If you have the time, I highly recommend Mark Blyth's explanation of the EU situation. The article is mostly right. Blyth goes into a lot more detail in the history (pre-euro), showing how the various banks of europe bet against their own sovereigns by exploiting how the bond yields were converging with the introduction of the Euro - often by getting all the Greek and other "risky", high-yield debt that they could.
If you thought "too big to fail" was bad enough in the US, at least our Fed could do something other than let the economy fail and now were starting to slowly recover. In Europe, they are "too big to bail", and I expect a few more countries to quickly follow Greece's lead fairly soon.
I'm really sick of the people who come onto this forum (not talking about you, look elsewhere in these threads) and castigate the Greeks for being deadbeats. If they keep repeating this narrative when people have pointed out again and again that the €zone has structural flaws then there is no point in reasoning any more with them and you have to ignore them because they only hear the little voices in their heads.
You can't lay it out much clearer than Yanis Varoufakis does here -- "The euro is a hybrid of a fixed exchange-rate regime, like the 1980s ERM, or the 1930s gold standard, and a state currency. The former relies on the fear of expulsion to hold together, while state money involves mechanisms for recycling surpluses between member states (for instance, a federal budget, common bonds). The eurozone falls between these stools – it is more than an exchange-rate regime and less than a state."
When you get an unequal club, guess what! someone is going to be the weakest link. It is _inevitable_. If it wasn't Greece, it would have been someone else. Ok, you could make the argument that Greece was particularly lax in how it handled its own finances as part of the club but that (1) does not mean they should be punished with nearly a decade of unremitting poverty (2) not all the Greeks did this so it is _collective_ punishment (3) the €zone needs structural[§] adjustment and (4) we shouldn't keep socialising private debt, there _should_ be some risk to merit the interest charged.
We really need to start listening to what the Greeks are telling us. If the €zone starts unravelling things could get very nasty very quickly. I'm not joking.
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[§] Yanis Varoufakis even touches on this, again explicitly -- "Europe did not know how to respond to the financial crisis. Should it prepare for an expulsion (Grexit) or a federation?"
These were all concerns brought up well before the Euro was even instituted, much less expanded to semi-broke nations like Greece. The EU doesn't seem particularly interested in admitting that there are massive differences culturally and fiscally between the countries and that these differences mean that a unified currency with no monetary flexibility is doomed to fail.
EUR crushing USD early in its lifecycle after naysayers shouted down EUR didn't help things.
Second, they have been extremely compliant for 5 years with dire consequences in a failed "recipe" that even the IMF and German economists agree has been punitive and ill designed.
It was their campaign promise and they kept it.
http://www.nytimes.com/2015/01/31/business/international/gre...
What they asked for was a new program -- the one which has been the focus of negotiations for months, and that would entail new auditors and checks.
I wasn't expecting a deal, and lo - it seems a deal will not happen.
Greece could offer to sell its people into slavery, and it seems that still wouldn't be enough for certain elements in the European nomenklatura.
So Grexit it is.
If anyone is crazy, mad, and delusional, it's the German establishment. Schauble would rather rob his banks of any timetable for repayment than deal with financial reality like a rational adult.
The solution for this is to extend a politician's salary for say 10 years after, and forbid them from accepting any money from any company for those 10 years. They can work for those companies for free if they want. They cannot get a cosy job after they've shown "good behavior" in their political career. The cost of this is a drop in the ocean compared to the perverse incentives this will remove. Say what you want about Dijsselbloem, but this is one thing that he gets right. https://translate.google.com/translate?sl=auto&tl=en&js=y&pr...
Initially, European banks had the largest holdings of Greek debt. However, this has shifted as the "troika" (i.e., European Central Bank or ECB, International Monetary Fund or IMF, and a European government-sponsored fund) have purchased Greek bonds. (...) Excluding Greek banks, European banks had €45.8bn exposure to Greece in June 2011, with €9.4bn held by French and €7.9bn by German banks. However, by early 2015 their holdings were minimal, roughly €2.4B.
https://en.wikipedia.org/wiki/Greek_government-debt_crisis#C...
330,000,000 (2015 numbers)
Fiscal transfer: €45.8B-€2.4B = €43.4B (your numbers :)
43.4B / 330M = €131.5 from each man, woman, child in the €zone.
Merkel is risking her legacy over this, and Schäuble's legacy in Europe is basically sealed - barring something truly crazy happening, he'll be remembered for this, and just this, outside of Germany.
And in the end the outcome - no matter what they do - is that Greece will not pay all its debts. Everyone knows this. The IMF have gone historically far in expressing public dissatisfaction with the Euro group and the ECB over their unwillingness to accept this.
Yet they appear to insist on sticking with the alternative that will cause the most pain and uncertainty for everyone involved just because further debt relief doesn't fit their ideology, knowing that the end result either way is that the money won't - can't - be paid back on the current schedule or in full.
We are far away from the climate pre WWI/WWII, but that is the direction we have chosen. Let's hope the next round of politicians are able to take a broader view, and that the current situation is reversible.
It's the "too big too fail" scenario, this time with the Eurozone playing the part of the federal government. Greece plays the role of the people getting mortgages that couldn't afford to repay post bubble.
The punishment of Greece (and other countries in turn, including France) will be used to clamp down on the German population in the end and keep them accepting of austerity and neo-liberal measures of their own.
It is a little bit if your wife threatens you with divorce and you say: OK, let's do it.
Your assumption appears to be that what they could hope for was a reasonable deal. But the way Schäuble has acted, it is by now clear that a reasonable deal is unlikely to be possible. For Germany this is all about ideology, not about economic rationality (amusing they accuse Tsipiras of being too ideological).
In that instance, what could they hope for? Their winning scenario is to demonstrate to their own constituency that they've tried everything. They've stretched extremely far. They've demonstrated to their home audience how Germany wants to humiliate them rather than get a fair deal.
They've further managed to create substantial cracks in the Euro group facade, with France in particular now openly having taken their side.
If they exit, then it is clear the Euro must be reformed if it is to survive.
They may in the end have permanently tarnished Merkel's and Schäuble's political legacies. Justifiably so.
Would any of this have happened if they had played ball and agreed to a toxic, unsustainable deal? The previous Greek government played ball, and what they got was a death sentence for the Greek economy. Playing ball with these opponents is a bad idea, since they seem intent of kicking in your knees first.
> It is a little bit if your wife threatens you with divorce and you say: OK, let's do it.
If you're told that to stay you will need to subject to daily beatings, then divorce is the right choice.
It was tired and strenuous, when it was published, but now it literally makes no sense. Sure he did Game Theory research, but LIFE != GAME. He said it so himself.
I haven't read a single unified explanation using game theory, that accounts for everything Greece government did during negotiations.
It's the Epileptic Trees[1] of the Politics.
[1] Epileptic Trees was one of explanations to why trees in Lost were shaking violently.
I agree part of this bailout has already taken place. The second phase is ensuring life in Greece is so bad that other larger countries don't want to default.
Maybe the spectacular punishment of Greece will teach them a lesson and convince them to reduce their public debt. Or maybe nothing can convince politicians to worry about the medium-long term.
There's a major problem unravelling. A large amount of the population live a lot longer than were expected ~90 years ago when the current welfare state system became widespread across Europe.
How do you pay pensions in the current economic climate to people that have been retired for 25+ years, who were expected to largely die 25 years ago?
In the Greece situation, how do you do this when a large amount of the populace actively avoid paying their fair share of tax? How do you do it when nearly 30%[1] of GDP is exports based around imports and your accounts are frozen and you can't pay suppliers?
It's an economic situation that hasn't be witnessed before. All this is before you throw Germany into the mix, who have a _lot_ riding on how this all plays out.
The world economic situation is in a very interesting place at the moment - Greece is only the tip of the iceberg. Look at Puerto Rico, look at China, hell look at the UK and how it's economy is currently stacked. Suddenly, overnight, the government won't support "free" TV licences for people aged 75+! The global economic situation at the moment is very interesting.
Maybe it was too close geographically to the big players and that's how it avoided being made the first example :-)
BTW, besides people in developed countries living longer we also have the problem of fewer children in each new generation. Not even immigration can balance the low birth rate in Italy, for example.
Right now we have only one third of the population working and supporting the other two thirds and the percentage of active people keeps on shrinking. When will it become unsustainable? What will the Italian government do then?
> The global economic situation at the moment is very interesting.
Way too interesting for my taste. And the sea level rise will make it even more so. I'd rather read about stuff like this in dystopian novels instead of living it...
I consider it an infinitely smaller problem than people dying. The new old are healthier to boot!
Many of them can work if needed.
This theory would indeed explain many things.