Greece will default, but not this year - analysts say
43 replies, posted
[B][url=http://www.ft.com/cms/s/0/372886dc-400d-11df-8d23-00144feabdc0.html]Greece will default, but not this year[/url][/B]
[release]
I am willing to risk two predictions. The first is that Greece will not default this year. The second is that Greece will default. The [URL="http://www.ft.com/greece"]Greek government [/URL]has demonstrated that it can still borrow at a rate of about 6 per cent but if you do the maths on the public debt dynamics, as I did recently, it would be hard to arrive at any other scenario than an eventual default.
The adjustment effort needed to prevent a debt explosion is extremely large. The Nordic countries achieved adjustment on a similar scale during the 1980s and 1990s, but they had two advantages over Greece. They did it in a different global environment; but more crucially they were, in part, able to devalue and improve their competitiveness. As a member of a large monetary union Greece can improve its competitiveness only through relative disinflation against the eurozone average, which in effect means through deflation. But as the French economist Jacques Delpla* has pointed out, this will invariably produce a [URL="http://www.lesechos.fr/info/analyses/020448000338-il-est-urgent-de-lutter-contre-la-deflation-par-la-dette-en-europe-du-sud.htm"]debt-deflation dynamic in the Greek private sector[/URL] of the kind described by the economist Irving Fisher during the 1930s.
So Greece will not only have to make an extremely large public sector deficit reduction effort but it will also have to do this under a condition of disinflation, and possibly deflation, which would push its nominal growth rate to negative levels during the adjustment period. That, in turn, would jeopardise the debt reduction programme of both the public and private sectors. Under those circumstances, there is no way that Greece could ever stabilise its debt-to-gross domestic product ratio, no matter how hard the government of [URL="http://www.ft.com/cms/s/0/7d3bdef6-390c-11df-8970-00144feabdc0.html"]George Papandreou[/URL] tries.
To get out of this mess, one of five things will have to happen. The first, and most optimistic, solution would be a significant fall in the euro’s exchange rate, say to parity with the US dollar, coupled with a strong recovery in the eurozone. This might just do the trick to sustain Greek growth as it adjusts. The second is that Greece gets access to low interest rate loans from the European Union and the International Monetary Fund. The third would be a private sector debt restructuring to prevent a Fisher-style debt-deflation dynamic. The fourth is that Greece leaves the eurozone. The fifth is default. If you go through the options one by one, you realise that the first is improbable. The EU has in effect ruled out the second. The third would require an unlikely additional bail-out of the European banks. While option four would be most convenient for the Germans, the Greeks are not so stupid as to leave the eurozone. That leaves them with option five: to default inside the eurozone. It is the only option that is consistent with what we know.
But it would throw the [URL="http://www.ft.com/cms/s/0/301f7264-3a7d-11df-b6d5-00144feabdc0,dwp_uuid=2b8f1fea-e570-11de-81b4-00144feab49a.html"]eurozone[/URL] into a potentially terminal crisis. [URL="http://www.ft.com/cms/s/0/93dd008a-27ba-11df-863d-00144feabdc0.html"]Spain[/URL] and Portugal have problems of a different kind but of a similar dimension. Spain will have to go through a disinflation/deflation period that will produce a formidable private sector debt-deflation spiral. Without devaluation, or the possibility of a sustained fiscal boost, the Spanish depression could last forever, or at least for as long as the country stays in the monetary union. Portugal, like Greece, suffers from a combined public and private sector debt problem.
When a country such as Greece pays 300 basis points over the yield of a supposed risk-free bond, this means, mathematically, that investors see a probability of around 17 per cent that they will lose 17 per cent of their investment. So in other words, a spread of 300 basis points is a valuation in which default is still considered improbable. If those perceptions changed from improbable to, say, moderately probable, the yield spreads between southern European countries and Germany would explode.
For the time being, Greece can get by because of its excellent debt management, which is why I am confident that Greece is not going to need an immediate bail-out. But given the political economy of the EU, this might turn out to be a disadvantage. Europe’s complacent leaders will only step in if a crisis is both imminent and visible. The really treacherous aspect about the Greek crisis is that the country’s liquidity position is better than its solvency position. Insolvency is a gradual, invisible process. The negative effects of debt-deflation dynamics have not yet begun, but will become inevitable as the Greek public and private sectors go through a simultaneous debt reduction process. In such an environment my assumption of a 2 per cent rate of nominal growth might be far too optimistic. And even with such an unrealistically optimistic assumption, default would be hard to avoid.
There have only ever been two intellectually honest views about economic and monetary union. The first is that it could not work, as it would eventually produce a situation in which a country’s national interest conflicts with the interest of the monetary union at large. The second is that it could work, but only for as long as member states are ready to co-ordinate economic policy in the short run, and move towards a minimally sufficient fiscal union in the long run. The message from the EU, and from [URL="http://www.ft.com/cms/s/0/b956df36-3a96-11df-b6d5-00144feabdc0,dwp_uuid=2b8f1fea-e570-11de-81b4-00144feab49a.html"]Germany[/URL] in particular, is that the latter has now been ruled out.[/release]
This is all happening now, there are riots and strikes... a lot of civil unrest. It reminds me of the Russian revolution when the Provisional Government was set up. Very similar circumstances. The "rich" and "ruling government" parties are loosing support and nationalist/socialist militias are rising up. [B]Literally, there are millions going on strike.[/B]
[img]http://static.guim.co.uk/sys-images/Guardian/Pix/pictures/2008/12/10/1228921270609/Gallery-Greek-Riots-Conti-009.jpg[/img]
[img]http://www.chinadaily.com.cn/world/images/attachement/jpg/site1/20100224/0013729e48090cef2fe534.jpg[/img]
[img]http://advancethestruggle.files.wordpress.com/2010/02/greece_121.jpg[/img]
[img]http://static.guim.co.uk/sys-images/Guardian/Pix/pictures/2008/12/13/riot-460x276.jpg[/img]
[img]http://macleans.files.wordpress.com/2008/12/121.jpg?w=503[/img]
[img]http://livingingreece.gr/wp-content/uploads/2008/12/mat-greek-police.jpg[/img]
[release]Harold Pinter (He already said it on February 2003)
In the historical point we are now the contradiction of capital is increasingly becoming clear worldwide. Proletarians around the world are in turmoil while their own reproduction becomes more and more difficult. As it is already difficult for the proletarians to continue their lives, it is capital itself as a relation of exploitation which is in reproduction crisis. The current struggles of the proletarians are the expression of the current form of this relation of exploitation.
During the last year in China where the economy still grows very quickly, all kinds of contradictions are rising. Clashes of workers with the police is common for a number of reasons: because of demands for increasing the very low wages (on which steep economic growth is based), because of preventing land enclosures in villages, because of attributing compensation to dismissed workers, against the inadequacy of the health system resulting in high mortality rate of children. In USA where a historical low record of workers’ demanding struggles has appeared, thousands of homeless and unemployed people occupy vacant houses which have been seized by banks and students occupy universities in California and New York writing on their banners: We have decided not to die, demanding this way what was until recently taken for granted, that is, just their ability to continue being students. The reproduction of their own life (of course from a much worse position imposed by the hierarchy of capitalist states) proletarians in South Africa and Algeria demand as well as they clash with police because they still do not have water or electricity and are forced to live in slums; in India as well, because the price of bread suddenly rises and they starve to death. Last year in Spain workers in shipyards which are shut down burn police cars; in South Korea dismissed workers as well occupy factories and clash with police for two and a half months; in Bangladesh, dismissed workers again, clash with police and burn factories. In France and Belgium, dismissed workers kidnap their bosses, placing explosives in the factories and threatening to blow them up if not compensated for their dismissal. In India and China they kill their boss during the conflicts because of thousands of upcoming dismissals. In this historical phase proletarian struggles are objectively struggles for the assertion of life reproduction itself.
At the same time, restructuring of labour relations is accelerated and precariousness is the predominant situation for everyone now. Precariousness is manifested in the worst conditions: 43 suicides of employees in France Telecom within two years but also 1,000,000 unemployed in USA desperately waiting to see whether Obama will once again extend the unemployment benefit which expires in April or they will be left with nothing. Unemployment numbers in most countries surge hitting records higher than in any other historical period.
In this historical phase we are, proletariat is more than enough for capital. The latter cannot effectively exploit the former, namely, it cannot produce the amount of profit needed so as a part of it to be anew put into profitable investments. This is the essence of any capitalist crisis regardless of the form it takes. The present form of crisis objectively puts proletarians’ reproduction at the center of the contradiction. The crisis which first appeared as debt crisis of proletarian households in USA has already been transformed into a countries’ debt crisis and it is possible to be transformed into a monetary crisis; that is, debt crisis of big countries with strong currency or whole blocs of capitalist states such as the European Union. The debt crisis forces capital to turn to its only choice at the moment, which is to continue the strategy that created this crisis, namely to further reduce wages and benefits in every possible way. This is the only choice of capital, because debt crisis is the result of the globalization and restructuring of capitalist relation from which there is no turning back. From proletariat’s standpoint: ” Caught in the stranglehold of competition that can only reduce prices by reducing wages, in the servitude of debt which has become just as indispensable as income in order to live, the waged have, to cap it all, the chance of being tyrannised at their own cost, since the savings instrumentalised by stock-exchange finance, savings which demand to be repaid without end, are their own.” (Le Monde diplomatique, March 2008). From capital’s standpoint, it is a relentless pursuit of the lowest possible price of labour power across the planet, but which has a limit that is the existence and reproduction of labour power as this is socially defined in every capitalist state.
Capital is forced to try to resolve the crisis by destroying fixed capital (buildings, machinery, infrastructure) and variable capital (human) to recreate the conditions of its reproduction, without being, at the moment, able to do it with its only directly effective manner: the widespread, global war. Thus, for the time being, the restructuring inevitably deepens. The wage cuts are rising up to the point that the lowest wage and unemployment benefit tend to be equal, which results in the explosive growth of debt for more and more proletarians. Privatizations of reproduction sectors (health, education, social insurance) multiply, the unemployed have smaller and smaller benefit and are forced into slave working conditions with wages below the level of reproduction. The present historical period reaches its limits. That’s why the state places police corporal guards outside schools in France or inside schools in the USA to arrest the undisciplined students. Capital’s only way out today is repression, namely, there is absolutely no way out of the crisis. This is obvious in cases of natural disasters such as in Haiti and Chile. In such cases, capitalist system is directly put into question by proletarians, who, temporarily unable to be labour power, organize the expropriation of commodities and use them according to their needs in order to survive; and the only way to maintain capitalist property is by using military violence. Curfews during the night and straight assassinations (Haiti) are imposed or imprisonments without trial (Chile) take place and suddenly life looks like prisoners’ life in concentration camps similar to undocumented migrants who in thousands live imprisoned at the borders of each capitalist state.
The attack of capital against that part of the working class in Greece is an aspect of this crisis of reproduction of capitalist relations. Greece today is in the eye of the storm of the debt crisis for many reasons. The most important is that the most precarious part of the proletariat rebelled in a way we all know in December 2008. Greece is the experimental lab of the new phase of the absolutely necessary for capital global restructuring. The bourgeoisie class in Greece, as has many times happened in the past, asks for help by more powerful bourgeoisie classes in order to impose a new form of exploitation (from the very beginning, the government announced higher national debt than the one announced by the ex-government to accelerate the introduction of the Stability Program) but also the bourgeoisie themselves are in the centre of the global crisis. The entire international economical press waits to see the reaction of the proletariat here in Greece and then have an overview of the situation internationally. The biggest stores of loan sharks are competing with each other in order to lend and, thus, control in the future the Greek state and, thus, the form and intensity of the local proletariat’s exploitation. The creation of the European Monetary Fund to IMF standards clearly shows that the contradiction of competition between capitals can now be solved temporarily but also shows that it does not matter who the boss of the proletariat is.[/release]
[B]The Coming Euro Collapse[/B]
[media]http://www.youtube.com/watch?v=32Lor1YfCGM[/media]
[B]Riots and Marches in Athens[/B]
[media]http://www.youtube.com/watch?v=NaaHx2doD94[/media]
Red flags :smug:
Title confuses me.
I hope they don't put water on that, I hear Greece fires are pretty bad.
[img]http://macleans.files.wordpress.com/2008/12/121.jpg?w=503[/img]
[QUOTE=Mavericks;21180820]Title confuses me.[/QUOTE]
How can it possibly confuse you?
[QUOTE=Mavericks;21180820]Title confuses me.[/QUOTE]
Greece is in huge amounts of debt that is coming close to exceeding its GDP (if it hasn't already, I don't remember). sooner or later it won't be able to pay interest.
these are the kind of situations that breed fascist coup or socialist revolution
[QUOTE=Conscript;21180933]Greece is in huge amounts of debt that is coming close to exceeding its GDP (if it hasn't already, I don't remember). sooner or later it won't be able to pay interest.
these are the kind of situations that breed fascist coup or socialist revolution[/QUOTE]
Here's hoping for the latter.
My guess is that if Greece defaults or if there's some sort of coup, Spain and Portugal (and perhaps some of the Baltic blocs) will follow suit.
As much as I would like that, I kind of doubt it. The anti-government groups are scattered and nothing is really organized. the anarchists and the communists can't agree with each other. though I can't blame the communists, anarchists are fucking idiots. modern ones anyway. they act on impulse and have little plans for the future other then 'smash state, yea freedom!'
it's that kind of behavior is what breeds a failed revolution and a fascist take over. look at germany after the failed german revolution.
[editline]01:02AM[/editline]
why would the baltics, spain, or portugal follow?
Latvia, 25% unemployment and is broke... Spain and Portugal are also facing financial problems and there are have been large groups of protests in those countries. I'm hoping that Greece's default will further degrade the Euro causing an even larger support against global capitalism (IE the Euro). Maybe a domino effect will ensue.
I wish the people the best of luck. Always glad to see the common people standing up for themselves against the ruling class.
But I'm no economist so take my words with a grain of salt.
[QUOTE=Conscript;21180933]
these are the kind of situations that breed fascist coup or [b]socialist revolution[/b][/QUOTE]
Hooray for Communism!
hooray for contributing posts
i always thought greece was a nice country
This deeply upsets me as a first generation Greek American.
[editline]01:14AM[/editline]
[QUOTE=bobste;21181266]i always thought greece was a nice country[/QUOTE]
It's a beautiful country.
...On the surface.
[editline]01:17AM[/editline]
I was in Greece just this summer, and you could even then hear the anarchists having rallies in the square down the street from my grandmother's apartment. This was in the city of Pireaus, a city that is part of the Athens megapolis. If you went out to the countryside, out to the villages, you wouldn't know anything was wrong.
[QUOTE=GoldenGnome;21181270]This deeply upsets me as a first generation Greek American.
[editline]01:14AM[/editline]
It's a beautiful country.
...On the surface.
[editline]01:17AM[/editline]
I was in Greece just this summer, and you could even then hear the anarchists having rallies in the square down the street from my grandmother's apartment. This was in the city of Pireaus, a city that is part of the Athens megapolis. If you went out to the countryside, out to the villages, you wouldn't know anything was wrong.[/QUOTE]
Because nothing happens in the countryside. All of the offices, the parliament, the news sources are in the cities.
I don't get it, what caused them to have such a large debt anyway? I ain't financial savvy.
[QUOTE=lolwutdude;21181636]I don't get it, what caused them to have such a large debt anyway? I ain't financial savvy.[/QUOTE]
Too much spending by the government and now they can't pay anything back. That and credit default swaps.
Pretty much California and Greece are identical. Although Greece is further into the degradation.
[QUOTE=Wakka;21181720]Too much spending by the government and now they can't pay anything back. That and credit default swaps.
Pretty much California and Greece are identical. Although Greece is further into the degradation.[/QUOTE]
Did Goldman Sach have anything to do with it? I keep hearing that name around when they mention Greek's financial problem.
[QUOTE=lolwutdude;21181767]Did Goldman Sach have anything to do with it? I keep hearing that name around when they mention Greek's financial problem.[/QUOTE]
No. It's used symbolically as a reference point.
I'm not to familiar with what[U] exactly[/U] happened.
Regarding the riot video. I'm noticing something here that was missing on the State side "reports" on the Tea Parties. In this video there was actual proof of the violence, but on the reports of violence from the tea parties, there was none.
The reason I bring up the US tea party movement is because of the simmaler(sic) problems.
[QUOTE=Used Car Salesman;21181185]I wish the people the best of luck. Always glad to see the common people standing up for themselves against the ruling class.[/QUOTE]
you know what?
People like you make me root for fascists. As long as there are morons who support totalitarianism of any kind I will always pick the least popular to troll you.
Equilibrium - not the extreme of one or the other.
[QUOTE=Idi Amin;21181822]you know what?
People like you make me root for fascists. As long as there are morons who support totalitarianism of any kind I will always pick the least popular to troll you.
Equilibrium - not the extreme of one or the other.[/QUOTE]
That's nice.
It appears that riot shields can block bullets but not kicks to the nuts.
[QUOTE=Jund;21182426]It appears that riot shields can block bullets but not kicks to the nuts.[/QUOTE]
Apparent design flaw.
BACK TO THE DRAWING BOARDS!
[QUOTE=smurfy;21182494]Shouldn't the EU, like, fucking do something?[/QUOTE]
They are. But it's only going to slow down the digression. Waste of money in my opinion. They're just beating a dead horse.
[editline]12:33AM[/editline]
Maybe they'll pull some strings and turn the problem around. But that's highly unlikely.
[QUOTE=lolwutdude;21181636]I don't get it, what caused them to have such a large debt anyway? I ain't financial savvy.[/QUOTE]
From what I've heard its that Greek citizens never paid their taxes + rampant government spending.
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