need to look beyond Greece in evaluating this problem.

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Response to badtoworse (Reply #9)

Mon Apr 9, 2012, 12:44 AM

10. The Problem Is The Solution

Stringent austerity measures is exactly the wrong "solution" when countries are already in a recession or worse. Not only will this take down the countries where the austerity measures are imposed, it will take down the European trading partners of those nations. That is why Germany currently has negative growth -- lost exports. The ripple effect will be felt here in the United States with weak exports as well. What is needed in Europe right now is liquidity and that means quantitative easing by the European Central Bank. They have taken baby steps in this direction already but much more is needed in that area.

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Response to badtoworse (Reply #9)

Mon Apr 9, 2012, 12:17 PM

25. I'm the furthest thing from an economist the world has ever seen, however...

the more I see how financial corporations are running our planet into a pile of shit, the more I realize that if this is called capitalism, it, too, is a piece of shit.

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Response to Sarah Ibarruri (Reply #25)

Mon Apr 9, 2012, 12:21 PM

26. The expectation of being repaid is an absolutely essential element of any lending arrangement.

Without that, borrowing would be impossible. We could operate that way, but the world would be a very different place if we did.

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Response to badtoworse (Reply #2)

Mon Apr 9, 2012, 06:54 AM

17. Not really, Greek tax cheats are mostly the uber wealthy because they have political control.

Where as a middle class or poor tax cheat is usually immediately hunted down and made to pay.

If you look at this NYT article, the average owed to Greece per person or family is about $4.7 million. http://www.nytimes.com/2012/01/24/world/europe/greece-publishes-list-of-4000-tax-scofflaws.html?scp=8&sq=Greek%20tax%20debt&st=cse

It would take me 316 years to build up a federal tax debt like that.

So NO, it's NOT the middle class and poor who were/are cheating the government. It's the uber rich who have the political power to avoid taxes.

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Response to fasttense (Reply #17)

Mon Apr 9, 2012, 08:52 AM

18. They may have a larger impact because they have more income

Everything I've read about the problem points to an almost universal aversion to paying taxes. Basically, if you run a cash business, you can cheat by not reporting income and anyone that can do that, does it. I've read that about a third of Greece's GDP is "off the books" and untaxed.

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Response to fasttense (Reply #17)

Mon Apr 9, 2012, 10:03 AM

22. I completely agree. Greece has been a paradise for the mega-rich. nt

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Response to Sarah Ibarruri (Reply #22)

Mon Apr 9, 2012, 11:24 AM

23. Wasn't that the point of the CIA intervention and the Junta in '67?

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Response to leveymg (Reply #23)

Mon Apr 9, 2012, 11:45 AM

24. Same old story: the rich versus a true people's democracy, but, of course,

militaries are usually not on the side of the people.

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Response to Sarah Ibarruri (Original post)

Mon Apr 9, 2012, 12:58 AM

12. Also, Greece can't be allowed to default

because Spain would be right behind them. And Portugal and possibly Italy.
The catastrophe may happen anyway, but stopping default in Greece, where it was relatively easy for the Euro North to paper over the losses, was symbolically important. If the tide can't be stemmed there it won't be stemmed anywhere. Too bad about all those Greek people, though. They might make it through by eating thistle and roadkill.

Maybe they'll do us all a favor and overthrow their bankster imposed government?

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Response to kenny blankenship (Reply #12)

Mon Apr 9, 2012, 03:29 AM

15. And if there's not enough thistle and roadkill, they can always fall

 

back on hemlock, Socrates' final supper.

Greece can default on the new series of bonds but, if she does so, will probably have to exit the Euro and return to the Drachma.

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Response to kenny blankenship (Reply #12)

Mon Apr 9, 2012, 04:18 AM

16. Any debt that cannot be repaid will not be repaid, and that is a

default. Kicking the can down the road will not stop it.

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Response to kenny blankenship (Reply #12)

Mon Apr 9, 2012, 09:54 AM

19. Apparently, Greece was collecting a minutiae in taxes, and that's the way the country was run -

on nearly nothing.

That's what happens when a country doesn't collect taxes. A similar thing has been happening here, but with taxes being ridiculously low for the mega-rich and corporations.

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Response to Sarah Ibarruri (Reply #19)

Wed Apr 11, 2012, 07:08 PM

30. Greece's tax collections were not far out of line with the rest of the Eurozone.

This chart from 2009 is fairly representatitve:



Greece's tax burden was lower than Germany, France and Denmark, but it's important to note that the Greek people also receive far less in benefits. Outside of their pension system, Greece has a pretty poor social safety net.

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Response to girl gone mad (Reply #30)

Wed Apr 11, 2012, 10:23 PM

31. Could you post the chart? It was inadvertently left out. nt

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