Stavros
07-05-2015, 03:45 PM
I thought I would detach this reply to the ongoing debate on the EU Referendum with a note on Greece, prompted by the reply from Sukumvit boy below.
Yeah , fascinating stuff ! Nobel efforts born out of the realization of the waste and futility of war and the economies of scale , trying to find a foothold in a new Europe.
The situation now further complicated by Greece , which it seems to me ,lied their way into the EU and now expects to be bailed out.
Also,thanks for the fun Casablanca trivia.
The situation with Greece is either intensely complex or blatantly obvious -but the issue of lying is more related to Greece's entry into the Euro in 2001 rather than with its entry into the EU in 1981.
The criteria for membership of the Euro that were drawn up -as early as 1992- which were supposed to be applied to candidates applying for entry included the rule that a member's budget deficit not be higher than 3% of its GDP. Another rule is to show how it can reduce the deficit year on year.
When Greece applied in 2001, it claimed that its budget deficit was 1.5% whereas in fact it was around 8.3%. The sleight of hand in accounting that the Greeks produced meant that, for example, a loss making business such as the Greek railway network was not in fact shown to be losing a billion Euros a year, which it was -the network had more employees than passengers at the time- but not losing at all, as the railway company issued shares which were purchased by the government, thereby transforming a debt into a financial investment. On their part the European Central Bank and the European Commission failed to do the due diligence to obtain a more accurate profile of the Greek economy, and let's face it it was not that hard to do.
In addition, and more controversially, the Greek government was advised by Goldman Sachs to use credit swaps to hide more than $2.8 bn worth of debt by conducting the transaction of government bonds in private with a single bank, rather than offering the bonds for sale on the open market, though this did mean that the Greek government now owed Goldman Sachs $2.8bn. You can follow this in the programme in the BBC link here:
http://www.bbc.co.uk/news/world-europe-17108367
Now add in the 'investment' that the Greek government made to host the Olympic Games in 2004 at a cost of 9 billion euros -just don't ask what the financial return on this investment was (!)-, but also add in the devastating fact that with historical low interest rates in the financial markets, the Greeks allowed themselves to believe that they could borrow more than usual because of the low cost of borrowing, while the banks were happy to lend.
From this perspective, you can blame the Greek governments -both the left-wing PASOK and the right-wing New Democracy parties, for racking up more debt than they could repay, but also ask yourself who lent them the money in the first place? The irony, perhaps the bitter irony of Greece's economy, is that agriculture composes 3.5% of the economy, industry, including shipping and tourism composes 16%, while 80% is made up of services, of which the largest proportion is...yes, you guessed it, banking. The largest companies in Greece are Piraeus Bank, Alpha Bank, the National Bank of Greece, Hellenic Telecoms, Motor Oil, Public Power and Hellenic Petroleum. Something like 22% of the workforce are state employees, but if you then consider that in Sweden it is over 33% you might begin to realise that whatever Greece is good at financial management is not it. Apart from the fabulous nonsense of the Olympic Games, the arms manufacturers of the USA went smiling to the bank as Greece spent a substantial amount of its crisp new Euros on its military, the one that can't stop thousands of migrants from North Africa landing on its islands (now there is a clash of aspirations if ever there was one, to flee from civil war to economic chaos!).
The current situation is that today, Sunday July 5th, the Greeks are voting in a referendum on a ballot question that related to a financial package that has since been superseded, so that in policy terms it is irrelevant, whereas voting in favour of the package on the ballot form is assumed to be a vote to remain in the Euro, whereas a vote No is a vote of defiance.
The logical outcomes of this mess are:
a) Greece is forced out of the Euro zone, and the EU; or
b) Greece is forced out of the Eurozone but not the EU, ie it re-establishes its own curency and behaves like the UK which is also not part of the Eurozone (neither is Denmark);
c) Greece re-negotiates another package which includes the total cancellation of its outstanding debt, the re-capitalisation of its banks, but severe cuts to its state budget including pensions resulting in a shrinkage of the state sector by at least 50% and no prospects of economic growth for ten years.
In other words, Greece will have the basic cash to carry on without descending into civil war, but unless it finds substantial barrels of oil or fields of gold and diamonds, it will have to rely for its income on shipping, and tourism on the assumption that Greece will be the cheapest holiday destination in Europe, if not the happiest. The phrase 'We've been kebabbed' seems cruelly appropriate in this instance.
One alternative is that the Chinese, who have invested huge sums into the port of Piraeus in order to bring it yp to the scale of Rotterdam and Hamburg, could be persuaded to invest even more -they are more cash rich than the Russians and may relish the opportunity to deepen their investments in the EU. A longer term prospect is that if Greece remains in the EU and the Transatlantic Trade and Investment Partnership (TTIP) with the USA is concluded, the US can invest in Greece at favourable terms, can you resist it America?
Spare a thought for countries like Latvia and Estonia, poorer even than Greece, who will lose out if the debt is cancelled.
But ask yourself what would happen if, to take a wild example, California were to go bankrupt owing billions. Would it be forced out of the Dollar or the USA?
The moral of this story is so tired it ought not to be told, but is simply: Politicians lie all the time, so don't believe them! And, Don't borrow more money than you will ever be able to pay back.
It's when governments and institutions ignore the basic rules that the rules get broken and systems buckle and break in return.
Yeah , fascinating stuff ! Nobel efforts born out of the realization of the waste and futility of war and the economies of scale , trying to find a foothold in a new Europe.
The situation now further complicated by Greece , which it seems to me ,lied their way into the EU and now expects to be bailed out.
Also,thanks for the fun Casablanca trivia.
The situation with Greece is either intensely complex or blatantly obvious -but the issue of lying is more related to Greece's entry into the Euro in 2001 rather than with its entry into the EU in 1981.
The criteria for membership of the Euro that were drawn up -as early as 1992- which were supposed to be applied to candidates applying for entry included the rule that a member's budget deficit not be higher than 3% of its GDP. Another rule is to show how it can reduce the deficit year on year.
When Greece applied in 2001, it claimed that its budget deficit was 1.5% whereas in fact it was around 8.3%. The sleight of hand in accounting that the Greeks produced meant that, for example, a loss making business such as the Greek railway network was not in fact shown to be losing a billion Euros a year, which it was -the network had more employees than passengers at the time- but not losing at all, as the railway company issued shares which were purchased by the government, thereby transforming a debt into a financial investment. On their part the European Central Bank and the European Commission failed to do the due diligence to obtain a more accurate profile of the Greek economy, and let's face it it was not that hard to do.
In addition, and more controversially, the Greek government was advised by Goldman Sachs to use credit swaps to hide more than $2.8 bn worth of debt by conducting the transaction of government bonds in private with a single bank, rather than offering the bonds for sale on the open market, though this did mean that the Greek government now owed Goldman Sachs $2.8bn. You can follow this in the programme in the BBC link here:
http://www.bbc.co.uk/news/world-europe-17108367
Now add in the 'investment' that the Greek government made to host the Olympic Games in 2004 at a cost of 9 billion euros -just don't ask what the financial return on this investment was (!)-, but also add in the devastating fact that with historical low interest rates in the financial markets, the Greeks allowed themselves to believe that they could borrow more than usual because of the low cost of borrowing, while the banks were happy to lend.
From this perspective, you can blame the Greek governments -both the left-wing PASOK and the right-wing New Democracy parties, for racking up more debt than they could repay, but also ask yourself who lent them the money in the first place? The irony, perhaps the bitter irony of Greece's economy, is that agriculture composes 3.5% of the economy, industry, including shipping and tourism composes 16%, while 80% is made up of services, of which the largest proportion is...yes, you guessed it, banking. The largest companies in Greece are Piraeus Bank, Alpha Bank, the National Bank of Greece, Hellenic Telecoms, Motor Oil, Public Power and Hellenic Petroleum. Something like 22% of the workforce are state employees, but if you then consider that in Sweden it is over 33% you might begin to realise that whatever Greece is good at financial management is not it. Apart from the fabulous nonsense of the Olympic Games, the arms manufacturers of the USA went smiling to the bank as Greece spent a substantial amount of its crisp new Euros on its military, the one that can't stop thousands of migrants from North Africa landing on its islands (now there is a clash of aspirations if ever there was one, to flee from civil war to economic chaos!).
The current situation is that today, Sunday July 5th, the Greeks are voting in a referendum on a ballot question that related to a financial package that has since been superseded, so that in policy terms it is irrelevant, whereas voting in favour of the package on the ballot form is assumed to be a vote to remain in the Euro, whereas a vote No is a vote of defiance.
The logical outcomes of this mess are:
a) Greece is forced out of the Euro zone, and the EU; or
b) Greece is forced out of the Eurozone but not the EU, ie it re-establishes its own curency and behaves like the UK which is also not part of the Eurozone (neither is Denmark);
c) Greece re-negotiates another package which includes the total cancellation of its outstanding debt, the re-capitalisation of its banks, but severe cuts to its state budget including pensions resulting in a shrinkage of the state sector by at least 50% and no prospects of economic growth for ten years.
In other words, Greece will have the basic cash to carry on without descending into civil war, but unless it finds substantial barrels of oil or fields of gold and diamonds, it will have to rely for its income on shipping, and tourism on the assumption that Greece will be the cheapest holiday destination in Europe, if not the happiest. The phrase 'We've been kebabbed' seems cruelly appropriate in this instance.
One alternative is that the Chinese, who have invested huge sums into the port of Piraeus in order to bring it yp to the scale of Rotterdam and Hamburg, could be persuaded to invest even more -they are more cash rich than the Russians and may relish the opportunity to deepen their investments in the EU. A longer term prospect is that if Greece remains in the EU and the Transatlantic Trade and Investment Partnership (TTIP) with the USA is concluded, the US can invest in Greece at favourable terms, can you resist it America?
Spare a thought for countries like Latvia and Estonia, poorer even than Greece, who will lose out if the debt is cancelled.
But ask yourself what would happen if, to take a wild example, California were to go bankrupt owing billions. Would it be forced out of the Dollar or the USA?
The moral of this story is so tired it ought not to be told, but is simply: Politicians lie all the time, so don't believe them! And, Don't borrow more money than you will ever be able to pay back.
It's when governments and institutions ignore the basic rules that the rules get broken and systems buckle and break in return.