Thursday, February 11, 2010

What's wrong with the Greek economy?

What's wrong with the Greek economy?  "Creative" (=dishonest) accounting + Tax avoidance are discussed below, but there are other factors that may assist recovery.

This below is distilled from a report on Der Speigel here.
There is an update - "What to do about the Greek economy" - here.

Goldman Sachs helped Greece hide the huge hole in their financial trousers with the help of a derivatives deal that legally circumvented the EU Maastricht deficit rules. They got so-called cross-currency swaps in which government debt issued in dollars and yen was swapped for euro debt for a certain period -- to be exchanged back into the original currencies at a later date. It was a special kind of swap with fictional exchange rates.The bond maturities range between 10 and 15 years. Goldman Sachs charged a hefty commission for the deal and sold the swaps on to a Greek bank in 2005. So we will get another day of reckoning in 2015-2020. Lovely. Will the sums get multiplied in the CDS machine?

Greece only adhered to the three percent deficit ceiling with the help of blatant balance sheet cosmetics. One time, gigantic military expenditures were left out, and another time billions in hospital debt. Under Maastricht rules, the deficit has to be kept below 3%. In truth, the deficit each year has been far greater than the three percent limit. In 2009, it exploded to over 12 percent.

Not in the Der Speigel article are the reports that tax avoidance is a Greek national pastime. Over here, it is conservatives who hate tax and like to avoid it. I wonder if it is the same group over there. 

So Greek people and Greek Government are to blame for the fiasco. But like the banks, Greece is too big to fail. So the EU and IMF have bailed them out. Next problem - will the speculators bring the Euro down, or will the EU follow Stiglitz' advice and take the battle to the speculators? John Major lost us £19 billion trying to do that. It made him go to the lavvie when he lost.

But the EU is too big to fail. Isn't it?

[update 11th April]
The present litany of financial Greek woe, harvested from the Economist:
Greece is raising money by selling bonds, but at a very high 7% yield, that will cost the Greek Government. The cost of insuring Greek bonds is higher than Icelandic bonds - a sign that it is seen as more risky.

The IMF is ready with a $16 billion bailout.
The Greek Government has 13 billion Euros in cash that can take see it through this month.
It s going to need another 10-12 billion Euros to get through May, then another 25 billion Euros to see it through the rest of 2010.
In March, Greece did a bond sale, and only got   4/10ths of what it hoped for.
It is seeking $5-10 bn in the USA.
Greek public debt will be 150% of GDP (compare to Japan at 190%).

Not good. The speculators are circling like predators, looking for the weak specimens in the herd. One at a time, they can pick them off - Greece, Portugal, Spain. Note that all of these are countries recovering from dictatorship. One factor may be that Government (and therefore taxation) is held in low esteem after a dictatorship.

People worry that it will be the UK's turn to be roasted by the market sharks next.  However, our debts are lower and longer term than Greece.

The only thing to restrain the speculators is the thought that if the whole world economy collapses, there will be nothing for them to eat.

In all this hugely complex, mind-boggling system of smoke-and-mirrors economics, there is one simple thing to remember: Money is created by making loans at interest. That is why the global financial system is riddled with debt. Only 4 countries have no debt. And the debt is owned not to other countries, but to banks,

Remember that food will get you through times of no money better than money will get you through times of no food. In other words, real economics is based on ecology, making a sustainable living from the biosphere. We live in a system of false economics founded on money. Money is a useful tool, but not a reliable object of worship, especially when it is produced by making interest-bearing loans.

Now go to What to do about the Greek economy?
Also: Excellent in-depth analysis by a Greek 


Phil said...


Weggis said...

Agreed. USSR!

Anonymous said...

Reminds me of the old story. Mother monkey and her baby.

DocRichard said...

Hi Santoch
Good story. The whole world is in debt. All countries bar 4 are in debt, to banks and lenders, because lending by banks is how money is created.
Greece is in trouble, because its debt is so huge. If Greece drowns, who is next? Iceland? Portugal? The UK? What happens to the country that is picked off? Reduction to Third World status?

Currency speculators are like predators, circling the herd, looking for the weakest. Best if the herd combines its strength and attacks the speculators.

One aspect of debt is that it is owed from this generation to the next. We are asking our children to pick up the tab for our comforts. Not just financial debt, but also real ecological debt - we are bequeathing to them a warmer, less biodiverse world. What can we do to ameliorate this debt? We can plant diverse forests for them, and give them a foundation of a big renewable energy infrastructure.

Anonymous said...

Interesting article about the PIGS and Sindenafil, in our economy we need more rules, and we can't spend more that we real get. By the way, you've enough talent to written.

buy kamagra said...
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Anonymous said...

The whole text above its true,im greek and i can say its true except that tax avoidance..
You see,greek plain people pay their taxes otherwise..big problems they have with the IRS.
The majority of the Great money making companies avoid their taxes and they find their ways to avoid irc by bribing or from the politicians...

As about the world news for greece and its economic disaster..I think its going to get more worse because greece stands between major financial companies that makes money by digging that country deeper and deeper..

What to say...i aint an economics analizer,time shall tell us the end of the story whatever that might be and what-who caused it

DocRichard said...

It looks increasingly as if the answer to the problem lies in compelling the ultra-rich to pay more. It's in their own interest, because they cannot make a profit when the entire nation is in chaos and poverty.